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Operation Risk Management Issues
Essay Instructions:
* You can focus on a particular aspect of the topic as long as you clearly stipulate it at the beginning.
* Make sure that you incorporate relevant theory and some examples that illustrate the discussion
* Please, note that while the task for the second coursework is described as an “essay” I expect you to produce a more structured rather than completely rambling piece of writing.
* You should not aim to have excessive number of headings and subheadings but there should be sections clearly marked as Introduction and Conclusion as well as some sections in between which are helpful in the context of your argument.
* If still unsure, consider that your writing should roughly resemble an academic paper.
* Make sure that you are not writing a report though. Generally speaking, reports are more factual and do not always allow for much discussion, while in this case, your objective is to demonstrate an ability to construct an academic-style discussion.
* Use only limited number of bullet points, if any.
* I notice that some students are unsure about referencing. As a general rule, every time when you use some ideas, concepts, quotations or data from any existing sources you have to acknowledge these sources by referencing in the conventional way which allows that reader to check the actual source!
Please note that English is not my first language.
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Operation Risk Management Issues
Introduction
Contemporary strategic or rather operational risk management in business organizations are the practices and methods used by the management of organizations in the management of risks and in the seizing or necessary opportunities that are attached to the achieving of the aims and objectives of an organization (Piechowski, 2010, p.28). It all involves the identification of particular situations; assess them in reference to the magnitude of their effects, establishing a strategic response and ensuring the implementation of such a progress. Through the identification and tackling of opportunities and risks that are associated to the aims and objectives of an organization, the business organizations are in a position to safeguard and create value for their employees, customers, owners and even the society in general. It s evident that in every organization there is need for a risk management team and its duty is to ensure that the organization does not incur so much costs in the running of its activities and to ensure every relevant opportunity is seized so as to increase productivity of the enterprise.
The strategic risk management team of every organization also takes into consideration the needs of the stake holders and all other individuals related directly to the organization, who really wants to understand the various risks that are likely to face the organization and ensuring they are properly managed (Trotter & Archer, 2010). It is a fact that every stakeholder in the organization wants the organization to achieve its best in terms of achieving the basic objectives. To do this they must take good care of the risks that are associated with the business organization as an enterprise. They must also seize any opportunity that arises that can be of benefit to the organization in one way or another. Understanding the needs of the employees, the customers and all other people associated to the organization is one way or rather method of risk management (Heath & Ni, 2010).
Before we give the contemporary risk management issues a greater perspective, we need to look at the kinds of risks that an organization is likely to face during its operations (Wessley, 2005, p.459). All these risks are associated with the running of the organization and how the systems in the organization are run starting from the management level to the stakeholder level. Such risks should be given priority since they have a capacity to bring a lot of impact to the organization. It calls for the cooperation from the management level and the stakeholders to manage these risks the best way possible. Managing risks well is one way an organization can achieve its goals in the market industry. Some organizations who have failed to manage their risks well enough have suffered a great deal to an extent of closing down the enterprise. Great emphasis should be put on the risks associated to an organization (Charette, 2010).
Types of risks to an organization
There are specific types of risks that are common to an organization or rather to the operational risk management. One of them is the identified risk (European Commission/ European Research Area, 2010). This is a risk that has been identified by the analytical tools of the management. The costs of analysis and time, the state of the technology involved and the quality of the risk management program influence the amount of risk that can be identified. Such a risk is preferred because since it has been identified; measures to combat it are put in place before it is too late (Charette, 2010).
There is also the unidentified risk. Some risks may not be identified due to unknown reasons. One of them can be the poor quality of the risk management program and even not allowing enough time for the initial step of the process. Failure to identify a risk does not imply that the risk is of little effect, it has a potential to cause damage just as any other risk. The management should always keep an eye for any risk that may arise as the process goes on (Charette, 2010).
There also exists the total risk. This is the combination of the two; the identified and the unidentified risk. Of the two, the identified risk takes the larger proportion since it is known and its possible impact is known. Emphasis thus should be put on these two but more on the identified risk since it is more vulnerable (Charette, 2010).
Other risks include the acceptable risk. It is part of the identified risk that can be allowed to continue even after controls have been applied. Such a risk should be reduced despite the fact that it is accepted. There also exists the unacceptable risk which is that part of the identified risk that is of severe damage and it just has to be eliminated completely. Lastly there exists the residual risk that remains as part of the total risk when efforts by the management have been employed. Residual risk also contains acceptable risk and unidentified risk.
