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CHETANAS BACHELOR OF MANAGEMENT STUDIES

SUBJECT: BUSINESS ASPECT IN BANKING AND INSURANCE

TOPIC: RISK MANAGEMENT

GROUP 7
GROUP MEMBERS:

NAME PALLAVI KULKARANI SNEHA MALI SANKET DEDHIA ANAGHA KOTHAWALE JIGNESH KAMBLE KARTIK NADAR

ROLL NO. 2132 2148 2112 2130 2128 2138

Submitted to Prof. Amie Moulik

Introduction
Risk management is an important part of planning for businesses. The process of risk management is designed to reduce or eliminate the risk of certain kinds of events happening or having an impact on the business.

WHAT IS RISK?
The chance of something happening that will have an impact on objectives. A risk is often specified in terms of an event or circumstance and the consequences that may flow from it. Risk is measured in terms of a combination of the consequences of an event and their likelihood. Risk may have a positive or negative impact.

Definition of Risk Management

Risk management is a process for identifying, assessing, and prioritizing risks of different kinds. Once the risks are identified, the risk manager will create a plan to minimize or eliminate the impact of negative events. A variety of strategies is available, depending on the type of risk and the type of business. There are a number of risk management standards, including those developed by the Project Management Institute, the International Organization for Standardization (ISO), the National Institute of Science and Technology, and actuarial societies.

OBJECTIVE OF RISK MANAGEMENT

A primary objective of risk management is to identify and to manage (take preventive steps) to handle the uncertainties that attend a business enterprise or that are personal to an individual. Regardless of the entity (business or person) which/whose risk is being managed, there are several primary ways to do it: 1. Recognize that there is panoply of risks that attend any action and be prepared, to the extent possible, to withstand the financial impact of them. This is essentially the theory behind selfinsurance. 2. Minimize the chances of the adverse event occurring, by implementing and enforcing safety measures.

3. Minimize the potential severity of the adverse event. 4. Shifting the burden of the financial impact of the adverse event to a third part. This is the essence of insurance

IMPORTANCE OF RISK MANAGEMENT

The importance of risk management cannot be overstated. This is a fundamental part of doing business that must be addressed appropriately for the company to be successful. Risks are just part of doing business and by having a procedure in place to deal with them does make a difference on their impact. When a company is first addressing the importance of risk management, a procedure must be complied. To do this there are many different program that can assist in the proper development of them. These programs are advantageous to use since many of the variable of this kind of policy are known. The programs can use templates to help guide the managers as they formulate the policy for their particular business. The first factor of importance of risk management is the proper identification of all known risks. You cannot mitigate the risk if you are unaware of it. So this step must be done accurately and toughly so all possible known risks can be addressed when the time is appropriate. The step in the listing of importance of risk management is the determining of the impact and probability of each identified risk. This is done because not ever risk associated with a business will impact it. For this reason each ones probability of impact has to be evaluated. The impact of each risk is also different for every company it comes in contact with. With these two factors known, the priority of the known risks can take place.

TYPES OF RISK
There are many different types of risk that risk management plans can mitigate. Common risks include things like accidents in the workplace or fires, tornadoes, earthquakes, and other natural disasters. It can also include legal risks like fraud, theft, and sexual harassment lawsuits. Risks can also relate to business practices, uncertainty in financial markets, failures in projects, credit risks, or the security and storage of data and records.

OPERATIONAL RISK
Operational risk can be summarized as human risk; it is the risk of business operations failing due to human error. Operational risk will change from industry to industry, and is an important consideration to make when looking at potential investment decisions. Industries with lower human interaction are likely to have lower operational risk.
IT INCLUDES

a) b) c) d) e) f) g)

Internal Fraud. External Fraud. Employment Practices and Workplace Safety. Clients, Products and Business Practices. Damage to Physical Assets. Business Disruption and System Failures. Execution, Delivery and Process Management.

CREDIT RISK
The higher the perceived credit risk, the higher the rate of interest those investors will demand for lending their capital. Credit risks are calculated based on the borrowers' overall ability to repay. This calculation includes the borrowers' collateral assets, revenue-generating ability and taxing authority (such as for government and municipal bonds). Credit risk is closely tied to the potential return of an investment, the most notable being that the yields on bonds correlate strongly to their perceived credit risk.

REPUTATIONAL RISK
Reputational risk, often called reputation risk, is a type of risk related to the trustworthiness of business. Damage to a firm's reputation can result in lost revenue or destruction of shareholder value, even if the company is not found guilty of a crime. Reputational risk can be a matter of corporate trust, and can be informational in nature or even financial.

VISION, MISSION & GOALS

Mission The mission of the Department of Risk Management and Insurance is to be the defining program advancing knowledge and educating students in the economics of measuring, managing, and allocating risk for individuals and households, in organizations, and across society.

Vision The vision of the Department of Risk Management and Insurance is that risk will be established as an academic discipline. Goals We will implement our mission and realize our vision by:

Developing the leading program of scholarship that unifies characterization of the financial and non-financial domains of risk. It will o Characterize the perception and management of risk at the level of different agents (individuals, households, institutions and society), o Enhance the tools of analysis for the demands of this discipline, and o Demonstrate how effective risk management should be applied to address important real-world problems and inform social policy. Preparing students for careers in the variety of professions that seek to improve the welfare of individuals, households, institutions and societies through the efficient management of risk. Influencing policy and practice by providing significant intellectual leadership to our constituencies.

Strategies for Managing Risk

There are as many different types of strategies for managing risk as there are types of risks. These break down into four main categories. Risk can be managed by accepting the consequences of a risk and budgeting for it. Another strategy is to transfer the risk to another

party by insuring against a particular, like fire or a slip-and-fall accident. Closing down a particular high-risk area of a business can avoid risk. Finally, the manager can reduce the risks negative effects, for instance, by installing sprinklers for fires or instituting a back-up plan for data.

Advantages and Disadvantages of Risk Management ADVANTAGES

Minimize Risk Minimize claims and disputes Long term cost savings Quality improvement Quick risk response solutions alternatives

90% 68% 63% 63% 58% 55

DISADVANTAGES Time consuming Unforeseen risk Consume more resource to conduct NONE 58% 30% 8% 13%

The analysis clearly shows that the advantages of Risk Management surpass the disadvantages of it. The advantages of Risk Management are the minimization of risk, long-term cost savings, quality improvements, and quick risk responses. Most of the correspondents provided all these advantages as cited. However, one correspondent also quoted the minimization of claims and dispute as its advantage by the project having clear baseline.

The disadvantages of Risk Management are process being very objective and subjective, involvement of uncontrollable variables, and overdependence on easy methods for solving complex process. The other drawback is the non-information sharing between higher management and bottom group resulting into bottom group being isolated from the process. Also, as cited by correspondents, there is always a lack of resources and it is a costly exercise.

A 'paper' trail is important for risk management

Quite often contracts 'evolve' through a series of meetings, phone conversations, emails, etc. Often there is no formal documentation. This can cause problems unless you keep a paper trail or, preferably, send an email to the other party summarizing what has been agreed on.

Note: Risk management is not the management of insurable risks. Insurance is an important way of transferring risk but most risks will be managed by other means. {Having a risk management plan is an important part of maintaining a successful and responsible company. Every company should have one. It will help to protect people as well as physical and financial assets.}