Enterprise Risk Management
Risk Management
·
a scientific approach
to the problem of dealing with the risks facing the business firm
Market Risk
·
the risk arising from
adverse movements in market prices
Credit Risk
·
the risk arising from
the potential that a borrower will fail to pay a debt
Liquidity Risk
·
the risk that the
business will have insufficient liquid assets to meet obligations that come due
Operational Risk
·
fraud, breachers in
internal controls, technology risks, and external events such as earthquake,
flood, and war
Reputational Risk
·
the potential that
negative publicity will cause a loss
Strategic Risk
·
the risk of failing to
successfully implement the firm's strategies
Compliance Risk
·
the risk of failing to
comply with laws and regulations
Enterprise Risk Management
·
integrated management
of all risks, pure and speculative
Financial Risk
Management
·
the management of
financial risks, including credit risk, market risk, and liquidity risk
Traditional Risk
Management
·
the management of pure
risks, both insurable and uninsurable
Risk Control
·
encompasses all
techniques aimed at reducing the number of risks facing the organization or the
amount of loss that an arise from these exposures
Risk Avoidance
·
takes place when
decisions are made that prevent a risk from even coming into existence
Risk Reduction
·
broad set of efforts
aimed at minimizing risk
Risk Financing
·
consists of those
techniques designed to guarantee the availability of funds to meet those losses
that do occure
Unintentional
Retention
·
occurs when a risk is
not recognized
Voluntary Retention
·
results from the
judgment that retention is the most effective means of dealing with the risk
Risk Manager
·
an individual employed
by the organization who is responsible for the risk management function
2 Facets of Loss
Exposure
·
the potential severity
of loss and the possible frequency or probability of loss
Criticality Analysis
·
attempts to
distinguish truly important things from the overwhelming mass of unimportant
things
Loss Unit
·
total of all financial
losses that can result from a single event, taking into consideration the
various exposures
Evaluation and Review
·
setting standards to
be achieved, measuring performance against standards, and taking corrective
action when needed
Cost of Risk
·
the total expenditures
for risk management, including insurance premiums paid and retained losses,
expressed as a percentage or revenues
Risk Management Audit
·
a detailed and
systematic review designed to determine some aspects
What is asset liquidity?
·
the ability to sell an
asset quickly and at close to its true value
USA 
India