Lecture 6 and 7

Question 1

Risk management

Answer 1

• Risk management involves the continuous and constant awareness and attention of managers at all levels of the firm to the potential occurrence of developments that have a negative impact on the organization, and its chances to achieve its mission, goals and strategies.
• It also includes all the processes organizations implement to identify risks and mitigate their potential negative effects.

Question 2

The risk management process

Answer 2

• Step 1: Assess the organization’s risk appetite
• Step 2: Define risk management responsibilities
  o Risk managers; risk officers; CFO (chief financial officer) or COO (chief operational officer)
• Step 3: Analyse the types and sources of risk
• Step 4: Communicate and report on risk

Question 3

Enterprise risk management frameworks: COSO

Answer 3

Committee of Sponsoring Organizations’ (COSO’s):
“The underlying premise of enterprise risk management is that every entity exists to provide value for its stakeholders. All entities face uncertainty, and the challenge for management is to determine how much uncertainty to accept as it strives to grow stakeholder value. Uncertainty presents both risk and opportunity, with the potential to erode or enhance value. Enterprise risk management enables management to effectively deal with uncertainty and associated risk and opportunity, enhancing the capacity to build value.”