Assignment on

Risk Management Process

Of

Submitted By

Ali Usman BC15-228

Section (C) Morning
Submitted to

Prof. Nisar Ahmed

Contents
Sr Details Page
No. No.
1 Risk Management for Askari Bank Limited 1
2 Risk Management Process for Bank 1
3  Step 1 Identify the Risk 1
4 Different Types of Banking Risks 2-4
5  Step 2 Analyze & Measure the Risk 5
6  Step 3 Evaluate or Rank the Risks 6
7  Step 4 Treat the Risk 7
8  Step 5 Monitor & Review the Risk 8
9 Risk Management for Home 9
10 Risk Management process for Home 10-13
Risk Management
is the identification,
assessment, and
prioritization of risks
followed by coordinated
and economical
application of resources to
minimize, monitor, and
control the probability or
impact of unfortunate
events or to maximize the
realization of opportunities. Risk management’s objective is to
assure uncertainty does not deflect the endeavor from the business goals.
According to the definition to the risk, the risk is the possibility that an
event will occur and adversely affect the achievement of an objective.
Therefore, risk itself has the uncertainty. Risk management can help
managers have a good control for their risk. Each company may have
different internal control components, which leads to different outcomes.
For example, the framework for ERM components includes Internal
Environment, Objective Setting, Event Identification, Risk Assessment,
Risk Response, Control Activities, Information and Communication, and
Monitoring.

Risk management process

 Step 1: Identify the Risk. ...
 Step 2: Analyze the risk. ...
 Step 3: Evaluate or Rank the Risk. ...
 Step 4: Treat the Risk. ...
 Step 5: Monitor and Review the risk.

Step 1: Identify the Risk.

In their operations banks are particularly exposed to or may potentially
be exposed to the following risks: liquidity risk, credit risk (including
residual risk, dilution risk, settlement/ delivery risk, and counterparty

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risk); interest rate risk; foreign exchange risk and other market risks;
concentration risk, particularly including risks of exp osure of the bank
to one person or a group of related persons; bank’s investment risks;
risks relating to the country of origin of the entity to which a bank is
exposed (country risk); operational risk particularly including legal risk;
risk of compliance of the bank’s operations; risk of money laundering
and terrorist financing; and strategic risk.

Liquidity risk
Is the risk of potential occurrence of adverse effects on the bank’s financial result
and capital due to the bank’s inability to meet the due liabilities caused by the
withdrawal of the current sources of funding, that is, the inability to raise new
funds (funding liquidity risk), aggravated conversion of property into liquid assets
due to market disruption (market liquidity risk).
Credit risk
Is the risk of potential occurrence of adverse effects on the bank’s financial result
and capital due to debtor’s default to meet its obligations to the bank.
Residual risk
Is the possibility of occurrence of adverse effects on the bank’s financial result
and capital due to the fact that credit risk mitigation techniques are less efficient
than expected or their application does not have sufficient influence on the
mitigation of risks to which the bank is exposed;
Dilution risk
Is the possibility of occurrence of adverse effects on the bank’s financial result
and capital due to the reduced value of purchased receivables as a result of cash
or non-cash liabilities of the former creditor to the borrower;
Settlement/Delivery risk
Is the possibility of occurrence of adverse effects on the bank’s financial result
and capital arising from unsettled transactions or counterparty’s failure to deliver
in free delivery transactions on the due delivery date;
Counterparty credit risk
Is the possibility of occurrence of adverse effects on the bank’s financial result
and capital arising from counterparty’s failure to settle their liabilities in a
transaction before final settlement of transaction cash flows, or, settlement of
monetary liabilities in the transaction in question;

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Market risks
Entail foreign exchange risk, price risk on debt securities, price risk on equity
securities, and commodity risk;

Interest rate risk

Is the risk of possible occurrence of adverse effects on the bank’s financial result
and capital on account of banking book items caused by changes in interest
rates;
Foreign exchange risk
Is the risk of possible occurrence of adverse effects on the bank’s financial result
and capital on account of changes in foreign exchange rates;
Concentration risk
Is the risk which arises directly or indirectly from the bank’s exposure to the
same or similar source of risk, or, same or similar type of risk;
Bank exposure risks
Comprise risks of bank’s exposure towards a single person or a group of related
persons.
Bank’s investment risks
Comprise risks of its investments into non-financial sector entities and in fixed
assets and investment property.
Country risk
Is a risk relating to the country of origin of the person to which the bank is
exposed, that is, the risk of negative effects on the bank’s financial result and
capital due to the bank’s inability to collect receivables from such person for
reasons arising from political, economic or social circumstances in such person’s
country of origin.
Operational risk
Is the risk of possible adverse effects on the bank’s financial result and capital
caused by omissions (unintentional and intentional) in employees’ work,
inadequate internal procedures and processes, inadequate management of
information and other systems, as well as by unforeseeable external events.
Operational risk also includes legal risk.

