FRM- 1 Flashcards
Reason for Launching Risk Governance Program
Failure in Risk Handling and Risk Governance leading to 2008 Economic Crises
Relationship between Enterprise and Risk
- Risk is linked with Production Activities of Enterprise
2. Enterprise is characterized by Uncertainty in its Operations to meet Customers’ Need
Role of Directors in Enterprise Management
Effective Oversight of Risk- Taking
Aim of Risk Governance Program
- Help Directors in Improving their Risk Management Oversight
- Enhance Risk Oversight Structures, Processes and Competence
Impact of Poor Risk Handling and Governance
Loss in Job, Goods and Services
Base of Risk-Taking Issues
Impact on the Value of the Firm
Various Definitions Related to Risk
- Focus only on Negative Implications of Risk
2. No Clear Distinction between Risk and Uncertainity
Two symbols Describing Risk
- Danger
2. Opportunity
Two symbols Imply
Danger and Opportunity Comes Hand-in-Hand
Good Risk-Taking Organization
- Planning for Crisis in Good Times
2. Looking for Opportunities in Bad Times
Risk Profile
Various Risks Faced by an Organization
Need of Risk Profile
- Aware of Risks Faced by the organization
2. Effective Risk Management as well as Risk Governance
Risk Profile Same for Every Organization & Industry
No
Next Step after Risk Profile
- Classifying the various risks into 3 groups:
a. Risks to be passed on to the owners
b. Risks to be hedged
c. Risks to be exploited - Risk Treatment Process
Risk profile made by Different Persons
- Different Due To
2. Different Experience
In Organization
- Clear Understanding of Various Risks Faced
2. Spell Out the Potential Risks
Risk Management
- Minimizing Exposure to the Wrong Risks
2. Increasing Exposure to the Good Risks
Corporate Governance
- Structures and Processes Direction and Control of Companies
- Relationship between Management, Board of Directors, Controlling Shareholders, Minority Shareholders and Other Stakeholders
Perspectives on Corporate Governance
- Agent Theory: Aligning Shareholders and Internal Agent
- Transaction Cost Theory
- Stewardship Theory: Managed and Guided in an Opportune manner (Achievement, Meaningfulness, Altruism of Human Motives)
- Resource Dependence Theory
- Stakeholder Theory: Agreements with Multiple Stakeholders on Various Directions that Create Value or Result into Risks if Neglected
Risk Governance
Director’s way of Authorizing, Optimizing and Monitoring Risk-Taking
Risk Governance Includes
- Skills
- Infrastructure (Organization Structure, Control, Information Systems)
- Culture
Good Risk Governance Defines
- Accountability
- Authority
- Communication and Reporting Mechanisms
Responsibility of Risk Oversight
- Board
- Risk Committee
- Audit and Risk Committee
Purpose of Risk Management
Making Firm More Valuable