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Risk measurement and risk management
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Transcript of Risk measurement and risk management
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Ajibade A OluwaseunAjibade A OluwaseunPenexus Consulting LagosPenexus Consulting Lagos
(A presentation for Senior and Mid level executives of PHRC a (A presentation for Senior and Mid level executives of PHRC a subsidiary of NNPC)subsidiary of NNPC)
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RecapWhat we knowWhat we do not knowWhat we shall learn
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Managing risk is at the core of managing any organisation
Risk measurement and quantitative tools are very critical aids for supporting risk management
The duty of every manager within any organisation before anything else is managing risks
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Managing Risks(Recap)Managing risks is about making tacticla and
strategic decisions to control those risks that should be controlled and to explore opportunities that could be exploited
It is the art of managing people, processes, and institutions as it is also the science of measuring and quantifying risks
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Why is Risk Measurement Necessary?Risk measurement is necessary to support
the management of risks.Risk measurement is the is the specialised
task of quantifying and communicating Risk
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Goals of Risk MeasurementUncovering known risks(Risks that can be
identified and understood)Making the Know risk easy to see understand
and compareTrying to understand and compare the
Unknown or anticipated risks
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Types of Investment riskMarket Risks or systematic risks: is the
posssibility of an investor tto experience losses due to factors that affect overall performance.
Specific Risks (Unsystematic risks): tied directly to the performance of a particular security and can be protected against through investment diversification
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Operational Risks(KRIs)Key risk indicators, operational risk, risk
mitigation—these terms pop up in most content focused on risk management. But, these terms aren't often used in a way that provides guidance on improving processes. We all need to understand what role KRIs play in risk mitigation, but do we all know how to get started turning concepts into action?
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KRI definedKey risk indicators (KRIs) are an important
tool within risk management and are used to enhance the monitoring and mitigation of risks and facilitate risk reporting
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Operational RisksOperational risk is defined as the risk of loss
resulting from inadequate or failed internal processes, people and systems, or external events. Operational KRIs are measures that enable risk managers to identify potential losses before they happen.
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Effective KRIs should beMeasurable - metrics should be quantifiable
(e.g., number, count, percentage, dollar volume, etc.).
Predictable - provide early warning signals. Comparable - track over a period of time
(trends). Informational - measure the status of the risk
and control.
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Leading & lagging KRIs
Leading KRIs are measures that are considered predictive in nature. They are derived from metrics that can help to forecast future occurrences. Lagging KRIs are metrics based on historical measures. These help to identify trends in the firm.
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Importance of KRIsKRIs play an important role in risk management
by predicting potential high risk areas and enabling timely action.
KRIs enable firms to: Identify current risk exposure and emerging risk
trends. Highlight control weaknesses and allow for the
strengthening of poor controls. Facilitate the risk reporting and escalation
process. Operational risk management adds value to the
firm.
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Session tied-inA risk that cannot be Accurately measured A risk that cannot be Accurately measured
cannot be properly managedcannot be properly managed
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Thank You