Risks and Risk

Mitigants

BY
Wairindi Daniel

02/02/21 Wairindi Daniel 1

 What is Risk?
 "Risk comes from not knowing what you're doing." ~ Warren
Buffet
 There is nobody on this planet who has not taken a single risk
in his or her life. Each and every person journeys through life
taking some risk or the other.
 All that varies from person to person is the degree and
amount of risk that is taken. For example, an unwell person
not taking medicine is at a different risk as compared to a
multinational company investing millions of dollars in a new
line of business

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 Business Risks

How much of a risk are you willing to take?

Going out on a limb.

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Business Risks Terms
 Risk
– The possibility of a financial loss.
 Risk management
– The process of managing a business’
exposure to risk in order to achieve
business objectives.
 Business risk
– The possibility of business failure or loss.
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Types of Risks
 Speculative risk
– Risking loss to make a profit.
– Possibility of seeing a loss, no change, or
actually making profit
– Examples include
• buying new machinery
• constructing new buildings
 Pure risk
– The possibility of loss to a business without any
possibility of gain
• Economic risks
• Natural risks
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 Economic Risks
Risks that result from changes in overall
business conditions. Examples of economic
risks include:
 Competition – More businesses that would
compete with your business opening in the
area.
 Changing consumer lifestyles – The lifestyle
of the consumers in your area changes due to
new industry opening or closing, new
businesses, etc.

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Economic Risks continued

 Population changes – Potential customers

– moving out due to economic downfall
– or moving in due to new economic opportunities
 Limited usefulness of products - new
products introduced replace your products
or the needs of customers change
 Inflation – the availability of cash to
customers will reflect in the buying patterns.

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Economic Risks continued

 Product obsolescence – products you

offer to the public is not longer needed or
out-of-date.
 Government regulation – new regulations
can change the status of your products.
Products can be recalled because of safety
measures such as baby products or
medicines.
 Recession – Just as with inflation the
availability of cash affect customer
purchases.
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 Natural Risks
Risks resulting from natural causes.
Examples include:
 Floods
 Earthquakes
 Tornadoes
 Hurricanes
 Fires
 Lightening
 Droughts
 Unexpected changes in normal weather
conditions
 Landslides, Mudslides & volcanic eruptions
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 Human Risks
Risks caused by human errors as well as
the unpredictability of customers,
employees, or the work environment.
 Shoplifting
 Employee theft
 Burglary
 Robbery
 Computer crime
 Stolen credit cards and bad checks
 Accidents and injury
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 Managing Business Risks

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Risk Management
 Risk management is something that is
applicable to one and all, regardless of
whether you happen to be a
businessman, an entrepreneur, a
freelancer, a self-employed individual or
a 9 to 5 working employee.
 For corporate biggies, a properly
designed risk management process can
often prove to be a life-saver.
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What is a Risk Management
Process?
 The concept behind a risk
management process is
extremely simple. It is the
process of anticipating and
analyzing risks and coming
up with effective and efficient
ways of managing as well as
eradicating them. Here are
the different steps that are
involved in this process:

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1.Risk Identification:
 The first step involves identifying risks. Certain risks could be quite
obvious whereas a few others may need a certain amount of
anticipation. There could be various types of risks such as:
– business risks
– financial risks
– commercial market-related risks
– technology risks
– short term risks, long terms risks
– personal risks, etc.
– Operational risks (essentially same as Basle II)
• People
• Processes
• Business
• Projects
• Technology
• Legal and regulatory
• External

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2. Risk Analysis:
 This is the next step as part of the risk management
process. Once all the risks have been identified, it is
time to analyze and scrutinize each one of them.
 Risk analysis should be done both qualitatively as well
as quantitatively.
 Determine how big a threat each risk is, what could be
its consequence, its impact, etc. Each risk will have a
likelihood factor i.e., a probability factor. On the basis
of its impact and its likelihood factor, you can prioritize
different risks as serious, moderate, mild, etc.
 Use a color coding system for easy graphical
analysis. Once you have all this data laid out in front of
you, you will be in a position to rank individual risks.
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3. Risk Evaluation:

 This basically involves comparing the

identified and analyzed risks with your
individual goals or your company's preset
goals and objectives. You can then
choose to grade risks and decide the
future course of action to be taken based
on how severely the risk is likely to impact
your goals, objectives and targets.