One may ask what the causes of such risks are. One of the causes is the fact that can face the organization is the complex credit growth. This is a situation when the numbers of customers who are indebted to the organizations are too many and the product value, credit quality and liquidity are uncertain. Having too many creditors is one risk that many organizations tend to ignore and take it as money which is in store. Most organizations concentrate on the risk through producing complex products and ignore the fact that credit is growing. An increase in the growth of credit in one risk that organizations should put emphasis on, because there are levels that are unmanageable once reached (Charette, 2010).
Some organizations tend to over-rely on liquidity that is sustained especially the short term funding and the carry trade. This also includes the miscalculation of the stability of funds. Management of funds in every organization is always a bone of contention and a great problem always. Funds should be managed in a stable way the individuals who are trustworthy to the entire organization (Charette, 2010). Most a time the owners of the organization are not around the organization in order to supervise how funds are used, but the owners appoint people who are trust worthy to the organization to help in the management of the funds. The risk arises where these people who are responsible for the management of these funds start misusing the funds the way they are not supported to.
Failure to manage financial statements and credit analysis more especially to rating agencies is yet another cause of risk organizations are likely to face. Financial statements are those statements that indicate the welfare of an organization. Every organization must be in a position to prepare its financial statements and submit them to the relevant personnel at the stipulated time. Failure to analyze credit rating agencies becomes a risk when the organization will fail to establish the people it owes and the people who owe it. This is a risk to the organization that can bring a number of losses (Charette, 2010). Other causes include the basic miscalculation about the stability of real estate values which is a risk associated with the financial sector in the organization, over leverage and capital levels that don’t reflect total systemic risk and a poor risk management process is a risk in itself among others. These risks are of potential damage to the organization.
Operational Risk Management principles
There are principles that are applicable by the risk management team whenever processes, tasks and operations are carried out in an organization. They govern all other actions related to operational risk management directly and indirectly. During, before and after operations and tasks, these principles are applicable and necessary in any organization and they should be used all the time.
One of the principles is that of accepting no risk that is unnecessary. A risk that is unnecessary is that which carries or rather has no benefit to the organization. Every process in the organization involves risk taking. It happens that there are those risks if taken will be of benefit to the organization in one way or another and there are those that don’t benefit the organization in one way or the other. To implement an operation, there is need for the making of choices that are logical meeting all the requirements with minimum risk.
Another principle is making risk decisions at the appropriate level. In an organization in the operational risk management, anyone can make a decision. But that is not important; an appropriate decision maker should be able to make a decision that eliminates all possible risks even after allocation of resources. The appropriate decision maker must be in a position to be in terms with the various levels of risks that are likely to arise in the implementation of an operation. Further still, the appropriate decision maker should lift up decisions to the next level in the line of management (Charette, 2010).
Accepting risks whenever benefits outweigh the costs is yet another principle. It is clear that all risks will bring related costs and benefits in the long run. Benefits should be identified and costs should also be identified and in the end they should be compared. The process of balancing the benefits and costs is subjective and eventually the balance of the two may have to be randomly identified by an appropriate decision maker.
Finally, integrating the operational risk management into planning at all stages is also another principle. It is a fact that risks are more easily managed and assessed in an operation in the planning levels. Shall the changes be made later in the executing and planning of an operation, it is more likely that they will be expensive and time consuming.
Operational Risk management issues
Risk management in the contemporary market organizations is categorized into two broad processes. The risk assessment and the risk control. Each is further divided into other sub categories in respect to the processes. A risk is any kind of situation that is likely to affect the running processes of the organization in some way if not taken care of. Assessing a risk is the first step to solve a situation or rather a risk, then is the risk control which entails the managing the risk and putting the system back to normal. It should be well understood that operation risk management is performed during operational use and is designed in such a way to minimize possible risks with the basic objective to reduce mishaps, safeguard the welfare and health of the stakeholders and also to preserve assets of the organization (Elky, 2006).
Operational risk management is somewhat given the approach based on the philosophy of responsibility. It is considered irresponsible of the relevant individuals by waiting a disaster to happen instead of taking appropriate measures to combat the risks. In order to wait for the effect to take place and start configuring how to prevent it from happening again, it is advisable to manage the risk and this is mainly done by modifying the way things are done and run in the organization. In the modification of how processes are run in the organization, chances for success are taken into consideration and chances of failure are also minimized. It should also be taken into consideration that it is advisable to consider balancing the risks and the benefits to be gained in any given situation and then choose the most effective way of action (Elky, 2006).
