Apr

28

All human activity involves risk. As such, great lengths are taken to monitor/minimize potential risk as well as monitor/maximize opportunities.

Risk management is the identification, assessment, and prioritization of risks, followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of mal-factors.

Yet even in risk managment, being a human activity in itself, there are areas prone to risks.

And these are:

[1] Inconsistencies in defining risk.

This makes difficult determining where overall risk management has failed to address specific exposure.

[2] Fragmented responsibility.

With each type of risk being addressed in isolation, more complex risks will escape proper management.

[3] Increased operational risk.

Need to address poor output quality occasioned by growing process design complexity. Automation easily makes the situation worse because it vastly increases the speed at which errors are propagated through interconnected systems before they are caught.

[4] Inadequate process analysis.

These weaknesses only stress the rationale and implementation of an intergated Risk management throughout the entire enterprise.

An intergrated risk management system is comprised of the following:

[1] Decision support.

An executive Management Information System vehicle which institutionalizes:
a) a financial risk integration system affecting refinement and aggregation design that bridges various specific risks in a qualitative manner; and
b) a poor-quality-risk definition system which expresses and quantifies operational activity-based cost.

This will alert Management to wasted effort throughout the company’s business processes.

The A-LCo (Asset-Liability Committee) approach promotes integration, cross-functional and strategic thinking; enhances quality decision-making; and constantly update efforts to address, among others, waste reduction opportunities on a continuing basis where the potential returns are greatest.

[2] Well-organized responsibilities.

Organizations should reflect issues of joint risk oversight, properly matched authority, as well as operating and financial risk management.

[3] Overall risk strategy.

Risk management objectives must agree with corporate policy and strategy. Thus, management is led to managing previously fragmented body of issues with one understanding and one voice.

These factors bring out the logic of a complementing multidimensional risk management unit to precipitate an integrated and more circumspect appreciation of products, processes and risks.

For in enterprise-wide risk management, it is essential to promote consistency among executives about defined risk types, their behavior and the means to express them objectively in quantifiable way, that should likewise facilitate the process of risk mapping, monitoring and assessment.

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Source:
Hernandez, Antonio. "Risks in risk management." 24 April 2011.
Philippine Daily Inquirer. Accessed 25 April 2011.
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