Risk monitoring and control is the process of identifying, analyzing, and planning for newly

discovered risks and managing identified risks. Throughout the process, the risk owners track
identified risks, reveal new risks, implement risk response plans, and gage the risk response
plans effectiveness. The key point is throughout this phase constant monitoring and due diligence
is key to the success. The inputs to Risk Monitoring and Control are:

Risk Management Plan

- The Risk Management Plan is details how to approach and manage project risk. The plan
describes the how and when for monitoring risks. Additionally the Risk Management Plan
providesguidance around budgeting and timing for risk-related activities,thresholds, reporting
formats, and tracking.

Risk Register
The Risk Register contains the comprehensive risk listingfor the project. Within this listing the
key inputs into risk monitoring andcontrol are the bought into, agreed to, realistic, and formal
risk responses,the symptoms and warning signs of risk, residual and secondary risks,time and
cost contingency reserves, and a watchlist of low-priority risks.

Approved Change Requests

Approved change requests are thenecessary adjustments to work methods, contracts, project
scope, andproject schedule. Changes can impact existing risk and give rise to newrisk. Approved
change requests are need to be reviews from theperspective of whether they will affect risk
ratings and responses of existing risks, and or if a new risks is a result.

Work Performance Information

Work performance information is thestatus of the scheduled activities being performed to
accomplish theproject work. When comparing the scheduled activities to the baseline, itis easy to
determine whether contingency plans need to be put into placeto bring the project back in line
with the baseline budget and schedule. Byreviewing work performance information, one can
identify if trigger eventshave occurred, if new risk are appearing on the radar, or if identified
risksare dropping from the radar.

Performance Reports
- Performance reports paint a picture of theproject's performance with respect to cost, scope,
schedule, resources,quality, and risk. Comparing actual performance against baseline plansmay
unveil risks which may cause problems in the future. Performancereports use bar charts, Scurves, tables, and histograms, to organize andsummarize information such as earned value
analysis and project workprogress.All of these inputs help the project manager to monitoring
risks and assure asuccessful project.Once the risk owner has gathered together all of the inputs, it
is time toengage in risk monitoring and controlling. The best practices provided by PMIare:

Risk Reassessment
- Risk reassessment is normally addressed at thestatus meetings. Throughout the project, the risk
picture fluctuates: Newrisks arise, identified risks change, and some risks may simply

disappear. To assure team members remain aware of changes in the risk picture,risks are
reassessed on a regularly scheduled basis. Reassessing risksenables risk owners and the project
manager to evaluate whether riskprobability, impact, or urgency ratings are changing; new risks
are cominginto play; old risks have disappeared; and if risk responses remainadequate. If a risk's
probability, impact, or urgency ratings change, or if new risks are identified, the project manager
may initiate iterations of riskidentification or analysis to determine the risk's effects on the
projectplans.

Status Meetings
Status meetings provide a forum for team membersto share their experiences and inform other
team members of theirprogress and plans. A discussion of risk should be an agenda item atevery
status meeting. Open collaborative discussions allows risk ownersto bring to light risks which are
triggering events, whether and how wellthe planned responses are working, and where help
might be needed.Most people find it difficult to talk about risk. However, communicationwill
become easier with practice. To assure this is the case, the projectmanager must encourage open
discussion with no room for negativerepercussions for discussing negative events.

Risk Audits
- Risk audits examine and document the effectiveness of planned risk responses and their
impacts on the schedule and budget.Risk audits may be scheduled activities, documented in the
ProjectManagement Plan, or they can be triggered when thresholds areexceeded. Risk audits are
often performed by risk auditors, who have
specialized expertise in risk assessment and auditing techniques. Toensure objectivity, risk
auditors are usually not members of the projectteam. Some companies even bring in outside
firms to perform audits.

Variance and Trend Analysis

- Variance analysis examines thedifference between the planned and the actual budget or
schedule inorder to identify unacceptable risks to the schedule, budget, quality, orscope of the
project. Earned value analysis is a type of variance analysis. Trend analysis involves observing
project performance over time todetermine if performance is getting better or worse using a
mathematicalmodel to forecast future performance based on past results.

Technical Performance Measurement

- Technical performancemeasurement (TPM) identifies deficiencies in meeting
systemrequirements, provide early warning of technical problems, and monitortechnical risks.
The success of TPM depends upon identifying the correctkey performance parameters (KPPs) at
the outset of the project. KPPs arefactors that measure something of importance to the project
and aretime/cost critical. Each KPP is linked to the work breakdown structure(WBS), and a
time/cost baseline may be established for it. The projectmanager monitors the performance of
KPPs over time and identifiesvariances from the plan. Variances point to risks in the project's
schedule,budget, or scope.

Reserve Analysis

- Reserve analysis makes a comparison of thecontingency reserves to the remaining amount of

risk to ascertain if thereis enough reserve in the pool. Contingency reserves are buffers of
time,funds, or resources set aside to handle risks that arise as a project movesforward. These
risks can be anticipated, such as the risks on the RiskRegister. They can be unanticipated, such as
events that "come out of leftfield." Contingency reserves are depleted over time, as risks trigger
andreserves are spent to handle them. With constraints as above monitoringthe level of reserves
to assure the level remains adequate to coverremaining project risk, is a necessary task.Outputs
of the Risk Monitoring and Control process are produced continually,fed into a variety of other
processes. In addition, outputs of the process areused to update project and organizational
documents for the benefit of future project managers. The outputs of Risk Monitoring and
Control are:

Updates to the Risk Register

An updated Risk Register has theoutcomes from risk assessments, audits, and risk reviews. In
addition it
Market risk is the risk of losses in positions arising from movements in market
prices.

Equity risk, the risk that stock or stock indices (e.g. Euro Stoxx 50, etc. ) prices and/or
their implied volatility will change.

