Meaning and nature of business

risk
Dr. Trupti Karkhanis

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 What Is Risk?
Definition of Risk.
The threat that an event or
action will adversely affect an
organisations ability to achieve
its business objectives and
execute its strategies
successfully

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Business Risk Definition 2
The chance of
something
happening that
will have an
impact on
business
objectives

Source :-Aus/NZ
Risk Mgt Standard

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Wrong assumptions about risk
 Risk is just something for finance
and insurance to worry about
 Risk comes up on the agenda once a
year
 Risk management is just another
layer of unnecessary bureaucracy
 Risk management is about downside
not creation of value
 Risk is a compliance issue

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Types of Risk
 Strategic
 Operational
 Reputation
 Information
 Financial
 People
 Regulatory

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Strategic Risks
 Risks that relate to doing the wrong
things

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Operational Risks
 Risks that relate to doing the right things
in the wrong way

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Information Risks

 Risks that relate to loss or inaccuracy of

data ,systems or reported information

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Financial Risks
 Risks that relate to losing monetary
resources or incurring unacceptable
liabilities

9
People Risks
 The risks associated with Employees and
Management

10
Regulatory Risk
 The Risks related to the regulatory
environment

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Reputation Risk
 Risks that relate to the organizations
brand or image

12
Inherent and Residual Risk
 Inherent risk = Gross risk before
controls/ mitigation
 Residual risk = Risk remaining after
applying controls

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Evaluation and Measurement of
Risk
 Risk is measured in terms of
consequences (or impact) and likelihood
(or probability)

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Consequences Likelihood
 Monetary (% of  Rare (less than
income or budget) once in 20 years)
 Reputation  Unlikely (once in
 Ability to recover 10-20 years)
 Effect on  Possible (once in
Organisation 10 years)
 Likely (once in 3
Insignificant,Minor years)
,  Almost Certain
Moderate,Major (once a year)
Catastrophic

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Questions you need to answer

 What are the

worst things that
could happen to us?
 How likely are they
to happen?
 Are we taking
sufficient steps to
prevent them?

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Risk Management
International expectations are now that
all organisations should:
 Identify, evaluate and manage their key risks and assess
how they are controlled
 Ensure that all aspects of internal control and risk
management are regularly reviewed on an appropriate
cyclical basis
 Have regular board level reviews of reports on risk
management and internal control

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 Risk Management

And that:
Risk management and internal control should be:

 Embedded in the operations of an organisation

 Capable of responding to the changing risks it faces
 Include procedures for reporting major weaknesses
immediately to appropriate levels of management

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 Risk Treatment
Risk

Transfer Exposure

Insure Outsource Determine Evaluate

Cost
Reduce Recover

Loss Contingency
Control
reduction Plans

Measure, Manage, Monitor, Report

Action Plans
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LETZ MITIGATE RISK…

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