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Dealing With Each Stage Of Risk Management

Cycle Finance Essay


First of all we need to introduce the definition of the risk management; it is defined as a scientific
approach to the problem of dealing with the pure risks faced by individuals and businesses. It is a function
of management in the same style as marketing management, financial management, or personnel
management.
The organization managers have to response to deal with pure risk, the difference between risk
management and insurance management is the manager deals with both insurable and uninsurable risks
and the choice of the appropriate techniques for dealing with them. This is why risk management if
broader than insurance management.
There are four steps of the risk management circle:
Identify the risks
The risk evaluation
Consideration of alternatives and selection of the risk treatment device
Implementation of the decision
The first step is to identify the risks. Generally, there is a potential risk around us before we do anything,
we need to prepare and identify what are they and how are they going to affect us, therefore to dig in to
the operation and discover the risks become the key point in this stage. Sometimes it is hard to recognize
and generalize the risk of the organization, because there are some differences in operation; difference in
the condition of the organization. There always some overlooking important risk exist rather than
obviously risk, there are few methods to avoid overlooking risk like systematic approach, insurance policy
checklist, risk analysis questionnaires and financial statement.
According to the case in banking industry which facing by financial institution, risk is defined as the
volatility of a corporations market value which have select as broad as possible, also the decision made by
manage will impact on a change in the value of market. This is the concept which optimising the risk
reward trade off, different with reduce the risk level. In the operation of banking system, the exposure of
bank is systematic such as credit risk.
Credit risk: it is refer to risk due to uncertainty in a counterparty's (also called an obligor's or credit's)
ability to meet its obligations; and the potential financial loss resulting from the failure of customers to
honour fully the terms of a loan or contract, the definition also including the value of risk of loss in
portfolio as a result of movement from the higher risk level to lower one.
The second step is risk evaluation. Risk manager must evaluate them such as the probability to happen
and it is necessary for bank to establish a system to measure the expected and unexpected loss. The risk
evaluation requires a ranking system to tell the priorities. This is due to the certain of some certain risks
because the possible loss could be much serious and deserve the attention prior to others, this kind of
situation could also occur with other risks also requires priorities. If a bankruptcy happened because of
liability loss, the net effect would be the same. To classify different levels of risk, itll make the
understanding much easier to use descriptions such as critical, important and less important to
address different level of risk. Critical risks represent serious exposures which the possibility of loss will
result a bankruptcy, so critical risk must be dealt with in the first place.
Measure credit risk
There are 3 factors that could cause the expected and unexpected loss in a credit portfolio.
Firstly, customer default risk is determined by the risk grade profile of the portfolio, the tenor of the
exposures and the level of exposure to country risk. Normally the defaults rates are calibrated by different
rating agencies.
Secondly, loss given default is determined by the degree of security cover, the effectiveness of the work out
process and the credit cycle.
Thirdly, exposure is the amount that tends to be outstanding at the time of default. This includes current
drawn amounts as well as an allowance for contingent liabilities and undrawn lines.
The third step is consideration of alternatives and selection of the risk treatment device. After identify and
evaluate the risk, we need to think about which approach may be used in to the risk, also which type of
technology will be imply in to risk treatment device. When risk management facing the organization, there
are always need to consider two approachesrisk control and risk financing. Risk control refer to how to
use techniques of avoidance and reduction to minimise the lost of risk. Risk financing focus on use the
availability of funds to supply the organization when meet its loss situation also imply the risk control
techniques include the tool of retention and transfer. Both risk control and risk financing are alternative
approached to dealing with risk also not mutually exclusive.
For instance, in the manufactory, risk can be avoided by stop using hazards products by chose another
product line. In a funded retention program, the firm will holds the assets in a liquid to against the
possible loss which are retained. The case in transferring the risk can be explain in the bank buying the
governance bonds which is a risk free assets to transfer the risk.