Operational risk management should be a fully included element of executing and the planning of any event that is applicable all the time by the management team. It is not a way of taking action or rather reacting when some unforeseen problem occurs in the organization. Cautious identification of risks and the analysis and control of the impacts they bring determines course to be taken in the dealing with such situations. Managers of every organization are the people who should take responsibility for the everyday use of operational risk management at every level of activity, from the planning of that activity and proceeding to its implementation.
Operation risk management process
Th...
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Course Title:
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Operation Risk Management Issues
Introduction
Contemporary strategic or rather operational risk management in business organizations are the practices and methods used by the management of organizations in the management of risks and in the seizing or necessary opportunities that are attached to the achieving of the aims and objectives of an organization (Piechowski, 2010, p.28). It all involves the identification of particular situations; assess them in reference to the magnitude of their effects, establishing a strategic response and ensuring the implementation of such a progress. Through the identification and tackling of opportunities and risks that are associated to the aims and objectives of an organization, the business organizations are in a position to safeguard and create value for their employees, customers, owners and even the society in general. It s evident that in every organization there is need for a risk management team and its duty is to ensure that the organization does not incur so much costs in the running of its activities and to ensure every relevant opportunity is seized so as to increase productivity of the enterprise.
The strategic risk management team of every organization also takes into consideration the needs of the stake holders and all other individuals related directly to the organization, who really wants to understand the various risks that are likely to face the organization and ensuring they are properly managed (Trotter & Archer, 2010). It is a fact that every stakeholder in the organization wants the organization to achieve its best in terms of achieving the basic objectives. To do this they must take good care of the risks that are associated with the business organization as an enterprise. They must also seize any opportunity that arises that can be of benefit to the organization in one way or another. Understanding the needs of the employees, the customers and all other people associated to the organization is one way or rather method of risk management (Heath & Ni, 2010).
Before we give the contemporary risk management issues a greater perspective, we need to look at the kinds of risks that an organization is likely to face during its operations (Wessley, 2005, p.459). All these risks are associated with the running of the organization and how the systems in the organization are run starting from the management level to the stakeholder level. Such risks should be given priority since they have a capacity to bring a lot of impact to the organization. It calls for the cooperation from the management level and the stakeholders to manage these risks the best way possible. Managing risks well is one way an organization can achieve its goals in the market industry. Some organizations who have failed to manage their risks well enough have suffered a great deal to an extent of closing down the enterprise. Great emphasis should be put on the risks associated to an organization (Charette, 2010).
Types of risks to an organization
There are specific types of risks that are common to an organization or rather to the operational risk management. One of them is the identified risk (European Commission/ European Research Area, 2010). This is a risk that has been identified by the analytical tools of the management. The costs of analysis and time, the state of the technology involved and the quality of the risk management program influence the amount of risk that can be identified. Such a risk is preferred because since it has been identified; measures to combat it are put in place before it is too late (Charette, 2010).
There is also the unidentified risk. Some risks may not be identified due to unknown reasons. One of them can be the poor quality of the risk management program and even not allowing enough time for the initial step of the process. Failure to identify a risk does not imply that the risk is of little effect, it has a potential to cause damage just as any other risk. The management should always keep an eye for any risk that may arise as the process goes on (Charette, 2010).
There also exists the total risk. This is the combination of the two; the identified and the unidentified risk. Of the two, the identified risk takes the larger proportion since it is known and its possible impact is known. Emphasis thus should be put on these two but more on the identified risk since it is more vulnerable (Charette, 2010).
Other risks include the acceptable risk. It is part of the identified risk that can be allowed to continue even after controls have been applied. Such a risk should be reduced despite the fact that it is accepted. There also exists the unacceptable risk which is that part of the identified risk that is of severe damage and it just has to be eliminated completely. Lastly there exists the residual risk that remains as part of the total risk when efforts by the management have been employed. Residual risk also contains acceptable risk and unidentified risk.
One may ask what the causes of such risks are. One of the causes is the fact that can face the organization is the complex credit growth. This is a situation when the numbers of customers who are indebted to the organizations are too many and the product value, credit quality and liquidity are uncertain. Having too many creditors is one risk that many organizations tend to ignore and take it as money which is in store. Most organizations concentrate on the risk through producing complex products and ignore the fact that credit is growing. An increase in the growth of credit in one risk that organizations should put emphasis on, because there are levels that are unmanageable once reached (Charette, 2010).
