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Posts Tagged ‘Organization’

Risk learning and ERM go hand in hand

In Uncategorized on October 8, 2013 at 8:52 pm

It is well said by no other than Warren Buffet: Risk comes from not knowing what you’re doing.” 

Enterprise Risk Management is a holistic view to risk management. It involves top management, board of directors in making strategy within the risk appetite of the organization which leads to fulfilment of organizational objective. The definition looks complex but it is based on very simple concepts. Last week during my discussion with Chief Risk Officer (CRO) of an Indian Insurance company, we identified two way of performing a simple task – one way of doing this is to learn from trial and error and repetition of same task, many times which ultimately leads to give us feeling of being expert and experienced and the other approach of doing is to get knowledge about technical aspect of simple task and learn from other experience and start doing it. Same applies to personnel involved in risk identification, assessment, evaluation and risk control. It can be argued that doing same mistakes over a long period of time without realizing what is wrong and right, does not change solvency position of the organization in case of adverse situations like catastrophic event, deep recessions.

Risk learning is an emerging concept and not discussed yet within the academicians and practitioners very often. A good example of this is maintaining a loss register internally within the organisation and for the industry as a whole and share within the group for the betterment. Do we really use it in our working? When we install a new machine or involve new process – do we first spend some time on gaining technical knowledge and experience through risk learning or just start working on it. It can be argued what is good and valuable for the organization in such case? What will be the benefit of spending huge money in gaining expertise vs. cost of risk?

It can be interpreted that Risk learning is way to learn from critical feedback in existing system and learning from error made by others when we apply it in a new system. This new perspective ‘An improvement in ERM program through Risk Learning’ can make revolution in existing system and improve performance to greater degree.

Comments welcome.

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Who are the parties affected by Risk in the organization?

In Risk Management on May 3, 2012 at 7:51 am

In every organization from top to bottom, senior to junior, creditor to customer every body is affected by risk.  Example – Satyam Computers, the liability arise for auditors to pay for misleading financial reports which ultimately affected whole organization and various parties involved with organization at different levels and overall affect country risk as well. The parties who affect insurance contract are –

  • Employees – Employees of the organization are affected in many ways. If a risk of fire arises then they need to safeguard the personal property, organizational property and liability risk. They provide information to external agencies. Daily wagers loose their jobs. Environment, pollution norms, safety norms and other regulatory guidelines are taken into consideration by employees.
  • Suppliers – Suppliers are affected when the supplies are suddenly stopped. Example – Due to fire, factory close down for 2 months. Therefore, supplies are closed down for 2 months.
  • Customers and other recipient of services – Customers are directly affected from the risk arise out of the organization. In the above example, the customers will not get the products from the company for next 2 months which will create shortage of the good.
  • Distributors –   Distributors face market competition and deals with retailers for product penetration. Distributor is a link between retailer and Company. Distributor is affected by delay in delivery, affect on quality, loss in reputation of the company due to risk arise.
  • Regulators – Regulators could be IRDA, RBI, Pollution control board, Waste disposal board which provides guidelines to reduce the risk from time to time.,
  • The Media – Media provides information to public regarding various risk and hazard related to companies.
  • Private investors – the shareholders and the private investors are affected by the valuation of the company. Various credit rating agencies analyse the risk of companies and publish the rating through the media which is used by private investor to analyze the risk of the companies.
  • Banking industry – The companies take debt from banking institution to run its business. Risk associated with the companies are first analysed by the banks before giving loans.
  • Business partners – Business tie ups, partners are affected by each and every risk associated with business as their reputation is also affected.
  • The environment – Risk and hazard in the organization affects environment. Example – Fire spread in the industry and resulted in burning of most of plant which produces chemical oil which resulted heavy pollution and produced gases harmful for masses.

Others – Risk from Politics, Industrial associations and competition also plays vital role.