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4. Risk Treatment and
Contingency Plan

The next step involves preparing a risk treatment
and contingency plan. It is vital from the
perspective of enterprise risk management.

What will you do if the risk materializes?

Can you do something to overcome the risk? Can
you take some measures to lessen its impact?

You should think about all these questions and
come up with a risk treatment and contingency
plan for the same. It should include ways in which
to control as well as overcome the risk conditions.

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Risk Monitoring
 This is not the next step as such, rather it is
something that should happen on a continuous basis
at all stages of the risk management process. Have a
RMMM (Risk Mitigation, Monitoring and Management)
plan in place for the same. You can also make use of
certain risk management softwares for this purpose.
 At the same time, there should be proper
communication between the different departments
involved in the risk management process.
Communication is vital because it can affect the entire
process both negatively as well as positively.

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Risk Monitoring Cont’d …

 These were some basics regarding how

a risk management process works.
Depending on individual requirements
and needs, it can always be customized
provided you have enough knowledge
and research data available at hand.
Because, as the popular saying goes,
"Risk varies inversely with knowledge.
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Risk Monitoring Cont’d …
 Managing the risk is a major aspect of the business.
When a company is able to manage the risk when it
arises then the business can be sustained. If unforeseen
risks are not managed then it will lead to the decay of the
entire business and eventually the company will fall.
Every company must follow enterprise risk management
which is a process of planning, organizing and controlling
all the activities of the organization. When all the steps
are carefully inspected, then risk can be predicted in
advance and necessary actions may be taken to minimize
the adverse effect.

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Risk Monitoring Cont’d …
 Enterprise risk management(ERM) is associated
with any type of risk that may arise due to
financial, strategic or operational failures. Many
ERM packages have been developed for use by
organizations. The risk management ability of
the business is now considered as a main
criterion for scrutinizing the company. The ERM
process that is followed by the company is often
analyzed by a board of directors and changes
are made as and when required.

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Risk Monitoring Cont’d …
 For any business, this risk management process
is crucial as it determines the stability of the
organization. The risk management process
helps the company to identify the risk, analyze
the cause and take counter actions to minimize
the losses incurred. The ability to predict the risk
determines the success of the process. This
requires careful watching of all the departments
in the company.

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Understanding the risks
 The cause and the effect of the risk must
first be identified. The historical performance
has to be analyzed and it is essential to find
out what has led to the risk. Based on this
info the current strategy of the company
must be studied and the future risks must
also be identified.

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Identifying risk
 Future returns of the company depend on identifying
the risk in the management. This is crucial step in the
enterprise risk management process.
 Employees from various departments must be
involved while identifying the potential risks.
Department wise risk factors must be identified so that
the process is more customized.
 Generally organizations conduct meetings and
interviews to identify risks. Is the company is big and
the number of risks is more, it is better to seek the help
from third party organization to plan the risk
management.
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Analyzing risk
 Even though a company follows risk
management process, it never attains
the state of risk free business. There
are always chances for any type of risk
and when the company faces the risk, it
has to be analyzed carefully to decide
on the action that is to be taken to
maintain stability.
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Internal Control
 Internal controls for key processes
supporting financial reporting to be
completed
 Will allow CEO/CFO certification of
financial reporting by fiscal year
 Key reliance will be on internal control
structure and attestation by division
heads of compliance.
 Tone at the top reinforces importance of
internal controls.
 Structure acceptable to regulators and
external auditor.

