| Topic : Operational Risk |
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IT Services - Information Risk Management
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Activity:
Question posted: 06 02 2008 23:30:49 +0000,
2 answers, 172 views, last activity
07 06 2010 20:18:08 +0000
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Financial risk management consists of activities in which a measurable risk can be mitigated by entering into some sort of financial transaction. The transaction might be achievable by purchasing insurance, buying (or selling) a futures contract, buying options, or through some other means. An example might be an airline that buys oil futures contracts to manage the risk of future fluctuations in the price of jet fuel. Financial risk management is the narrowest definition of risk management.
Operational risk management addresses risks that are beyond (but may very well include) those within the definition of financial risk management. As one example, manufacturing firms may build plants in foreign countries as a way to offset operational risks. One of the risks managed is currency risk if the plant's products are largely sold in the country in which they are manufactured. Financial risk management is typically a subset of operational risk management, although there may be instances in which financial risk management can be utilized to more cheaply manage a risk than it can be managed through operational mechanisms. A good example is buying oil futures is a cheaper way for airlines to manage jet fuel price risk than buying jet fuel in advance and storing it (although the storage solution addresses an operational risk associated with running out of fuel).
Enterprise risk management (ERM) is a much broader arena of risk management, and encompasses financial and operational risk management. ERM also includes human capital risk (look at what happened at Societe Generale because one trader felt he needed to prove himself), strategic and reputational risk, as well as other hazards.
An efficative enterprise risk management system will have three levels of risk mitigation: business processes, contracts and insurance. I have seen too many organizations that have had to use their insurance coverage because they failed to properly address risk at the business process level.
You are correct in linking financial and operational processes. While the former are very important (e.g. customer billing, payroll, derivatives), it's the operational processes (shipping, production, customer service) that drive the business. In any case, process risk should be assessed in the context of company policies (what should occur) and how the process actually works, through walkthroughs, mapping and interviews. Identifying risks and comparing them to controls in place allows for the prioritzation of gaps to be addressed.
As you can see, the most effective way of linking operational (drivers) and financial (results) throughout the enterprise is at the process level. Of course, this bottom-up approach will only work with top management buy-in to a clear framework.
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How convenient it is to blame the government.. There are flaws in government and then there were always flaws there.. now we can see them clearly because many people are coming up and giving voice to the wrong practices.. |
It is a wonderful concept but we need a right plan to follow it. Just an idea wont help. |
Bad news really bad news . 1) We should produce our own arms . 2) More arms means more fight. 3) Only arms would not ensure security. |