Associate in Risk Management ARM 54 Chapter One. Understanding RM & Establishing a RM Program. Understanding RM & Establishing a RM Program

Transcription

1 Associate in Risk Management ARM 54 Chapter One Understanding RM & Establishing a RM Program Educational Objectives 1. Describe risk management and its broad scope 2. Identify costs & benefits of risk management for a particular organization and for the entire economy 3. Describe pre-loss and post-loss goals of a risk management program and the possible tradeoffs among these goals Understanding RM & Establishing a RM Program Educational Objectives (cont d) 4. Describe risk management department and a. Departmentsthat risk manager should cooperate with & the type of information they provide b. Communication in & out of the department & organization c. Informationmanagement & risk management information systems used to improve decision making

2 Understanding RM & Establishing a RM Program Educational Objectives (cont d) 5. Responsibilities and reporting relationships of a risk management professional 6. Purpose & content of a written risk management policy statement 7. How to monitor & take corrective action to improve the performance of the risk management program through results & activity standards #1 Risk Management & Broad Scope Definitions Risk uncertainty about outcomes that can be either negative or positive Risk Management processof making & implementing decisions that will minimize adverse effects of accidental losses on an organization #1 Risk Management & Broad Scope Definitions Loss exposure any conditionthat presents a possibility of loss, whether or not an actual loss occurs

3 #1 Risk Management & Broad Scope Steps in decision making process: 1. Identifying loss exposures 2. Analyzing loss exposures 3. Examining feasibility of risk management techniques 4. Selecting appropriate technique 5. Implementing selected technique 6. Monitoring results #1 Risk Management & Broad Scope Four management functions to minimize the adverse effects of accidental losses at a reasonable cost: 1 Planning 2 Organizing 3 Leading 4 Controlling #1 Risk Management & Broad Scope Scope of risk management Covers wide range of uncertaintiesmaking outcomes more foreseeable

4 #1 Risk Management & Broad Scope Helps manage: Strategic Long-term Goals Property Business risks (speculative risks) loss, no loss or gain Financial Operational Change in currency Utilities supplying power Hazard risks (pure risks) chance of loss or no loss from accidents resulting from loss exposures Personnel Liability Net Income #1 Risk Management & Broad Scope Differences between ERM & Traditional Risk Management ERM focuses on the organization as a whole Traditional risk management focuses on specific loss exposures Getting to know you Quick Answer Raise Your Hand In your role at your organization do you focus more on: Traditional Risk Management (potential accidental losses) Enterprise Risk Management (hazard and business risks) Does not apply to me

5 #2 Cost & Benefits of Risk Management Costs for an Organization Losses resulting from operations that may be incurred Loss of benefits from not undertaking risky activity Costs devoted to managing risk #2 Cost & Benefits of Risk Management Benefits to an organization Reduces cost of risk incurred because of the possibility of an accidental loss Benefit by reducing deterrence effects of uncertainty Makes ventures once too risky more feasible Devote more investment in production or investment activities increasing profit More attractive to investment capitalists allowing organization to expand #2 Cost & Benefits of Risk Management Costs & benefits for entire economy Costs Devoting resources to risk management Uncertainty leads economy to be less productive Benefits to economy Reduced waste of resources by managing risks Economic uncertainty reduced

6 #3 Pre-Loss & Post-Loss Goals Risk management program Systemfor planning, organizing, leading & controlling resources & activities Essential to have senior management support #3 Pre-Loss & Post-Loss Goals Pre-loss goals in place even if no losses occur 1. Economy of operations 2. Tolerable uncertainty 3. Legality Standard of care Contractual Federal, state & local laws & regulations 4. Social responsibility (pre & post-loss goal) #3 Pre-Loss & Post-Loss Goals Post loss goals -management considers acceptable after a loss 1. Survival Instrumental departments Production Marketing Finance

