Session 3 - Young - Risk management

Question 1

The subject of ethics has long been influenced by the relationship of moral hazards to insurance. However there are imitations to this framework. Name the 2

Answer 1

1. It is linked to loss-producing behaviour - a broader definition would emphasise incentives to take risks while transferring the costs to others
2. There is a strong transactional bias - immortality and illegality are seen as responses to the terms and conditions of transactions

Question 2

Explain modern risk management at a glance

Answer 2

Risk management is moving from a loosely connected collection of technical specialisation to a field where specialisations continue, but where the principal focus is on the integration of these specialisation under the umbrella of a holistic view of risk management.

Question 3

Enterprise risk management: the emerging framework - What do stakeholders expect from organisations regarding risk management

Answer 3

They expect them to practice risk management and that the nature of this risk management is broad, comprehensive, integrative and strategic

Question 4

Enterprise risk management: the emerging framework - Who is the chief risk officer for the organisation

Answer 4

The CEO and all managers are risk managers within the scope of their responsibilities

Question 5

Enterprise risk management: the emerging framework - For top managers, give 2 roles that seem logical

Answer 5

1. Setting risk policy or interpreting policy

2. Assuring that the intended integration and application of risk practices is taking place in accordance with policy

Question 6

The term Entreprise Risk Management (ERM) is now used for comprehensive, policy-driven, integrated risk management. Give the 2 component areas

Answer 6

1. Risk leadership : risk policy / governance decision and activities
2. Risk practice : Operational / performance and technical aspects of day-to-day ERM

Question 7

Explain what is Risk leadership

Answer 7

It is an attribute of leadership representing a conscious understanding of risk and its impact on decision making. Visible in activities that constitute risk governance, reference is on the individual capabilities of a manager to understand the cultural, social and psychological foundations of their approach to decision making

Question 8

Explain what is Risk governance

Answer 8

It deals with how relevant risk information is collected, analysed and communicated and is of particular importance in situations where there is no single authority to take a bonding risk management decision but where instead the nature of risk requires the collaboration and coordination between a range of different stakeholders.

Question 9

Explain what is the “contractarian view of risk management”

Answer 9

Williams, Smith and Young (1998) proposed the contractarian view of risk management, which poses the argument that organisations are collections of contracts, obligations, commitments and agreements created or entered into in the service of the overall goals and objectives of the organisation. People make commitments based upon values, beliefs, cultural expectations and a range of other factors outside legalistic framework.

Question 10

The contractarian view or risk management has some implications, name the 4 implications

Answer 10

• It assumes that risk management is not a peripheral, narrow technical matter, but an essential and central activity of management
• It sets forward the idea that risks are strongly entwined with the substance of organisational activities
• It establishes the view that risks are interconnected and that correlation of organisational risks are critical properties of its overall risk profile.
• It has proven to be quite consistent with modern risk management (ERM)

Question 11

Give the 3 generalised ethical risk categories (for more information go to slide 61/88)

Answer 11

1. The organisation and the law
2. The organisation and stakeholders
3. The organisation and the business environment

Question 12

A successful outcome of ERM is an organic approach to risk management as opposed to a distinctly hierarchical, department-oriented management function. Give the 5 central connections

Answer 12

1. ERM is a manifestation of organisational culture and values : the imposition of a formalised risk management system is unsuccessful unless it is expressly consistent with organisation’s value and culture
2. The further complexity of the risk environment : It is impossible to examine all risks with an ERM model, but equipping managers with sufficient knowledge to react intelligently to risks is possible
3. Risk leadership and governance, and ethics : governance gives evidence of an explicit recognition of the impact of risk management on organisation’s values
4. Centralised and decentralised dilemma
5. Purposes of ERM : Optimisation, rather than maximisation, is perhaps a more relevant way of thinking about risk management

Question 13

Centralised and decentralised dilemma. The guidance on the implementation of ERM asks for 2 seemingly inconsistent things

Answer 13

1. An organisation must take a command-and-control approach at first, but at some point ERM must transform into a highly flexible, decentralised organic function
2. Implementation is fraught with moral challenges when the organisation operates on a global basis. Interpretation of ERM policy is likely to vary widely across cultures