Syllabus A. Role Of The Senior Financial Adviser A2. Financial strategy formulation

A2d. Risk Management Process 5 / 9

Syllabus A2d)

Explain the theoretical and practical rationale for the management of risk.

Risk and the risk management process

5 step process:

  1. Identify Risk 

    Make list of potential risks continually.

    Identify risks facing the company - through consultation with stakeholders

  2. Decide on acceptable risk

    Decide on acceptable risk - and the loss of return/ extra costs associated with  reduced risks

  3. Analyse Risk

    Prioritise according to threat/likelihood.

    Assess the likelihood of the risk occurring - management attention obviously on the higher probability risks

  4. Plan for Risk

    Look at how impact of these risks can be minimised - through consultation with affected parties.  

    Avoid or make contingency plans (TARA)

  5. Monitor Risk

    Assess risks continually. 

    Understand the costs involved in the internal controls set up to manage these risks - and weighed against the benefits

Why do all this?

  • To ensure best use is made of opportunities

    Risks are opportunities to be siezed

    Can help enhance shareholder value