Risk Management

A Pro-active Approach
Outline
Learning
Over-all Objective • Helps the cooperative in managing its risk and in the
formulation of its Risk Management Manual
Content • Understand risk and its triggers
• Know the categories of risk
• A walkthrough on the organization
• Know the Risk Management Process
 A threat that an Event or
Action will adversely affect
the ability to achieve
business objectives.

...effect of uncertainty on objectives.

Understanding the organization
What is the context of your coop

ONLINE LEARNING SERIES

RISK MANAGEMENT
• Growth in assets
• Return to members
• New branches
• New Projects
• Investment Vision
• New programs Targets
• New products Objectives
External factors
• Sociological factor
• Technological factor
• Environmental factor
• Economic factor
• Political
• Legal
• Competition

ONLINE LEARNING SERIES

RISK MANAGEMENT
Internal factors
Organizational style
• Leadership styles
• Resource factor
• Operational factor
• Organizational
structure
• Human aspects

ONLINE LEARNING SERIES

RISK MANAGEMENT
C a t e g o ri e s
Failure to pursue the Mission and
Strategic Objective of the Coop

Signs:
• Struggles to reach goals
• Lack of integrity
• Unfavorable working condition

Effects:
• Affects product development
• Affects customer service
• Obligor’s failure to meet the
terms of contract
• Loans and investments may not
be repaid

e g ative t
N m en volcanos Terrorism
o n
envir landslide Vandalism
floods
Recession Fire
earthquake
Inability to pay depositors and
other liabilities when they fall
due

• Leverage
• Net Institutional Capital
• Lending Capacity
Adverse changes in
prevailing interest rates
which affect the values of
assets, liabilities and capital

Eq u i t y r i sk
• r i sk
u r r e n c y
• C a te r i s k
st -r
• Intere
Systemic risk is the risk of
collapse of the whole
financial system
 Non-Compliance:
• Regulations, Laws, Rules
• Ethical standards
• Internal Policies and
Procedures

• Infirmities in loan documents

u m e nts • Inadequate internal
o c
f o r ce a b e l eg a l d
l processes, people, systems
n
• Non-e s e q u e n ce • Misuse of confidential
L e g a l con information
•
P e n a l t i es
•
Risk from Systems and Technology
• Deficiencies in IT
systems
• Obsolete technology
• Absence of tools to
measure risk
• Technology system
failures
• Errors in recording and calculations
• Less return on technology investments
Internal Fraud / External Fraud
• Circumvent
regulations, law or
company policy
• Employee theft
• Salisi, imposter,
forgery, robbery,
hacking
• Loss of property
• Misappropriate property
 • Inadequate segregation
Personnel Risk of duties
• Poor HR policies
• Lack of management
supervision
• Inadequate training
• llegal activities of risk-
taking personnel
• Absence of succession
program
• Adverse public reaction
• The failure to maintain
an image of Integrity
and Competence

• Failure to manage
information in the event
of crisis
The silo mentality
impacts operations,
• reduce employee
morale
• contribute to failure
of products and
culture

Do not share information,

goals, tools, priorities and
processes with other
departments.
Blast the Silo mentality...
SENIOR EXECUTIVE

Vertical Perpective:
Horizontal
PRODUCT OPERATIONS OPERATIONS Perpective:
FINANCE • Functions in
DEVELOPMENT (Loan Releasing) (Collection)
conflict for
• Optimize
• results
People don't
Product creation Loan Releasing Cashiering Budgeting
understand
• Requires
upstream and
constructive
Marketing Fund downstream
dialogue
Recording
Strategies Management impacts and
between
• among functions
Focus on “silo”
optimization
• Not a short-term
More releases Must collect Return on
fix, but us a
GetGet it
it availed Release as Optimize Return on
but consider but consider but consider
collection investment
investmentbut regular-term
availed much as
members' posibility of
possible
members help centers plan solution
need collection welfare on variances
RISK MANAGEMENT IS...

Strategic to day-
Managing risks At all levels of
to-day job of
Managing risks the organization
employees
RISK MANAGEMENT
PROCESS
RISK MANAGEMENT PROCESS
Control
Environment

Monitoring Control
Activities

Risk Risk
Mitigation Assessment

Communication
Control Environment
o Sets the tone of an organization,
influencing the control conciousness of
people
o Foundation of internal control, providing
discipline and stucture

• Management Framework
• Policies
• Limits:
• Interest rates
• Liquidity
• Foreign exchange
Control Activities
Policies and procedures that help ensure that
management directives are carried out

Control Functions Formulate and implement

• Business practices in
Units
the day-to-day
Involved
operations
• Internal control
Risk Taking Risk Control Risk • Guidelines &
Units Functions Managers Procedures
• Specific
responsibilities
Control Activities

Control Functions
Units
Involved
• Establish and manage risk
Risk Control Risk
exposure
Risk Taking Functions Managers • Know, understand, fully commit to
risk policies
Units
• Aware of all risks assumed in all
Front Office: Manager, activities
Supervisor, Teller, Cashier , • Ensure timely, accurate, complete
Collector, Loan Officer deal capture
Control Activities

Control Functions
Units
Involved • Compare positions, risk
measure to limits
Risk Taking Risk
Units Managers • Do cost allocations
Risk Control • Control balances
Functions • Investigate and correct errors
Back Office: Bookkeeper, • Ensure compliance to internal
Accountant, Finance limits
Officer, IT people • Report all limit excesses
Control Activities

Control Functions
Units
Involved • Establish standards to monitor
risk
Risk Taking Risk Control
Units Functions Risk • Analyze, measure transactions
Managers risk
• Analyze exposure and
Middle Office: Risk recommend limits
Officers
• Develop risk reduction strategies
• Conduct stress test to assess risks
Risk Assessment

IDENTIFY

PROCESSES Analyze
PLAN PROGRAMS ANALYZE
ACTIVITIES • External and Internal
factors
• Evaluate processes
TREAT/
• Identify risk
EVALUATE
• Quantify risk
Communication
Exchanging information among interested parties
about the nature, magnitude, significance, or
control of a risk

Reporting
• Board and Management
• Feedback mechanisms
Risk Mitigation

Taking actions to reduce exposure to potential risks

and reduce the likelihood that those risks will
happen again

Provide measures
• Specific solution
• Review of controls
 Monitoring
Monitoring of
actions to close
Identifying control
gaps
gaps threatening
business or process
objectives

Ensuring mechanisms are in

place
• Effectiveness of internal
systems
• Report deficiencies
• Modify procedures
accordingly
ADVERSE IMPACT OF UNMANAGED RISK

Intangible damage to
reputation and brand

Physical loss – Mis-aligned processes

Financial Costs on loss land, building,
of funds and resources equipment Loss due to legal, local regulations
Human loss of knowledge, skills
and commitment of people
Time delays - Opportunity cost
Possibilities Uncertainties
• Opportunities • Undesirable events
• Achievement of purpose • Loss / Damage
Always remember the benefits
ü Likelihood of achieving objectives
ü Encourage pro-active management
ü Identify and treat Risks in organization
ü Identify Opportunities and Threats
ü Effective allocation and use of resources
ü Comply with legal, regulatory and requirements and international
norms
ü Improve mandatory and voluntary reporting
 …always
ü Improve stakeholders remember
confidence/trust
your
ü Establish basis for risk
planning and initiatives
decision making. Factor
in decision-making must
ü Inprove controls
ü Create value
ü Integral to organizational process
ü Address uncertainty
ü Systematic and structured
ü Based on available information
…and always remember

• tailored
• account human factors
• transparent
• dynamic
• adaptable to change
• continuously monitored