Risk and Risk
Management
Presented by :
Abhishek Shrivastava
Anirban Roy Chaudhari
Anusha
Ashwini Ukey
Devender Kumar Patel
Kaushar Alam
Bhawana Joshi
Introduction
Risk is virtually anything that threatens or limits the
ability of a community or nonprofit organisation to
achieve its mission.
It can be unexpected and unpredictable events such as
destruction of a building, the wiping of all your
computer files, loss of funds through theft or an injury
to a member or visitor who trips on a slippery floor and
decides to sue. Any of these or a million other things
can happen, and if they do they have the potential to
damage your organization, cost you money, or in a
worst case scenario, cause your organisation to close.
Types of Risk
Risk
Credit
risk/Counter
Market Operatio
party Risk Risk nal Risk
Credit Risk/Counterparty Risk
Counterparty risk is the risk to each party of a contract
that the other will not live up to its contractual
obligation.
In most Financial contracts, this risk is known as
default Risk.
In case of a pure lending transaction, this risk takes
the form of credit risk.
Market Risk
Market risk is the risk of fluctuations in portfolio value
because of the movement in such variables.
InterestPrice Risk
Rate Risk
Forex Risk
Technology
Technology
Risk
Risk
Country Risk
Liquidity Risk
Operational Risk
An operational risk is, as the name suggests, a risk
arising from execution of a company's business
functions. It is a very broad concept which focuses on
the risks arising from the people, systems and
processes through which a company operates. It also
includes other categories such as fraud risks, legal
risks, physical or environmental risks.
Risk and Risk Management
Risk is a synonymous with uncertainty. Risk arises
because the future is unknown.
Risk Management
Risk management is a process of thinking systematically
about all possible risks, problems or disasters before
they happen and setting up procedures that will avoid
the risk, or minimize its impact, or cope with its impact.
It is basically setting up a process where you can identify
the risk and set up a strategy to control or deal with it.
Derivative contracts can be used to mange risk. Eg.
Hedging , Insurance etc
Risk Management process
Select risk Implement
Identify risk Evaluate Risk Management and Review
Technique Decisions
3 M’s of Risk Management
Risk Measurement
Risk Monitoring
Risk Management
How is Risk Measured
- Risk Measurement
Random Variables
Probability distribution
Variance
Risk = Impact x Probability
* higher the variance , higher is the risk
Example
The heights (at the shoulders) are: 600mm, 470mm, 170mm, 430mm and
300mm.
Mean=394
Each dogs difference from mean
Standard Deviation (147mm)
Risk monitoring
Risk monitoring is the major element of risk management
Monitoring risk means to review it and update it
continuously.
Identify new risks as soon as possible
Decide where and how to handle that risk
Look for other risks that might be reduced or eliminated
and no longer need coverage
Check operating volumes - they change so that coverage
levels need to change...
Risk Management
The final step in the process is actually managing the
risk. This simply means management decision-making
when called for, based on the information that is
available.
Aspects of managing risk effectively are:
proper analytical tools must be used
proper risk monitoring capabilities
A risk-oriented mind set must exist in all employees.
A willingness to be proactive regarding risk
management, treating risk management as a business
partner, not simply part of a compliance function
Risk Managements tools
INSURANCE
HEDGING
DERIVATIVES:
Forwards
Futures
Options
Swaps
Conclusion
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 and/or impact of
unfortunate events or to maximize the realization of
opportunities.