ICANPROFESSIONAL YAHOOGROUP

Entrepreneurship Seminar

OPENING QUOTE:

And the struggling pharmaceutical SME failed

How a fledgling Audit Firm put its owners in BIG TROUBLECASE STUDIES ON RISK

MGT FAILURES

Why Small Businesses Crumble So Soon

What is it about RISK?

Risk as a cause e.g. fire, theft, fraud

Risk as a likelihood probability of occurrence

Risk as an object the objects that constitute the risk, e.g., factory, aircraft, ship, young male drivers

Risk as an action taking a risk by doing something or not doing something

Risk is a condition in which there is a possibility of an adverse deviation from a desired outcome that is expected

Risk is all pervasive of all human endeavour

SCARED OF RISK?

RISKS FACING SMALL BUSINESSES

TYPES OF RISKCredit Risk: The risk of loss arising from loan default or unpaid account receivablesOperational Risk: The risk of loss resulting from inadequate or failed policy, processes and systems or from external eventsMarket Risk: The risk of loss resulting from adverse movements in the market prices, interest rate, equities, commodities, or currencies.Liquidity Risk: The risk of loss to an entity arising from its inability to meet its obligations as they fall due.Legal Risk: The risk of loss arising from inability to enforce a contract against a counterparty, or unfavourable legal proceedings.Compliance Risk: The Risk of loss arising from breach of regulatory requirements Strategic Risk, Reputational Risk etc.

TYPES OF RISK (contd)

Enterprise Risk Management (ERM)

ERM deals with risks and opportunities affecting value creation or preservation

ERM is a process, effected by an entitys board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.

Source: COSO Enterprise Risk Management Integrated Framework. 2004. COSO.

COMPONENTS OF ERM FRAMEWORK

Benefits of ERM Implementation Aligning risk appetite and strategy Enhancing risk response decisions Reducing operational surprises and lossesImproving overall risk rating Improving deployment of capitalComplying with regulatory changesImproving shareholder valueFacilitating long term survival

Risk Assessment ProcessIdentify relevant business objectives. Identify events that could affect the achievement of objectives. Determine risk tolerance.Assess inherent likelihood and impact of risks.Evaluate the portfolio of risks and determine risk responses.Assess residual likelihood and impact of risks.

Risk Assessment (Contd)Risks are analyzed, considering likelihood and impact, as a basis for determining how they should be managedRisks are assessed on an inherent and a residual basis. RISK MAP

Risk = (Probability of event occurring) X (impact of event occurring)

Risk Response ActionsAccept = monitororAvoid = eliminate (get out of the situation)

Mitigate = institute controls

Share = partner with someone (e.g. insurance)

Residual risk (unmitigated risk)

Business Continuity Planning (BCP)BCP is a roadmap for continuing operations under adverse conditions such as fire incident, server crash etc.Important documents should be duly protected with a back up facility and kept in an offsite facility.

KSF for an Effective ERM Implementation

Implementation Challenges

Concluding QuoteFor firms to succeed in this increasingly globaland competitive marketplace, risk managementmust become a state of mind. A systematic andproactive enterprise-wide approach to managingrisks is essential to making risk management anintegral part of the companys DNA-NURAG SAKSENA CRO, Freddie Mac

There are risks and costs to a programme ofaction; but they are far less than the longrange risks and costs of comfortableinaction -John F. Kennedy

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