| The importance of risk management is often | | | | (a) a strategy formulation which defines the company's |
| under-estimated by many companies. Resources | | | | risk culture, rules and regulations to manage risk, and |
| invested in risk assessment are often considered to | | | | adopting the right technology to identify, monitor and |
| be unnecessary, yet businesses are willing to cope | | | | track risks; |
| with 'firefighting' to deal with unfolding uncertainties. A | | | | (b) a strategic RM where inherent risks are embedded |
| properly formulated risk management (RM) plan can | | | | in any business strategy; |
| not only protect value, but also entail organized | | | | (c) a business strategy evolution where RM evaluates |
| activities to increase economic and shareholder value | | | | varying strategic options and helps direct company |
| while fulfilling compliance requirements. | | | | resources towards more profitable options and |
| Judging by the current financial turmoil and its | | | | (d) the risk management can be assessed in a variety |
| consequences on regional businesses, the need for | | | | of ways, depending on the maturity of planning within a |
| RM as never been greater. It is evident that a | | | | company. Different companies have different level of |
| well-integrated, company-wide risk management does | | | | appetite to risk taking and companies should identify |
| not only protect against emerging risks, but it also helps | | | | the best approach for their risk strategy. |
| provide a competitive edge that spreads confidence | | | | The chosen approach should target a number of |
| and enables high performance. | | | | objectives including: |
| In many organizations, the risk management function | | | | (a) compliance where traditionally a few business |
| represents no more than a short-term response to an | | | | areas are considered for risk assessment to ensure |
| emerging situation or new regulatory requirements. But, | | | | adherence to policies and procedures, establishing |
| recent victims, particularly in the banking and | | | | clear guidelines keep the company compliant, but |
| real-estate sectors highlighted the potential threats of | | | | remain vulnerable to risk; |
| this. A more appropriate approach would be to devise | | | | (b) value protection which employs more advanced |
| a RM plan that assesses potential risks across an | | | | techniques to safeguard current assets and |
| entire organization, taking into account political, | | | | shareholder value, but does not address the overall risk |
| economical, social and technological factors. Other | | | | profile of the company and |
| factors such as market dynamics and legal and | | | | (c) value creation which involves a dedicated risk |
| regulatory requirements could also be taken into | | | | evaluation team that usually establishes relevant |
| consideration. | | | | standards to mitigate risk across the whole |
| A more comprehensive approach to risk management | | | | organization. |
| is often adopted by successful companies, as an | | | | In order to determine the best strategic approach to |
| indicator of robustness and high performance. | | | | risk planning, the following steps could be pursued: |
| Nowadays, leading companies, particularly in the | | | | (a) establish strategic guidelines by determining what |
| financial sector are more likely to adopt a wholesome | | | | company stakeholders expect from risk management |
| approach to risk management, and put in place | | | | and outline the role of the risk management teams; |
| processes and technologies for a successful | | | | (b) determine risk profile by establishing and agreeing |
| implementation. | | | | what level of risk the company is willing to take and |
| Many companies are progressively realizing the need | | | | the analysis to be performed; |
| to integrate their risk management plan into their | | | | (c) choose the approach by identifying key |
| business strategy. This can be an invaluable way to | | | | performance indicators to monitor risks being taken |
| protect value and ensure sustained growth. Value | | | | and expose if the company is operating within its |
| creation can be achieved through | | | | comfort zone; |
| (a) assisting management in directing capital fund to | | | | (d) carry out gap analysis by benchmarking the |
| most productive avenues, | | | | company's existing risk plan, if it exists, with the risk |
| (b) assessing the risk associated with new investment | | | | strategy and analyze what remains to be completed |
| decisions to increase business efficiency and | | | | and |
| productivity and | | | | (e) develop a strategic roadmap by identifying the key |
| (c) improving relations with ratings and regulatory | | | | actions required to realize business strategies and put |
| agencies, particularly for listed companies. | | | | the new program into action. |
| Prevailing RM practices not only address mitigation, | | | | In the face of uncertainties, the leaders of regional |
| compliance and control, but also become an integrated | | | | businesses are encouraged to devise a strategy to |
| part of business strategy. The provision of risk-related | | | | risk management as an instrument that enables |
| guidelines for decision-making processes improves | | | | businesses to achieve and maintain superior |
| strategic execution to increase shareholders returns | | | | performance. This not only identifies and deals with |
| and raise the organization to a higher level of | | | | wide-ranging risk potentials, but also creates and |
| performance. | | | | enhances shareholders' values and permits a long term |
| The company strategy and RM often coincides at | | | | of growth and profitability. |
| different phases of the planning cycle, including | | | | |