corporate risk management

2. NAMES OF STUDENTS IN GROUP 8
• MOHAMED, SAAD BALA KKE15010
• ALARA, Oluwaseun Ruth KKE15018
• FIRAS, JAMAL KKE15019

3. INTRODUCTION
• If you cannot manage risk, you cannot control it. And if you cannot control it, you
cannot manage it. This means you are just gambling and hoping to get lucky.
• The increasing pace of change, customer demands and market globalization all put
risk management high on the agenda for forward-thinking companies. It is
necessary to have a comprehensive risk management strategy to survive in today’s
market place because it is one of the important issues facing organization today.

4. WHAT IS RISK?
• Risk is defined as the relative dispersion od variability in the firm’s expected
earnings before interest and taxes (EBIT)
CLASSIFICATION OF RISK
• Risk can be classified into systematic and unsystematic risk
• Systematic risk is risk that is influenced by market and economic factors.
• Unsystematic risk is risk that can be reduced or eliminated.

5. WHAT IS CORPORATE RISK
MANAGEMENT?
• This is the process of identifying, qualifying and managing the risks that an
organization faces.
• It also involves identifying the types of risk exposure within the company,
measuring those potential risks, proposing means to hedge, insure or mitigate some
of the risks and estimating the impact of various risks on the future earning of the
company.

6. ESTABLISHING THE CONTEXT
• Identification of risk in a selected domain of interest
• Planning out the following:
The social scope of risk management
The identity and objectives of stakeholders
The basis upon which risks will be evaluated, constraints
• Defining a framework for the activity and agenda for identification
• Developing an analysis of risk involved in the process
• Mitigation or solution of risks using available technological, human and
organizational resources.

7. KEY ISSUES ON CORPORATE RISK
MANAGEMENT
• Probability (Likelihood) of event occurring
• Severity (Impact) of the event on set objectives
• The strategies to manage risk typically include transferring the risk to another party,
avoiding the risk, reducing the negative effect or probability of the risk, or even accepting
some or all of the potential or actual consequences of a particular risk.
• Let's look at common risks in corporate set-up.

8. TYPES OF CORPORATE RISK
MANAGEMENT
In a corporate setting, the familiar division of the risks are:
• Market risks {Business risk}
• Credit risks
• Operational risks

9. • Market risks: This is the biggest challenge of corporate risk management in that it refers
to the risk of loss to an institution resulting from movements in market prices, in
particular, changes in interest rates, foreign exchange rates, and equity and commodity
prices.
• Credit Risk: Credit risk is most simply defined as the potential that a bank borrower or
counterparty will fail to meet its obligations in accordance with agreed terms.
• Operational Risk: This is the risk of loss resulting from inadequate or failed internal
processes, people and systems, or from external events.

10. Risk
Systematic Risk
(Non-diversifiable
Risk)
Unsystematic Risk
(diversifiable Risk)
Business
Risk
Financial
Risk

11. THE DRIVERS OF CREDIT LOSES

12. THERE ARE MANY OTHER TYPES OF
RISKS

13. WAYS COMPANIES MISMANAGE
RISKS
• Relaying on historical data
• Focusing on narrow measure
• Overlooking knowable risks
• Overlooking concealed risks
• Failure to communicate
• Not managing in real time

14. COMPOSITE RISK INDEX
Composite risk index=impact of the risk event X probability of
occurrence
Expected return=∑(PiXRi)
Where Pi=probability of occurrence of ith return
Ri=return associated with the ith return
Standard Deviation=√∑Pi(Cfi-Expected c/f)2
Coefficient of Variance=
𝑠.𝑑
𝑒𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑟𝑒𝑡𝑢𝑟𝑛

15. CORPORATE RISK OPTIONS
• Design a new business process with adequate built-in risk control
• Containment measures from the start
• Periodically re-assess risks that are accepted in ongoing process as a normal feature
of business operations and modify mitigation measures.
• Transfer risks to an external agency e.g. an insurance company
• Avoid risks altogether

16. WHAT HAPPEN WHEN WE FAIL TO
MANAGE CORPORATE RISKS
• Consequences can be disastrous.
• From reputation risk; job loses; company collapses; increase in unemployment rate;
etc.
• Few case studies are as follows:

17. RECENT BANKING CRISES

18. WHAT TO DO
• Avoidance (eliminate, withdraw from or not become involved)
• Reduction
• Sharing
• Retention (accept and budget)

20. EXERCISEThe following table shows the possible payoffs of Tweety Berhad
Required:
a. Calculate the expected return of Tweety Berhad
b. Determine the standard deviation and coefficient of variance
State of Economy Probability of Outcome Returns of Tweety Berhad
Optimistic 0.2 0.20
Normal 0.7 0.30
Pessimistic 0.1 0.40

21. SOLUTIONS
a. Expected Return = 0.2(0.20) + 0.7(0.30) + 0.1(0.40)
= 0.04 + 0.21 + 0.04
= 0.29
b. Standard deviation = √(0.2(0.20-0.29)2
+ 0.7(0.30-0.29)2
+0.1(0.40-
0.29)2
=0.05385
= 5.385%
c. Coefficient of Variance =
𝑠.𝑑
𝑒𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑟𝑒𝑡𝑢𝑟𝑛
=
0.05385
0.29
= 0.186
= 18.6%

22. CONCLUSION
Risk management should be indispensable in any corporation.
Risk takers always have highest returns why risk avoiders have lowest return
because risk is proportional to return.

23. REFERENCES
• Hubbard, Douglas (2009).The Failure of Risk Management:Why It’s Broken and
How to Fix it. JohnWiley & Son. p.46.
• Crockford, Neil (1986). An Introduction to Risk Management (2 ed.) Cambridge,
UK:Woodhead-Faulkner. p.18. ISBN 0-13-224227-3
• Rodziah Abd Samad et al (2013). Financail Management for Beginners (4 ed.)
Malaysia: McGraw-Hill Education.p.207,338-339.ISBN 978-967-5771-78-1.

24. THANK YOU