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Ways to Reduce Risk
 Design work areas to reduce the chance
of accident or fire.
 Educate employees on safe use of
equipment.
 Check and service safety equipment on a
regular basis.
 Stress the limits of your company’s
products.
– Provide customers with instructions on the
proper and safe use of products, as well as
warnings about possible hazards.

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Ways to Reduce Risk
 Shoplifting is a form of external theft that
involves taking items from a business
without paying for them.
 Ways to reduce shoplifting.
– Educate employees on shoplifting prevention
guidelines.
– Provide effective store layouts with adequate
lighting and orderly displays.
– Store expensive items in locked display cases or
tag expensive merchandise with electronic
devices.
– Employ the use of two-way mirrors, security
personnel, or closed circuit television (CCTVs).
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Ways to Reduce Risk
 Control employee theft.
• Install closed-circuit television systems and
point-of-sale terminals that generate
computerized reports.
• Provide company policies that make
employees aware of expectations.
• Utilize pre-employment testing to detect
employee attitudes about honesty.
• Distribute Keys to strategic installations to
different unrelated employees

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Ways to Reduce Risk
 Implement ways to reduce robbery.
Robbery involves the taking of property
by violence or threat.
– Limit the amount of money kept on hand.
• Use a safe.
– Handle bank deposits discreetly.
– Install surveillance cameras & alarm systems to
help identify robbers.
– Schedule employees so that no one is alone in a
business at any time.
– Hire security guards.
– Provide adequate lighting inside and outside of
the building.
– Make sure that doors are locked and alarms are
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Ways to Reduce Risk
 Purchase property insurance to cover:
– the loss of physical property such as cash, inventory,
vehicles, buildings.
– real property such as buildings, land, and fixtures.
– personal property such as vehicles, clothing,
furniture, jewelry.
 Purchase business interruption insurance to
make up for:
– lost income if a business is shut down for

repairs or rebuilding.
– Allows a business owner to continue to pay rent,
02/02/21salaries, and other Wairindi
key payments.
Daniel 31
Ways to Transfer Risk
 Purchase casualty insurance to:
– Protects a business from lawsuits.
– Pays the claim if a person is injured on your
business premises or if a worker causes
damage
– Types of casualty insurance
• Errors-and-omissions insurance: Protects businesses
from lawsuits resulting from mistakes in advertising.
• Product liability insurance: Protects manufacturers
from claims for injuries that result from using their
products.
• Fidelity bonds: Protect companies from employee
theft.
• Performance bonds: Protect a business if work is not
finished on time or as agreed.
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Ways to Transfer Risk
 Purchase life insurance to:
– Pay a business in the event of the insured
person’s death.
– Treat employees in case of sickness or injury at
work
– Covers owner(s) and key management
employees

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Ways to Transfer Risk
 Pay Workers’ Compensation
– A government-regulated program which provides
medical benefits and income to employees who
are injured on the job.
– Compensation is dependent on the wages or
salary of the employee, the seriousness of the
injury, and whether the injury is permanent or
not.
– Frees businesses from the threat of employee
lawsuits

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Business Risk Retention
 Businesses is self-insurance against
business loss.
– If a business cannot or does not provide for
ways to transfer risk using one of the
described means, the business should set
aside money each month to help cover the
costs should a loss occur.
– Planning for the unexpected, can save a
business.

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Emergency Planning
 Businesses must:
– create emergency response plans to help
handle emergency situations more
smoothly.
– have procedures in place before a crisis
occurs.

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Conclusion
 The company must plan the risk
management process in such a way
that maximum advantage is taken
from any risk.
 The entire process of the organization
must be monitored carefully and at
regular intervals to predict the type of
risks.

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Conclusion
 The frequent risks that are faced by the
organization must be documented along with
the steps taken.
 It is suggested to educate the employees
about the risk factors and the controlling
measures.
 The business process must be protected so
that the entire process is not collapsed by any
type of risk. When the organization faces a
risk, it must be communicated to the share
holders so that they will have faith in the
business.
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Do not invest where you have no
control otherwise you will lose
everything

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