Some organizations tend to over-rely on liquidity that is sustained especially the short term funding and the carry trade. This also includes the miscalculation of the stability of funds. Management of funds in every organization is always a bone of contention and a great problem always. Funds should be managed in a stable way the individuals who are trustworthy to the entire organization (Charette, 2010). Most a time the owners of the organization are not around the organization in order to supervise how funds are used, but the owners appoint people who are trust worthy to the organization to help in the management of the funds. The risk arises where these people who are responsible for the management of these funds start misusing the funds the way they are not supported to.
Failure to manage financial statements and credit analysis more especially to rating agencies is yet another cause of risk organizations are likely to face. Financial statements are those statements that indicate the welfare of an organization. Every organization must be in a position to prepare its financial statements and submit them to the relevant personnel at the stipulated time. Failure to analyze credit rating agencies becomes a risk when the organization will fail to establish the people it owes and the people who owe it. This is a risk to the organization that can bring a number of losses (Charette, 2010). Other causes include the basic miscalculation about the stability of real estate values which is a risk associated with the financial sector in the organization, over leverage and capital levels that don’t reflect total systemic risk and a poor risk management process is a risk in itself among others. These risks are of potential damage to the organization.
Operational Risk Management principles
There are principles that are applicable by the risk management team whenever processes, tasks and operations are carried out in an organization. They govern all other actions related to operational risk management directly and indirectly. During, before and after operations and tasks, these principles are applicable and necessary in any organization and they should be used all the time.
One of the principles is that of accepting no risk that is unnecessary. A risk that is unnecessary is that which carries or rather has no benefit to the organization. Every process in the organization involves risk taking. It happens that there are those risks if taken will be of benefit to the organization in one way or another and there are those that don’t benefit the organization in one way or the other. To implement an operation, there is need for the making of choices that are logical meeting all the requirements with minimum risk.
Another principle is making risk decisions at the appropriate level. In an organization in the operational risk management, anyone can make a decision. But that is not important; an appropriate decision maker should be able to make a decision that eliminates all possible risks even after allocation of resources. The appropriate decision maker must be in a position to be in terms with the various levels of risks that are likely to arise in the implementation of an operation. Further still, the appropriate decision maker should lift up decisions to the next level in the line of management (Charette, 2010).
Accepting risks whenever benefits outweigh the costs is yet another principle. It is clear that all risks will bring related costs and benefits in the long run. Benefits should be identified and costs should also be identified and in the end they should be compared. The process of balancing the benefits and costs is subjective and eventually the balance of the two may have to be randomly identified by an appropriate decision maker.
Finally, integrating the operational risk management into planning at all stages is also another principle. It is a fact that risks are more easily managed and assessed in an operation in the planning levels. Shall the changes be made later in the executing and planning of an operation, it is more likely that they will be expensive and time consuming.
Operational Risk management issues
Risk management in the contemporary market organizations is categorized into two broad processes. The risk assessment and the risk control. Each is further divided into other sub categories in respect to the processes. A risk is any kind of situation that is likely to affect the running processes of the organization in some way if not taken care of. Assessing a risk is the first step to solve a situation or rather a risk, then is the risk control which entails the managing the risk and putting the system back to normal. It should be well understood that operation risk management is performed during operational use and is designed in such a way to minimize possible risks with the basic objective to reduce mishaps, safeguard the welfare and health of the stakeholders and also to preserve assets of the organization (Elky, 2006).
Operational risk management is somewhat given the approach based on the philosophy of responsibility. It is considered irresponsible of the relevant individuals by waiting a disaster to happen instead of taking appropriate measures to combat the risks. In order to wait for the effect to take place and start configuring how to prevent it from happening again, it is advisable to manage the risk and this is mainly done by modifying the way things are done and run in the organization. In the modification of how processes are run in the organization, chances for success are taken into consideration and chances of failure are also minimized. It should also be taken into consideration that it is advisable to consider balancing the risks and the benefits to be gained in any given situation and then choose the most effective way of action (Elky, 2006).
Operational risk management should be a fully included element of executing and the planning of any event that is applicable all the time by the management team. It is not a way of taking action or rather reacting when some unforeseen problem occurs in the organization. Cautious identification of risks and the analysis and control of the impacts they bring determines course to be taken in the dealing with such situations. Managers of every organization are the people who should take responsibility for the everyday use of operational risk management at every level of activity, from the planning of that activity and proceeding to its implementation.
Operation risk management process
Th...
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