Sustaining Economic Value in a firm: Risk Management

Risk Management is the identification, planning, assessment, prioritization and implementation of risks within the realm of financial services and insurance industry. Risk Management also involves assessing and quantifying business risks and then taking measures to control or prevent them. Usually, Risk Management is part of the compliance function, but it may also be part of specific business units such as securities trading desks or loan origination departments.

So, how do you define Risk?

Risk is the potential loss of an asset, they are events or conditions that may occur and whose occurrence has a harmful or a negative impact on the achievement of the organizations business objectives.

Now let’s explore a few things about Financial Risk Management before we get into details.

Financial Risk Management: is the practice of creating value in a firm by using financial tools to manage exposure to risk, it can be both qualitative and quantitative. In other words financial risk management deals with creating an economic value in a firm.

Risk Manager:  is a highly trained professional, preferably an MBA, who is responsible for minimizing the risks and losses in a firm.

How do I become a Risk Manager?

Eligibility Criteria:  Bachelor’s degree in risk management, finance, or other related field is the minimum qualification for Risk Manager. You can also go for internships to gain practical experience. Some also gain professional certification through organizations like the Institute of Insurance and Risk Management (IIRM), which was set up jointly by the Insurance Regulatory and Development Authority (IRDA) of India and the State Government of Andhra Pradesh in 2002.  

Activities of a Risk Manager on Macro Level

• To ensure companywide implementation.
• To ensure business growth with financial stability
• Find ways to evaluate and identify risks
• Develop strategies and plans for lasting risk management strategie
  Use established risk management methods, tools and techniques

Day-to-day Activities of a Risk Manager

• Identify risks and plan, assess, prioritize and implement risk management process
• Estimate risks - estimate risks with criteria established by the organisation such as costs, legal requirements and environmental factors, and evaluate previous handling of risks of the organization
• Report/ present risks for difference audience – Board of Directors (significant risks), Business Heads (business risks) and individuals (accountability)
• Corporate governance involving external risk reporting to stakeholders
• Carry out risk saving processes within the organisation like purchase of insurance, implement health & safety measures and make business continuity plans, should things go haywire
• Conduct audits of policy and compliance to standards including liaison with internal & external auditors
• Educate the staff and provide support and training to build risk awareness

Various Types of Risks :

• Asset / Investment Risk
• Technical and Liability Risk
• Business / Operational Risk

Skills Required to become a Risk Manager

•  Analytical thinker
•  Good problem solving skills
•  Excellent leadership qualities
•  Essential characteristics
•  Excellent communication skills
•  Good interpersonal skills
•  Ability to make effective decisions

So, if you are thinking of becoming a Risk Manager, these will be the highlight of your job.

• Create value
• Be an integral part of the organizational processes
• Be systematic and structured
• Be ready to achieve and identify acceptable level of risk
• Be a part of the decision making
• Be sure if the risk mitigation measures adopted by the company shall be effective in the           long term
• Be transparent and inclusive
• Be efficient in operations
• Be capable of improvement and enhancement
• Be dynamic, interactive, responsive to change

If you are seeing this, you may also want to see:

• Chartered Accountant
• Economics
• Financial Analyst
• Insurance/ Actuary
• Securities Trading
• Taxation

To know more about RISK MANAGER click here

Author: Raunika Sood