HANDOUTS
with multiple stakeholders that can create
Risk and Perspective
Risk- is a concept linked to human expectations. It
indicates a potential negative effect on an asset that
may derive from given processes in progress or given
future events.
FOUR CATEGORIES OF ORGANIZATIONAL RISK:
1. Operating/Operational Risk
a. Business operations (efficiency, supply chain,
business cycles
b. Information technology
2. Financial Risk
a. Credit (default, downgrade)
b. Price (commodity, interest rate, exchange rate)
c. Liquidity (cash flow)
3. Market-Based Risk
4. Hazard Risk
a. Fire and other property damage
b. Theft and other crime, personal injury
c. Diseases
Corporate Governance Perspectives:
• Agency theory—align the interests of internal
agents (executives/managers) who display strong
self-interest with those of the shareholders (owners)
• Transaction cost theory—reduce costs of
transactional hazards through internal corporate
governance mechanisms, which cannot be handled
by external market mechanisms
• Stewardship theory—general human motives of
achievement, altruism and meaningfulness should
be managed and guided in the most opportune
manner
• Resource dependence theory—highlights
corporate dependence on external relations and
sees governance as a vehicle to ensure continued
access to essential resources
• Stakeholder theory—acknowledges agreements
incremental value and/ or lead to subsequent risk
events if neglected or abused
FOUR POTENTIAL OUTCOMES OF THE DECISION:
1.Risk Avoidance
Whenever a risk generated by a project is not
consistent with the company risk policy, the decision
maker should avoid this particular risk.
2. Risk transfer
Risk Transfer, Also Known as Risk Hedging Instead of
avoiding risk altogether, management may decide to
assume the risk generated by a project and pass
along this risk to a third party through risk hedging.
3. Risk reduction
Measures to reduce the frequency or severity of
losses, also known as loss control. May include
engineering, fire protection, safety inspections, or
claims management.
4. Risk Retention
Retention is the decision to maintain the risk in the
enterprise. Typically, risks are retained in two
different ways.
Risk Monitoring Risk monitoring and control
includes the following:
• Identify, analyze, and plan for new risks
• Track identified risks and monitor trigger
conditions
• Review project performance information such as
progress/status reports, issues, and corrective
actions
• Re-analyze existing risks to see if the probability,
impact, or proper response plan has changed
• Review the execution of risk responses and
analyze their effectiveness
• Ensure proper risk management policies and
procedures are being utilized