Class: 6- 7

RISK CONTROL MEASURES

 Eliminate the hazard

 Substitute the hazard with a lesser risk
 Isolate the hazard
 Use engineering controls
 Use administrative controls
 Use personal protective equipment

PRACTICAL STEPS TAKEN TO CONTROL RISK

 Trying a less risky option
 Preventing access to the hazards
 Organising your work to reduce exposure to the hazard
 Issuing protective equipment
 Providing welfare facilities like medical facility
 Involving and consulting with workers

RISK MANAGEMENT TECHNIQUES

 Root cause analysis
 SWOT analysis
 Risk assessment template for IT
 Risk Register
 Probability and impact matrix
 Risk data quality assessment
 Brainstorming

RISK MANAGEMENT BY CORPORATES

Corporate risk management refers to all the methods that a company uses to
minimize financial losses. Risk managers, executives, line managers, and middle
managers, as well as all employees, perform practices to prevent loss exposure
through internal controls of people and technologies. Once the risk has been
identified, it is then easy to mitigate it.

Risk management is important because it empowers a business with the

necessary tools so that it can adequately identify and deal with potential risk.

COMPONENENTS:

There are five crucial components that must be considered when creating a risk
management framework. They include-

 Risk Identification
 Risk Measurement and Assessment
 Risk Mitigation
 Risk Reporting and Monitoring , and
 Risk Governance
A firm will engage in risk management policies if, and only if, they enhance
the firm’s value and thus its shareholders’ value through
 Minimisation of the costs of financial distress
 Minimisation of taxes by designing capital structure
 Positive NPV
In order to determine whether risk management activities lead toa reward
(or benefit), one needs to identify the type of risk addressed (Risk-Return
relationship).

RISK MANAGEMENT BY INDIVIDUALS

Individual Risk Management or Personal Risk Management (PRM) is the process

by applying risk management principles to the needs of individual consumers. It is
the process of identifying, measuring, and treat personal risk (Including but not
limited, to insurance), followed by implementing the treatment plan and
monitoring changes over time.
Individual risk management consists of the following processes.

 Plan Risk Management- Defining how to conduct risk management

activities.
 Identify Risks- Identifying individual project risks as well as sources.
 Perform Qualitative Risk Analysis- Prioritizing individual projectrisks by
assessing probability and impact.
 Perform Quantitative Risk Analysis- Numerical analysis of the effect
 Plan risk responses- Developing options, selecting strategies and actions
 Implement Risk Responses- Implementing agreed-upon risk response plans
 Monitoring Risks- Monitoring the implementation

Principles:

 Create value- resources expanded to mitigate risk

 Be an integral part of the organisational processes
 Be part of decision making process
 Be bases on the best available information
 Be transparent and inclusive
 Be dynamic and responsive to change
 Be capable of continual improvement and enhancement

Risk Management Techniques

 Risk Avoidance
Example:
I. Avoid accident-not riding a car ( give up his job)
II. Risk of product failure- refuses to introduce new product(Product life
cycle saturated)
III. Personal level- avoids smoking, not going to park in late night, not
wearing jewelry while going for morning walk etc.
 Risk Reduction
 If a risk cannot be avoided, perhaps it can be reduced.
Examples:
I. Wearing seat belt/helmet while driving
II. Careful market testing and product planning before launching new
product, arranging safety awareness program to make the employee
safety conscious
III. Burglar alarms, safety guards, and even guard dogs to protect
warehouses from burglary
IV. Fire alarms, smoke alarms, and sprinkler systems to reduce the risk of
fire and losses due to fire
V. Accurate and effective accounting and financial controls to protect a
firm’s inventories and cash from pilfering
The cost of reducing the above risks goes up when managers take too
long to make decisions.
 Risk Retention/Risk Assumption
It is the act of taking responsibility for the loss or injury that may result
from a risk.
Generally, it makes sense to assume a risk when one or more of the
following conditions exist:
I. The potential loss is too small to worry about.
II. Effective risk management has reduced the risk.
III. Insurance coverage, if available, is not too expensive.
IV. There is no other way of protecting against the loss.
 Risk Transfer/Risk Shifting
 The most common method is to make the risk insurable.
 An insurer is a firm that agrees, for a fee, to assume financial responsibility for
losses that may result from a specific risk.
 The fee charged by an insurance company for covering risk is called premium.
 A contract between an insurer and the person or firm whose risk is assumed is
known as insurance policy.
 Only pure risks are insurable, whereas speculative risks are uninsurable.
Specific Risk Management Techniques
Sl No. Technique Description
1 Risk Questionnaires Designed to identify the relevant risk and create
risk history
2 Flow charts with Risk Flags Designed to identify operational risks embedded in
the processes
3 Identify controls to Recognise controls and test their adequacy
manage risks and operative effectiveness
4 Risk Event Maps Identify potential events that can have a significant
impact on business to avoid negative surprises

