risk-management-(3)

Literature Review Name Yahui Yin NO 2856799 1 CONTENTS Introduction 2 Main Body 2 Definition of Risk Management 2 Category of Enterprise Risk 3 Category of Risk Management 3 Significance of Risk Management 4 Strategy of Risk Management 7 Conclusion 8 Reference 9 Literature Review Name Yahui Yin NO 2856799 2 Introduction The U S A sub prime mortgage crisis triggered by the financial crisis resulting in negative impact for the development of the global economy And this crisis originated banking which has a strong anti risk awareness This event give the enterprise a big alarm about risk management Risk management is a management process which through risk identification risk assessment and implementation of risk management methods reach minimum risk and maximum corporate profits With the development of the enterprise production and scale a company s risky element becomes more and more complicated This essay will demonstrate what is risk management why enterprise attach importance to risk management and how to manage risk Main Body Definition of Risk Management The identification analysis assessment control and avoidance minimization or elimination of unacceptable risks An organization may use risk assumption risk avoidance risk retention and risk transfer or any other strategy management of future events Enterprise Risk Management is a financial activities that the enterprise can adopt scientific and effective methods to prediction identification prevention control and treatment various risk ensure the continuity stability and efficiency of the movement of company s funds with the lowest costs on the basis of completely understand the risks they face Category of Enterprise Risk Enterprise risk is divided into three categories market risk credit risk and operational risk Market risk is the reduction in the value of assets or increased in the value of liabilities caused by changes of the market risk factors Credit risk another name is default risk is the company lose ability to pay for transactions resulting in the loss of the other company Operational risk is other risks except market risk and credit risk ou generally this risk is concerned with the operation of enterprise The result of the occurrence of these risks is that project delays and greatly increase of costs The biggest problem can not effectively deal with these risks is retardation to respond to the risk Generally the company find problems so late that can not make up or the cost of make up is too much Literature Review Name Yahui Yin NO 2856799 3 Category of Risk Management Generally risk management can be divided into three parts risk identification risk analysis and risk resolved Traditional risk management system only can help us to be statistical and manage risk these systems are not avoid or solve any risks In fact the enterprise have to spend a lot of manpower and resources to solve various risks Enterprise risk identification is a basic work in the risk analysis and management The main task is that clearly realize existence of business risks find the main risk factors and lay a solid foundation for risk analysis and decisions After risk identification the enterprise must be carried out risk analysis This can determine the severity of the influence on the development of enterprises and take appropriate measures it is actually use methods to estimate and measure on the possibility of risk occurrence or the scope and extent of loss Enterprise risk decision is aimed at different types and different scale enterprise risk adopt appropriate measures or methods make the loss of risk to the enterprise production and business operation activities of the impact decrease to a minimum Significance of Risk Management Barings Bank founded in 1793 is one of the largest banks in the United Kingdom before the 1990s 27 February 1995 the British central bank suddenly announced Barings Bank will not continue to engage in trading activities and apply asset liquidation This means that with a 233 year history worldwide more than 270 million pounds in charge of the British Barings Bank went bankrupt In 1995 Leeson who is the head of the chief trader and clearing two jobs served as executive manager of Barings Futures Singapore s Once a trader lose 60 000 because of a operating mistake when Leeson know for fear of exposing things that affect his career he decided to use 88888 error account The so called error Account means the bank brokerage business agent of customer transactions that may occur during the accounting errors account Later he repeatedly used error account so that the bank accounts are displayed profitable transactions With the passage of time A vicious circle of error account after using the loss of the company bigger and bigger Leeson at this time in order to recoup their losses and at last take long positions in the kobe earthquake in Japan and finally caused a loss more than 1 billion This 233 year history bank instantly collapsed Barings bankruptcy due to lack of adequate segregation of duties and monitoring mechanisms superior to subordinate engaged in the business The Company huge operational risk led to its eventual defeat With the development of economic globalization the enterprise will face various risks in the market competition how to Literature Review Name Yahui Yin NO 2856799 4 identify assess monitor control risk has become a hot topic Risk management is a relatively weak link in enterprise management The weakness of risk awareness risk management work is the important reason for the serious risk events of enterprise The implementation of the risk management is the requirement of the enterprise as well as the enterprise participate market competition to ensure the sustainable healthy and stable development Due to the existence of various uncertainties the company activities inevitably exist various risks the company must take necessary measures timely to control the risk thy can avoid or reduce the loss of risk and ensure the achievement of enterprise aim Therefore the effective risk management is vital significance for enterprises 1 They can help enterprises to make the right decisions in the face of risk and improv ability of managing risks With the development of globalized the enterprise face with more and more complicated risks more and more uncertainties This is difficult to make a scientific decision for companies Only through the establishment of effective risk management mechanism the implementation of effective risk management the company can make right decision in the vagaries of market 2 They can achieve the enterprise objective improve economic benefits of enterprise Enterprise management objective is to pursue profit maximization but in the process of achieving this objective will inevitably encounter all kinds of uncertainty factors which affect the enterprise activities objective Therefore enterprise must manage risk defuse the influence of the variously adverse factors and ensure the achievement of enterprise management objective Strategy of Risk Management 1 Establishing the enterprise risk management objectives and an effective supervision system Enterprise risk management framework is built on a specific enterprise supervision framework and appropriate personnel responsibility allocation the aim is to make risk inherent component part of enterprise Enterprise risk management must be combined with technology and strategic management The enterprise risk management must be have clearly objective and plans in the whole enterprise and combine enterprise business strategy and objectives create a risk management process which support by collective of enterprise wide 2 To establish assessment of risk system Enterprise risk management pay more attention to risk expanding the elements of the risk assessment of the internal control framework and further subdivided into objective setting risk identification risk assessment risk measures and other factors The various component through risk assessments will be closely linked The risk assessment includes three basic aspects Firstly the skillful and experienced manager Secondly the effective method of risk Literature Review Name Yahui Yin NO 2856799 5 management Thirdly identifying analyzing and measuring the ongoing process of risks and opportunities If the company want to assess the risk the first is identify risks and collect analyze comprehensive dispose the internal and external data provide reliable and timely risk management information to the enterprise To understand the nature and the influence of the risk analyze the root causes of risk Established risk data base analyze the risks and benefits assess the risk of different enterprise development strategies finally select the appropriate measures to deal with risks Once the risk assessment system developed and put into implementation it has gradually moved toward the enterprise risk management 3 Establishing effective incentive mechanism Modern enterprise competition is the human resource competition talent is the most important and most active in many elements of productive factor is one of the most valuable wealth of enterprises the quantity quality structure of talents determines the success or failure of enterprises in a large extent the incentive mechanism can stimulate the fully staff motivation creativity potential of employees and make individual employees development and enterprise s development closely linked together Conclusion In a word enterprise risk management needs joint efforts