Interest rate risk, the risk that interest rates (e.g. Libor, Euribor, etc.) and/or their implied
volatility will change.

Currency risk, the risk that foreign exchange rates (e.g. EUR/USD, EUR/GBP, etc.)
and/or their implied volatility will change.

Commodity risk, the risk that commodity prices (e.g. corn, copper, crude oil, etc.) and/or
their implied volatility will change.

Credit risk refers to the risk that a borrower will default on any type of debt by failing to make
required payments.[1] The risk is primarily that of the lender and includes lost principal and
interest, disruption to cash flows, and increased collection costs. The loss may be complete or
partial and can arise in a number of circumstances.[2] For example:

A consumer may fail to make a payment due on a mortgage loan, credit card, line of
credit, or other loan

A company is unable to repay asset-secured fixed or floating charge debt

A business or consumer does not pay a trade invoice when due

A business does not pay an employee's earned wages when due

A business or government bond issuer does not make a payment on a coupon or principal
payment when due

An insolvent insurance company does not pay a policy obligation

An insolvent bank won't return funds to a depositor

A government grants bankruptcy protection to an insolvent consumer or business

To reduce the lender's credit risk, the lender may perform a credit check on the prospective
borrower, may require the borrower to take out appropriate insurance, such as mortgage
insurance or seek security or guarantees of third parties. In general, the higher the risk, the higher
will be the interest rate that the debtor will be asked to pay on the debt.

Types of credit risk

Credit risk can be classified as follows:[3]

Credit default risk The risk of loss arising from a debtor being unlikely to pay its loan
obligations in full or the debtor is more than 90 days past due on any material credit
obligation; default risk may impact all credit-sensitive transactions, including loans,
securities and derivatives.

Concentration risk The risk associated with any single exposure or group of exposures
with the potential to produce large enough losses to threaten a bank's core operations. It
may arise in the form of single name concentration or industry concentration.

Country risk The risk of loss arising from a sovereign state freezing foreign currency
payments (transfer/conversion risk) or when it defaults on its obligations (sovereign risk);
this type of risk is prominently associated with the country's macroeconomic performance
and its political stability.

DEFINITION of 'Risk Management'

The process of identification, analysis and either acceptance or mitigation of uncertainty in

investment decision-making. Essentially, risk management occurs anytime an investor or fund
manager analyzes and attempts to quantify the potential for losses in an investment and then
takes the appropriate action (or inaction) given their investment objectives and risk tolerance.
Inadequate risk management can result in severe consequences for companies as well as
individuals. For example, the recession that began in 2008 was largely caused by the loose credit
risk management of financial firms.

INVESTOPEDIA EXPLAINS 'Risk Management'

Simply put, risk management is a two-step process - determining what risks exist in an
investment and then handling those risks in a way best-suited to your investment objectives. Risk
management occurs everywhere in the financial world. It occurs when an investor buys low-risk
government bonds over more risky corporate debt, when a fund manager hedges their currency
exposure with currency derivatives and when a bank performs a credit check on an individual
before issuing them a personal line of credit.

Financial risk management

From Wikipedia, the free encyclopedia

Corporate finance

Working capital

Cash conversion cycle

Return on capital

Economic Value Added

Just-in-time

Economic order quantity

Discounts and allowances

Factoring

Sections

Managerial finance

Financial accounting

Management accounting

Mergers and acquisitions

Balance sheet analysis

Business plan
Corporate action

Societal components

Financial market

Financial market participants

Corporate finance

Personal finance

Public finance

Banks and banking

Financial regulation

Clawback

Financial risk management is the practice of economic value in a firm by using financial
instruments to manage exposure to risk, particularly credit risk and market risk. Other types
include Foreign exchange, Shape, Volatility, Sector, Liquidity, Inflation risks, etc. Similar to
general risk management, financial risk management requires identifying its sources, measuring
it, and plans to address them.
Financial risk management can be qualitative and quantitative. As a specialization of risk
management, financial risk management focuses on when and how to hedge using financial
instruments to manage costly exposures to risk.
In the banking sector worldwide, the Basel Accords are generally adopted by internationally
active banks for tracking, reporting and exposing operational, credit and market risks.
Contents

1 When to use financial risk management

2 See also

3 Bibliography

4 References

5 External links

When to use financial risk management

Finance theory (i.e., financial economics) prescribes that a firm should take on a project when it
increases shareholder value. Finance theory also shows that firm managers cannot create value
for shareholders, also called its investors, by taking on projects that shareholders could do for
themselves at the same cost.
When applied to financial risk management, this implies that firm managers should not hedge
risks that investors can hedge for themselves at the same cost. This notion was captured by the
hedging irrelevance proposition: In a perfect market, the firm cannot create value by hedging a
risk when the price of bearing that risk within the firm is the same as the price of bearing it
outside of the firm. In practice, financial markets are not likely to be perfect markets.
This suggests that firm managers likely have many opportunities to create value for shareholders
using financial risk management. The trick is to determine which risks are cheaper for the firm to

manage than the shareholders. A general rule of thumb, however, is that market risks that result
in unique risks for the firm are the best candidates for financial risk management.
The concepts of financial risk management change dramatically in the international realm.
Multinational Corporations are faced with many different obstacles in overcoming these
challenges. There has been some research on the risks firms must consider when operating in
many countries, such as the three kinds of foreign exchange exposure for various future time
horizons: transactions exposure,[1] accounting exposure,[2] and economic exposure.[3]
Financial risk management is the practice of economic value in a firm by using
financial instruments to manage exposure to risk, particularly credit risk and
market risk. Other types include Foreign exchange, Shape, Volatility, Sector,
Liquidity, Inflation risks, etc.