NAMES OF STUDENTS IN GROUP 8 ALARA, Oluwaseun RuthKKE15018 FIRAS, JAMAL KKE15019 MOHAMED, SAAD BALA KKE15010

INTRODUCTION If you cannot manage risk, you cannot control it. And if you cannot control it, you cannot manage it. This means you are just gambling and hoping to get lucky. The increasing pace of change, customer demands and market globalization all put risk management high on the agenda for forward- thinking companies. It is necessary to have a comprehensive risk management strategy to survive in today’s market place because it is one of the important issues facing organization today.

WHAT IS RISK? Risk is defined as the relative dispersion od variability in the firm’s expected earnings before interest and taxes (EBIT) CLASSIFICATION OF RISK Risk can be classified into systematic and unsystematic risk Systematic risk is risk that is influenced by market and economic factors. Unsystematic risk is risk that can be reduced or eliminated.

WHAT IS CORPORATE RISK MANAGEMENT? This is the process of identifying, qualifying and managing the risks that an organization faces. It also involves identifying the types of risk exposure within the company, measuring those potential risks, proposing means to hedge, insure or mitigate some of the risks and estimating the impact of various risks on the future earning of the company.

ESTABLISHING THE CONTEXT Identification of risk in a selected domain of interest Planning out the following:  The social scope of risk management  The identity and objectives of stakeholders  The basis upon which risks will be evaluated, constraints Defining a framework for the activity and agenda for identification Developing an analysis of risk involved in the process Mitigation or solution of risks using available technological, human and organizational resources.

KEY ISSUES ON CORPORATE RISK MANAGEMENT Probability (Likelihood) of event occurring Severity (Impact) of the event on set objectives The strategies to manage risk typically include transferring the risk to another party, avoiding the risk, reducing the negative effect or probability of the risk, or even accepting some or all of the potential or actual consequences of a particular risk. Let's look at common risks in corporate set-up.

TYPES OF CORPORATE RISK MANAGEMENT In a corporate setting, the familiar division of the risks are: Market risks {Business risk} Credit risks Operational risks

Market risks: This is the biggest challenge of corporate risk management in that it refers to the risk of loss to an institution resulting from movements in market prices, in particular, changes in interest rates, foreign exchange rates, and equity and commodity prices. Credit Risk: Credit risk is most simply defined as the potential that a bank borrower or counterparty will fail to meet its obligations in accordance with agreed terms. Operational Risk: This is the risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events.

Risk Systematic Risk (Non-diversifiable Risk) Unsystematic Risk (diversifiable Risk) Business Risk Financial Risk

THE DRIVERS OF CREDIT LOSES

THERE ARE MANY OTHER TYPES OF RISKS

WAYS COMPANIES MISMANAGE RISKS Relaying on historical data Focusing on narrow measure Overlooking knowable risks Overlooking concealed risks Failure to communicate Not managing in real time

COMPOSITE RISK INDEX

CORPORATE RISK OPTIONS Design a new business process with adequate built-in risk control Containment measures from the start Periodically re-assess risks that are accepted in ongoing process as a normal feature of business operations and modify mitigation measures. Transfer risks to an external agency e.g. an insurance company Avoid risks altogether

WHAT HAPPEN WHEN WE FAIL TO MANAGE CORPORATE RISKS Consequences can be disastrous. From reputation risk; job loses; company collapses; increase in unemployment rate; etc. Few case studies are as follows:

RECENT BANKING CRISES

WHAT TO DO Avoidance (eliminate, withdraw from or not become involved) Reduction Sharing Retention (accept and budget)

EXERCISE The following table shows the possible payoffs of Tweety Berhad Required: a.Calculate the expected return of Tweety Berhad b.Determine the standard deviation and coefficient of variance State of EconomyProbability of OutcomeReturns of Tweety Berhad Optimistic Normal Pessimistic

SOLUTIONS

CONCLUSION  Risk management should be indispensable in any corporation.  Risk takers always have highest returns why risk avoiders have lowest return because risk is proportional to return.

REFERENCES Hubbard, Douglas (2009). The Failure of Risk Management: Why It’s Broken and How to Fix it. John Wiley & Son. p.46. Crockford, Neil (1986). An Introduction to Risk Management (2 ed.) Cambridge, UK: Woodhead-Faulkner. p.18. ISBN Rodziah Abd Samad et al (2013). Financail Management for Beginners (4 ed.) Malaysia: McGraw-Hill Education.p.207, ISBN

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