m


  
 



Y Currency hedging
Y Capital budgeting
Y Public relation
Y Employee assistance & training
Y Government lobbying
Y Service marketing
Y Mergers & acquisitions
m

   







Traditional or conventional view of risk mgt
Total risk management
Four sources of failures are
Hardware failure
software failure
organization failure
human failure
Corporate risk management
Theory view of risk mgt function
Risk management decision
Financial decision
Ï 
 

  
?

Risk management vary among organization,

certain element would be common.

Y Mission Identification
Y Risk assessment
Y Risk control
Y Risk financing
Y Program administration
Risk assessment
Risk identification? It is a process by which an
organization is able to learn the area in
which it is exposed to risk.
Identification techniques are?
are?
Sources of risk
Hazards
Risk factors
Perils
Exposure to loss.
Sources of risk
Physical Environment
Social Environment
Political Environment
Legal Environment
Organizational Environment
Economic Environment
Cognitive Environment
Identification of exposures

isk identification is exposures identification

our cate ories of risk exposures
É sical asset exposures
É inancial asset exposures
É ia ilit assets exposures
É u an asset exposures
Check list used in risk identification
Recognizing source of risk.
Careful analysis of internal and external environment.
Identification of hazards, risk factor, peril and exposures to risk.
Supplemental techniques
É Financial techniques
É The flow chart method
É On site inspections
É Planned interaction with other department
É Interaction with outsider-
outsider-supplier and professional organisization
É Contract analysis
É Stastical analysis of loss records
É Incident reports
É Hazard analysis
 Risk measurement
Evaluate a risk importance to organization and to individual.
Risk measurement requires risk managers
1. Develop yardstick for measuring importance of risk to organization
2. Apply these yardstick to risk which have been identified.
No single measurement techniques or method have been developed
that applies to all area of exposure to risk
É Statistical techniques can be applied
É Direct and indirect effect
É Dimension of exposure to risk-
risk-
loss frequency
Loss severity
É Probable maximum loss(PML)-
loss(PML)-the worst loss that is likely to occur
in a time period or because of a single event.
Risk analysis exposures of physical
asset
Physical asset-
asset-3different types
Valuation
Direct and indirect
Time element
Types of physical asset exposure-
exposure-risk can be classified
into four ways
1. Class of property affected
2. Cause of the gain or loss
3. Outcome direct or indirect or time element
4. The nature of organization interest in the property
Risk analysis exposures of physical
asset
Property class may be divided into two
1. Real estate-
estate-vacant land ,office building,
manufacture plant, ware house
2. Personal property-
property-machine , furniture
and fixtures, raw material finished goods.
movable
Not attached to land
Risk analysis exposures of physical
asset
Cause of the exposure outcome ±in term of
physical asset ±loss or gain may be divide
into three
Physical
Social
economic
Risk analysis exposures of physical
asset
Direct, indirect and time element outcome
Direct ±fire occurred to house
Indirect--staying in hotel
Indirect
Time element-
element-loss occur when property
cannot be used following direct loss
Example--land lord cannot get loss rentalof
Example
apartment building cannot be occupied
following fire damage.
Risk analysis exposures of physical
asset
Interest in property
Owners
Secured creditors
Vendors
Tenants
Bailees
Representative property of owners
Other intrests
Risk analysis exposures of physical
asset
Valuation of potential physical asset losses
Object is to estimate the economic burden of
damage on organization owner
Diff between firm value to market value
Valuation method-
method-
market value
Replacement cost new
Replacementcost
Replacementcost--depressiation
Risk analysis exposure of financial assets
Types of financial assets?
By individual, business, government.
Y Common stock
Y Debenture
Y Zero coupon bond
Y Reverse bonds
Y Future
Y Options
Y Swaps
Y Preferred stock.
Risk analysis exposures of financial
asset
Assessment of risk
Layer of risk
Interest rate risk
Value at risk
Single asset and portfolio application
 Risk analysis exposures of human
asset
Loss of human asset ±direct economic effect on
organization
Risk manager should give interest to
É The issues of cost efficiency
É Sense of employer responsibility
É Public relation
É Compliance with government regards
É Employer sponsored program
É Possible gain from exposure of human asset
 Risk analysis exposures of human
asset
Assessing of human asset
Loss frequency-
frequency-house hold
hold--risk exposure
exposure--death
Poor health
Old age
Other type of unemployment
Loss severity-
severity-potential loss of earnings
The need approach
Cost of medical care
Assessing direct exposure of organization
Risk analysis exposures of legal liability
Types of law
A. Criminal Law
B. Civil Law
1. Liability arising from ownership, possession of land.
2. Liability arising from public & private nuisance.
3. Liability arising from sale, manufacture, distribution or
service.
4. Liability arises from negligence.
5. Liability arising from professional liability
6. Liability arising from agency
7. Liability arising from bailee liability exposure
8. Liability arising from contract liability
9. Liability arising from employment
10. Liability arising from work related injury
11. Liability arising from motor vehicle
(isk s r t
Q lit tiv ss ss t of xpos r
Loss fr q cy
Loss s v rity
N ric l sti t s
B dg t
For c st f t r ff cts
Cl i sti tio
Clos d, op , r v rs , loss d v lop t
thod, str ct r d, pr s t v l
 Maximum probable cost? The highest cost
level the risk manager believes is likely to
prevail during the year

MPC depends on two factor

Dispersion of actual to expected value

Risk tolerance