The fourth step is the implementation of the decision. In this stage, the purpose of the decision making is
for retain the risk. It may ( or not) achieve either through a reserve or funds, the progress of
administration procedure need to be set up in order to help implement decision making. If there is
accumulation fun in the plan, to implement the decision have to set up the administration procedure. In
the case of bank, to implement the method to adjust the level of risk, we need to make sure the capital
amount to the activity, investigate if the two activities acquired the same result from RAROC, therefore
can prove whether the decision making under the neutral.
Conclusion
Risk management has always been a constant problem for banking industry. Risks sometimes turn
themselves into real trouble without warning. Even though risk managers have identifies them, but
because of lack of activities and right decision havent been made, so many risks are not liquid or clear
enough to remove.
2. For (swimming pool) explain how arrangements for each stage of
the risk management cycle were applied before the event and how in
retrospect they could have better performed?
Swimming Pool Risk Management
Identify, evaluate the risks. Select the effective way to deal with risks
aims to mitigate the hazards and cause of injury.
Common critical hazardous areas include the following:
Depth of the pool: There should be no diving unless a depth is recognized and accepted by a state's health
department.
Diving: Follow new dive-block depth recommendations (at least eight feet) and implement structural
changes to accommodate them, such as modifications to diving boards or timing systems.
Signage: Have enough of it and provide direction on what visitors should and should not do as well as
point out hazards. Essentials include: "No Diving" signs where necessary, pool capacity signs, emergency
signs, proper CPR instructions and pool rules.
Diving board maintenance: Check that the board has enough "grit" to make it nonslip and that bolts and
side rails are intact. Also make sure stairs are cleaned regularly and are not slippery.
Decking: Install "No Running" signs on deck. The deck should have a splash or wet area. For zero-depth
pools, ASTM is now in the process of developing safety standards, which will include decking
specifications. In addition, the widespread use of sunscreens applied frequently and often haphazardly,
can result in slick spots from their oils. Stay aware of what areas can become slippery from oils and lotions
and place appropriate signage in those areas, which are often the steps into the pool, gutter systems and
outside showers.
Locker rooms: Display slips caution signs. Many people don't realize that water on the floor creates slip
hazards.
Also, the advent of camera cell phones has introduced a new privacy issue with regard to locker rooms and
images being taken. Signs that state no cameras or cell phones in locker rooms prevent the possibility of
any inappropriate (or illegal) picture-taking.
LIFESAVING EQUIPMENT: Have the appropriate equipment in accordance with the certifying health
departmental agency. Regularly check first-aid kits, back boards, head immobilizers, CPR masks, neck
braces, safety hooks, reaching poles, life rings and rescue tubes.
RESUSCITATION EQUIPMENT: Have the appropriate equipment in accordance with the certifying
health departmental agency and the American Red Cross.
NIGHT BARRIERS AROUND POOL: Install them. Failure to provide a fence or cover to secure a pool and
prevent access when it's officially closed tempts improper or unscheduled use. Many accidents have
happened, including drowning, from swimming and diving at night.
Create a team effort that involves all these senses in anticipating and preventing accidents.
Encourage all staff to become part of the effort to be safety conscious.
Use the right checklists.
In the area of risk, it's important to use lists that best match a facility's needs in regard to hazards and
safety procedures. Various national associations that offer checklist guidance include the offsite
swimming checklist (www.standards.dcsf.gov.uk) and so on. Various equipment manufacturers may also
have their own recommended checklists.
Adopt the right standards for the facility.
Beyond checklists, it's key to clarify what the appropriate guidelines are for a facility. To make the right
choices, check laws and regulations mandated by state or local governments, as well as recommendations
from various industry organizations like the ones mentioned above.
Establish a safety committee to review findings
An appointed safety officer should create a committee made up of critical staff, such as the maintenance
superintendent, the municipality's or agency's legal counsel, insurance representative, a representative
from purchasing and any other staff who may be making decisions that would influence risk.
Monitor and report. Audit the risk management performance of the
swimming pool.
Periodic auditing, or employing an outside safety expert to check for and advice about risk factors, should
be part of a facility's policy.