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Legal risk
Is the risk of loss caused by penalties and sanctions originating from court
disputes due to breach of contractual and legal obligations, and penalties and
sanctions pronounced by a regulatory body.

Risk of compliance of the bank’s operations

Is the possibility of occurrence of adverse effects on the bank’s financial result
and capital as a consequence of failure to comply its operations with the law and
other regulations, standards of operations, anti-money laundering and
counterterrorist financing procedures, and other procedures as well as other acts
governing the bank’s operations, particularly encompassing the risk of sanctions
by the regulatory authority, risk of financial losses and reputational risk.
Reputational risk
Relates to the possibility of the occurrence of losses due to adverse effects on the
bank’s market positioning
Strategic Risk
The possibility of occurrence of adverse effects on the bank’s financial result and
capital due to the absence of appropriate policies and strategies, their
inadequate implementation, as well as changes in the environment where the
bank operates or absence of appropriate response of a bank to those changes.

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Step2: Analyze and measure the risk
Must be recognized that all risk elements are not equal in terms of frequency
(how often a loss will occur) and severity (how serious the loss is). Since scarce
resources cannot be devoted to address all risks equally, it is necessary to rank
or prioritize your risks into categories that can be dealt with based on the degree
of threat that is posed to the school board

 Low – There is an identifiable risk of a loss occurring, but it is either

unlikely to occur or would not cause serious injury/damage. Some
characteristics of low risk factors include, but are not limited to: sedentary
classroom activities, low-impact exercises, walking, computer studies,
reading activities, etc.

 Medium – There is a known risk

associated with the activity that may
cause a loss to occur, but you can take
steps to remove or reduce the risk. Some
characteristics of medium risk factors
include, but are not limited to: physical
contact sports, commercial transportation,
water transportation, downhill sports (ski,
toboggan, tubing, etc.), water activities
(swimming, sailing, canoeing, etc.),
physical education programs, etc.

 High – The nature of the activity or the presence of obvious hazards

results in a High probability of a loss occurring with catastrophic results
(high severity); it is foreseeable that a loss will occur, and/or you have no
control over the risks that are present. Some characteristics of high risk
factors include, but are not limited to: fall heights exceeding 8 feet; severe
weather conditions, high speeds, uncontrolled/free falls or jumps, strong
water currents or tidal effects, inexperienced or unqualified supervisors
and/or participants, students driving vehicles, etc.

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Step 3: Evaluate or Rank the Risk
Loss Exposure Frequency Severity Techniques of Risk
Management
Liquidity Risk Medium Low Loss Prevention and
retention
Residual Risk Medium Medium Loss Prevention and
retention
Credit Risk High High Avoidance
Dilution Risk Low Medium Transfer
Delivery Risk Low low Retention
Property Risk Low High Transfer
Liability Risk high Medium Avoidance
Operational Risk High Medium Loss Prevention and
retention
Country Risk Medium High Avoidance
Investment Risk High High Avoidance
Foreign Exchange Medium Low Avoidance
Risk
Market Risk High Low Loss Prevention and
retention
Interest Rate Risk High Medium Loss Prevention and
retention
Concentration Risk High Medium Transfer
Bank Exposure Risk Medium High Avoidance
Reputational Risk High Medium Avoidance
Strategic Risk Medium Low Loss Prevention and
retention
Catastrophic Risk Low Medium Transfer
Employee Benefit Medium Low Loss Prevention and
Exposure Loss retention
Human resource High Low Loss Prevention and
loss Exposure retention

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Step 4: Treat the Risk
Different types of risks are treated in different ways. Some risks are those that
cannot be treated in a good manner so avoidance is the best strategy to control
this. However; following are the different ways to mitigate the risks:

 Risk control is the best method of managing risk and usually

the least expensive. Risk control involves avoiding the risk
entirely or mitigating the risk by lowering the probability and
magnitude of losses. Many risks cannot be avoided, but
almost all risks can be mitigated through the use of loss
control. Nonetheless, even losses from mitigated risks can be
expensive, so both people and businesses usually transfer
some of that risk to 3r d parties.

 Risk avoidance is the elimination of risk. You can avoid the

risk of a loss in the stock market by not buying or shorting
stocks; Many manufacturers avoid legal risks by not
manufacturing particular products.

 Loss control (risk reduction) can either be effected

through loss prevention, by reducing the probability of risk,
or loss reduction, by minimizing the loss.

 Risk retention, (active retention, risk assumption), is

handling the unavoidable or un avoided risk internally, either
because insurance cannot be purchased or it is too expensive
for the risk, or because it is much more cost-effective to handle
the risk internally. Usually, retained risks occur with greater
frequency, but have a lower severity. An insurance deductible
is a common example of risk retention to save money, since a
deductible is a limited risk that can save money on insurance
premiums for larger risks.

The behavioral approach recognizes that many losses are incurred because of
human error or lack of training, so workers are trained to follow procedures that
will lower the probability of losses or the magnitude of those losses. Monitoring
the workers to ensure that they are practicing safety is another effective means
of loss control.