5 Risk Scorecards A monitoring tool to track progress of risk

management
6 Capital Budgeting A Financial analysis tool to evaluate the future
cash flow benefits arising from risk management
actions against the costs of risk consequences
7 Value at risk A Financial analysis tool to evaluate the impact
of the worst case scenario of a risk event

RISK APPRAISAL
 It refers to an evaluation of the chances that a future event may occur.
Similar terms used are risk assessment, risk perception, perceived
likelihood, perception of vulnerability etc.
 Risk appraisal is a combined effort of identifying and analyzing potential
events that may negatively impact individuals, assets, and/or the
environment and making judgments ‘on the tolerability of the risk on the
basis of the risk analysis’ while considering influential factors.
 Risk appraisal is the process of assessing the likelihood of a policy holder
filing a claim.
 Risk appraisal is used to determine premium prices for individuals
applying for coverage. After the applicant’s risk is appraised, they are
placed into a certain risk class by the insurer and are offered insurance
options that are placed accordingly.
 RISK FINANCING

 Risk financing is the determination of how an organisation will pay for loss events in
the most effective and least costly way possible.
 It involves the identification of risk, determining how to finance risk, and monitoring
the effectiveness of the financing technique that is chosen.
 In business economics, risk financing is concerned with providing funds to cover the
financial effect of unexpected losses experienced by a firm. Traditional forms of
finance include risk transfer, funded retention by way of reserves and risk pooling.
 Risk financing methods include insurance, self-insurance (loss met by the firm itself),
mutual insurance, finite risk contracts and capital markets.
 Risk financing mechanisms include savings and reserves, access to credit market-
mediated risk transfer products such as insurance and catastrophe bonds.
 Risk financing refers to the manner in which risk control measures that have been
implemented shall be financed.
 Essentially an organization can finance its risk cost in three ways:
I. Losses may be charged as they occur to current operating costs; or
II. Ex-ante provision may be made for losses, either through the purchase of
insurance or by building up a contingency fund to which losses can be charged;
or
III. When losses occur they may be financed with loans, which are repaid over the
next few months oryears

ROLE OF RISK MANAGER

Risk managers or analysts specialize in identifying potential causes of accidents or loss,

recommending and implementing preventive measures and devising plans to minimize costs
and damage, including the purchase of insurance.
Risk managers coordinate loss control systems for organizations and business houses which
may include disaster recovery plans and emergency evacuations.

Risk managers also:

I. Identify risk exposures and recommend solutions

II. Update and monitor compliance with insurance procedures
III. Manage safety/risk management manuals
IV. Direct to purchase insurance products
V. Manage claims and loss control activities
VI. Manage relationships with third party service providers including brokers and insurers
VII. Meeting and discussing with clients and other stakeholders
VIII. Preparing loss analysis and budgets
IX. Recommending and implementing preventive measures to minimize cost of damage
X. Identifying and dealing with any issues that may arise related to insurance or safety,
which could lead to litigation, if overlooked
XI. Improving safety protocols or installing new equipment that have better safety
measures training and informing other staff about risk awareness

QUALITIES OF RISK MANAGER

1) Good exposure and organizational skills in the field of insurance and
risk management.
2) The ability to communicate complex ideas and think critically
3) Possessing strong analytical and judgment skills
4) Adequate and sound knowledge on risk management and finance
5) Strong problem-solving skills to use data and identify strategies to
approach potential risks
6) Self-motivated, outgoing and open-minded and having a flair for
discovering and learning new things.
Risk managers may work directly for large oganiations or
independently as consultants, providing risk management services.
Other roles within this field are:
 Risk Analysts
 Risk Advisors
 Safety Consultants
 Risk Consultants Director of Corporate Risk
 Chief Risk Officer
 Credit Risk Analyst