RISK MANAGEMENT Risk- Uncertainty of occurrence of any unforeseen event Types of Risks Pure Risk- Pure risk situations

s are those where there is a possibility of loss or no loss. There is no gain to the individual or the organization. For example, a ca con meet with an accident or it may not meet with an accident. If an insurance policy is purchase for the purpose, then if accident does no0t occur, there is no gain to the insured. Contrarily, if the accident occurs, the insurance company will indemnify the loss. Speculative Risk- Speculative Risks are those where there is possibility of again as well as loss. The element of gain is inherent or attracted in such a situation. For example: if you invest in a stock market, you may either gain or lose on stocks. Static Risk- Static Risks are more or less predictable and not affected by the economic conditions. The possibility of loss in a business or unemployment is after undergoing a professional qualification, less due to act of others etc., are static and accordingly suitable for insurances. Dynamic Risk- Dynamic risks are these resulting from the changes in the economy or the environment. These risk factors mainly refer to the macroeconomic variable like inflation, income and output levels, and technology change. Dynamic risks emanate from the economic environment and therefore, these are difficult to anticipate and quantity. Commercial Trade Risk Insurable Risk Material Risk- Building,Plant & Machinery,Furniture,Fixtures,fittings,Stocks. Consequential Risk- Loss of production,Loss of profit,Loss of market,Good will. Social RiskLegal Risk- Product liability,Public liability. Political Risk- Subsidies,Sanctions etc.

Risk Management - Economic protection of Companys Assets, Earnings & Liabilities. Risk Management Process Identification of Risk Direct property losses

Loss of income and expenses Loss arising from lawsuits losses caused by the death of key people

Identification of Risk: Flood Earth movement Theft Radiation

Direct property losses Check List: Asset Identify and value: i. ii. iii. iv. v. vi. vii. viii. ix. Owned assets property leased from others Stationary inventory Flow chart Valuing property International operations Loss of income and expenses Indirect losses Direct loss

Loss arising from lawsuits Losses caused by the death of key people

The risk management functions Trained specialists typically carry out the risk management function. The training of risk mangers varies greatly. Many risk angers have insurance back grounds, some are loss control engineers, some are attorneys, some are accountants, and some come to the risk management assignment with liberal arts back ground. In recent years, the focus on financial risk management has seen more financiers, mathematicians, and others with special skills in derivative securities join the ranks of risk mangers. Risk management staff Because they face a wide variety of expensive potential losses, most large organizations employ a staff of people to conduct their risk management programs. A large risk management staff would be headed

by a manager with overall responsibility. The staff would include one or more of the following position: insurance expert, financial risk manger, claims manager, loss control engineer, employee benefits specialist, and financial analyst. Risk management objectives and principles A risk management program begins with a statement of general objectives. A statement of principles and procedures designed to achieve these objectives follows. Survival, Growth, and Responsibility The first objective for the risk manger is to make sure the organization can survive losses. Ideally, the risk management program should allow the firm to continue to grow after a loss as if the loss had not occurred. Additionally, the risk management plan should allow the organization to continue to behave responsibility toward the environment, employees, suppliers, customers, and the communities in which it operates. Efficiency and compliance Another essential objective is to operate efficiently in a risky environment. This objective requires the firm to choose the appropriate balance between los prevention, insurance, and other risk management tools. Efficiency means risk management procedures operate smoothly. For example, the risk manager should be sure that loss control classes are held and that employee are motivated to perform their assignments safely. Risk management manual In practice, each organization should develop a written manual with objectives and procedures related to its particular exposures. For example, a banks risk management annual might emphasize security issues. A manufacturing firms manual might have many sections dealing with loss control procedures, and a hospitals manual might have much attention devoted to hygiene. One large manufacturing companys risk management manual includes the following general guidelines.

Engage in loss prevention activities as if all change of loss remained with the company. Assume all risks that are not significant in relation to the companys financial strength. Insure all risks not assumed.

These 2 general guidelines are followed by specific rules. Losses to buildings and contents equal to or less than 1,00,000. Losses from physical damage to company-owned motor vehicles.

Losses to products in transit.

Guideline 3 leads to the following specific categories of exposures to be insured. Losses to buildings and contents in excess of 1,00,000. Liability losses of the public. Employee's workers compensation claims.