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Step 5: Monitor and Review the risk
A risk assessment must be kept under review in order to:

 Ensure that agreed safe working practices continue to be applied (e.g. that
management's safety instructions are respected by supervisors and line
managers); and
 take account of any new working practices, new machinery or more
demanding work targets.
 To cooperate with different departments like accounting, finance,
marketing, production, human resource.
 So it makes sense to review what you are doing on an ongoing basis, look
at your risk assessment again and ask yourself: Have there been any
significant changes? Are there improvements you still need to make?
Have your workers spotted a problem? Have you learnt anything from
accidents or near misses?

To be effective, the risk management program must be periodically reviewed and

evaluated to determine whether the objectives are being attained or if corrective
actions are needed. In short, risk management programs, safety programs, and
loss prevention programs must be carefully monitored. Loss records must also be
examining to detect any changes in frequency and severity.

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Risk Management for
Home

9
 Risk management process
Together these 5 risk management process steps combine to
deliver a simple and effective risk management process.
 Step 1: Identify the Risk. ...
 Step 2: Measures & Analyze the risk. ...
 Step 3: Evaluate or Rank the Risk. ...
 Step 4: Treat the Risk. ...
 Step 5: Monitor and Review the risk.

Identify the
risk

Monitor & Analyze the

review the risk risk
Process

Treat the risk Rank the risk

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Identify the Risk.
 Leaving the door open at night is risk against thieving or
stealing the things.
 Placing the vegetables and other eatables for long time out of
refrigerator can make them stale.
 Touching the curtain to AC switch is dangerous and can create
short circuit.
 Letting the gas, iron or candle on after use can cause the fire.
 Allowing the electrical appliances (oven, toaster, sandwich
maker etc.) plugged can be a reason for short circuit.
 Keeping the knives, peeler and scissors in front of children is
dangerous to body.
 Leaving the precious things like gold etc. unlocked can be stolen
or lost.
 Putting medicines at the places in reach of children is
dangerous.
 Parking the car in front of gate or at wrong place can damage it.
 Keeping the buckets full of water can cause the dengue which is
dangerous to health.
 Leaving the floor wet around bathroom is the source of slipping.
 Keeping the stairs open without door is cause the falling of
children down.
 Having the open garbage cans can cause scattering the smelled
dirtiness at environment.

Evaluate or Rank the Risk
Loss Frequency severity Technique
exposures
Theft & low high Transfer
robbery
Earth quick Low high Transfer
Flood low high Transfer
Fire low high Transfer

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Treat the Risk
Different types of risks are treated in different ways. Some risks are those that
cannot be treated in a good manner so avoidance is the best strategy to control
this. However; following are the different ways to mitigate the risks:

1). Risk control is the best method of managing risk and usually
the least expensive. Risk control involves avoiding the risk entirely or
mitigating the risk by lowering the probability and magnitude of
losses. Many risks cannot be avoided, but almost all risks can be
mitigated through the use of loss control. Nonetheless, even losses
from mitigated risks can be expensive, so both people and
businesses usually transfer some of that risk to 3r d parties.

a) Risk avoidance is the elimination of risk. You can avoid

the risk of a loss in the stock market by not buying or shorting
stocks; Many manufacturers avoid legal risks by not
manufacturing particular products.

b) loss prevention, by reducing the probability of risk,

or loss reduction, by minimizing the loss

c) Loss control (risk reduction) can either be effected

through

2). Risk Financing: It refers to techniques that provide for

the payment of losses after they occur.

a) Risk retention, (active retention, risk

assumption), is handling the unavoidable or un avoided
risk internally, either because insurance cannot be
purchased or it is too expensive for the risk, or because it is
much more cost-effective to handle the risk internally.
Usually, retained risks occur with greater frequency, but
have a lower severity. An insurance deductible is a common
example of risk retention to save money, since a deductible
is a limited risk that can save money on insurance premiums
for larger risks.

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 The behavioral approach recognizes that many losses are incurred because of
human error or lack of training, so workers are trained to follow procedures that
will lower the probability of losses or the magnitude of those losses. Monitoring
the workers to ensure that they are practicing safety is another effective means
of loss control

Monitor and Review the risk

A risk assessment must be kept under review in order to:

 Ensure that agreed safe working practices continue to be applied (e.g. that
management's safety instructions are respected by supervisors and line
managers); and

 take account of any new working practices, new machinery or more demanding
work targets.

 To cooperate with different departments like accounting, finance, marketing,

production, human resource.

 So it makes sense to review what you are doing on an ongoing basis, look at
your risk assessment again and ask yourself: Have there been any significant
changes? Are there improvements you still need to make? Have your workers
spotted a problem? Have you learnt anything from accidents or near misses?

To be effective, the risk management program must be periodically reviewed and

evaluated to determine whether the objectives are being attained or if corrective
actions are needed. In short, risk management programs, safety programs, and
loss prevention programs must be carefully monitored. Loss records must also be
examines to detect any changes in frequency and severity.

Make sure risk Assessment should be updated!

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