7 #3 Pre-Loss & Post-Loss Goals 2. Continuity of Operations management won t tolerate any prolonged shutdown or interruption 3. Profitability establish minimal amount of profit that no loss can reduce or operating within budget if non-profit #3 Pre-Loss & Post-Loss Goals 4. Earnings stability stability over time & not allowing any losses to affect that level of earnings 5. Social responsibility ensuring that social obligations can still be met in the event of a loss 6. Growth could be a catch 22 with 2 opposing effects on risk management #3 Pre-Loss & Post-Loss Goals Trade off among goals conflicts between pre & post loss goals as well as pre-loss goals conflicting with each other Consider effects of alternative risk management techniques as well as the costs & benefits of each

8 Sample Questions 1-4 Using the Polling Feature Your answers are anonymous and will not be recorded individually BREAK TIME 10 minutes #4 RM Department Structure Internal -department of 1 -> structured department of many Small department Medium department Large department

9 #4 RM Department Structure Cooperation with other departments bring exposures to risk manager Accounting Legal Information systems Human Resources Production Marketing #4 RM Department Structure Communication Internal to organization, sent to external entities or both Incoming or outgoing from RM department RM annual report to senior management #4 RM Department Structure IM & RMIS information systems evolve around the quality of data Accessible Clarity Comprehensive Accurate Appropriate Timely Flexible Verifiable Free from Bias Quantifiable

10 #4 RM Department Structure RMIS: Risk Management Information Systems Encompass scope of RM program Focus on a particular type of loss exposure Concentrate on particular RM technique Getting to know you Quick Answer Raise Your Hand Would you describe your Risk Management Department to be: Small (Risk Manager, Safety Manager, Claims Manager) Medium (Several layers including an insurance manager) Large (Many layers with complex risk financing) Does not apply to me #5 Responsibilities/Reporting Relationships Affected by size & structure Large Small Need to perform Steps in RM process Managerial duties of planning, organizing, leading & controlling resources & activities

11 #5 Responsibilities/Reporting Relationships Non-delegable duties: Risk management program design overall structure & implementing RM goals Risk assessment Risk control Risk control program responsibilities Risk financing retention or transfer Applying risk financing techniques #5 Responsibilities/Reporting Relationships Reporting relationships Senior management s concern How well the department has operated in the past #6 Risk Management Policy Statement Tool for communicating RM goals Purpose Establish general goals Define responsibility of RM personnel Coordinate treatment of loss exposures Establish and/or improve communication Continuity & transition Content General description of RM & importance RM goals and decision process

12 Getting to know you Quick Answer Raise Your Hand Does your organization use a Risk Management Policy Statement? Yes No I don t know #7 Monitoring RM Program Setting performance standards Results standard Activity standards Measurable terms Meeting a standard Performance & standard appropriate Exceeds performance Performance falls below #7 Monitoring RM Program Corrective action Improves future performance Considerations Monitor RM program to ensure success of corrective actions

13 Sample Questions 5-8 Using the Polling Feature Your answers are anonymous and will not be recorded individually Understanding RM & Establishing a RM Program Educational Objectives 1. Describe risk management and its broad scope 2. Identify costs & benefits of risk management for a particular organization and for the entire economy 3. Describe pre-loss and post-loss goals of a risk management program and the possible tradeoffs among these goals Understanding RM & Establishing a RM Program Educational Objectives (cont d) 4. Describe risk management department and a. Departmentsthat risk manager should cooperate with & the type of information they provide b. Communication in & out of the department & organization c. Informationmanagement & risk management information systems used to improve decision making

14 Understanding RM & Establishing a RM Program Educational Objectives (cont d) 5. Responsibilities and reporting relationships of a risk management professional 6. Purpose & content of a written risk management policy statement 7. How to monitor & take corrective action to improve the performance of the risk management program through results & activity standards Thank you! Now it s time for Open Mic Q&A "What would you attempt to do if you knew you could not fail?" --Dr. Robert Schuller