| Topic : Enterprise Risk Management and Governance |
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Credit Risk Management
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Source : http://www.bettermanagement.com
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last activity : 07 06 2010 20:18:04 +0000
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Risk management is a structured approach to managing uncertainty through risk assessment, developing strategies to manage it, and mitigation of risk using managerial resources.
Overseeing the risk of an entire enterprise is the pinnacle of any risk management activity that an institution can arrive at. It is hardly surprising then, that "enterprise-wide risk management" has become a group of key buzzwords used by financial consultants and software vendors. Other similar, well-worn expressions are "integrated risk management" and "holistic risk management solutions."The strategies include transferring the risk to another party, avoiding the risk, reducing the negative effect of the risk, and accepting some or all of the consequences of a particular risk.
Some traditional risk managements are focused on risks stemming from physical or legal causes (e.g. natural disasters or fires, accidents, death and lawsuits). Financial risk management, on the other hand, focuses on risks that can be managed using traded financial instruments.
Objective of risk management is to reduce different risks related to a preselected domain to the level accepted by society. It may refer to numerous types of threats caused by environment, technology, humans, organizations and politics. On the other hand it involves all means available for humans, or in particular, for a risk management entity (person, staff, organization).
Managing risk is an old habit of human beings. In our day-to-day life, we seem to be always worried about future risks. As a result, we end up investing in insurance or other investment instruments to secure ourselves against those unseen risks. Accidents, environmental disasters, bankruptcy, loss in business, and death are risks that have plagued us since time immemorial. Generally, we cannot get a complete shield against any potential risk, but we can adopt appropriate proactive measures to mitigate every risk. The same concept applies to the financial services industry too. However, managing risk individually seems to be less talked about today, while enterprise-wide risk management (EWRM) or firm-wide risk management or integrated risk management seems to be the current buzzword.Tips to make EWRM a success:
- An awareness among employees about each and every risk and its implications.
- A clear understanding of the reasons behind all risks and the collection of all significant, appropriate data for an effective strategy to manage those risks.
- A clear understanding about the relevant investment in technology to maintain an uninterrupted flow of data across the organization. It may require revamping of existing legacy systems.
- A single point of contact in the management board to supervise the risk management process across the enterprise.
- The implementation of a single distributed data architecture to collect information from across the organization while feeding a network of uniform engines to strengthen the front, back and middle office.
- The one thing that organizations must keep in mind while selecting risk management tools is that they are flexible enough to accommodate any future regulatory and reporting requirement changes.
I hope that you will be successful in implementing the same in your organisation for better productivity.
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