Risk Management Processes_The Case of Greek Companies

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Risk management processes. The case of Greek companies.

Iordanis Eleftheriadis

University of Macedonia Department of Business Administration156 N. Egnatia Str.54006 ThessalonikiGreeceTel. 00302310-891-591 fax. 00302310-891519 Email: jordan@uom.gr

Abstract: Whatever business you are in, there will be an almost limitless number of risks thatyou must face. To be able to manage these risks you must first identify them. The use of riskcategories helps to provide a framework within which to look for, and latterly, to manage risks.Thus, in their day-to-day business and in the strategic management of their balance sheet andcapital, companies seek to limit the scope for adverse variations in their earnings and controlexposure to stress events. Excellence in risk management is fundamentally based upon amanagement team that makes risk identification and control critical components of its processesand plans. Failure to identify, manage or control risks, including business risks, may result notonly in financial loss but also in loss of reputation. Although measurement of risk is clearlyimportant, quantification does not always tell the whole story, because not all risks arequantifiable. The purpose of this paper is to collect and study observations and experiences fromrisk management activities in Greek companies. We are using the answers given to a structuredquestionnaire, in order to present some conclusions.1. Introduction

Risk Management has been described as 'all the things you need to do to manage an uncertain future'.In most cases risks are taken so as to achieve some advantage, and managing risks is associated withmaking decisions. It is used in a wide range of areas including: engineering, business and finance,health and safety, environmental management, healthcare, emergency management, businesscontinuity management, sport and recreation etc. In developing a risk management infrastructure, it isimportant that companies follow a methodical process to determine the appropriate types of risk measures, processes, policies and controls for their particular company. The purpose of this paper is toinvestigate the risk management activities in Greek companies.

2. The Risk Management Process

The risk management process is defined as "the systematic application of management policies,procedures and practices to the tasks of establishing the context, identifying, analyzing, evaluating,treating, monitoring and communicating risk.". Risk management is also defined as "the culture,

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processes and structures, which are directed towards the effective management of potentialopportunities and adverse effects."

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The Risk Management process is outlined in this diagram below:Figure 1: the risk Management ProcessThe approach to risk management adopted in this paper is consistent with the Australian and NewZealand Standard on risk management, AS/NZS 4360 (Figure 1). This approach is consistent withsimilar approaches adopted by the major risk management professional bodies and governmentagencies that have issued risk guidelines. The steps in the process address important questions for therisk manager (Table 1).

Risk management process step

Management question

Establish the context What are we trying to achieve?Identify the risks What might happen?Analyze the risks What might that mean for theproject’s key criteria?Evaluate the risks What are the most importantthings?Treat the risks What are we going to do aboutthem?Monitor and review How do we keep them undercontrol?Communicate and consultWho should be involved in theprocess?Table 1: Questions for the risk managerEstablish context: Establishing the context is concerned with developing a structure for the risk identification and assessment tasks to follow. This step:

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establishes the company and project environment in which the risk assessment is taking place;

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specifies the main objectives and outcomes required;

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Standards New Zealand and Standards Australia risk management standard (AS/NZS 4360: 1999 Risk Management).

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identifies a set of success criteria against which the consequences of identified risks can bemeasured; and

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defines a set of key elements for structuring the risk identification and assessment process.Context inputs include the execution strategy, the cost and schedule assumptions, scope definitions,engineering designs and studies, economic analyses, and any other relevant documentation.The output from this stage is a concise statement of the company objectives and specific criteria forsuccess, the objectives and scope for the risk assessment itself, and a set of key elements forstructuring the risk identification process in the next stage.Identify Risks: Risk identification sets out to identify an company’s exposure to uncertainty. Everycompany faces different risks, based on its business, the economic, social and political factors, thefeatures of the industry it operates in – like the degree of competition, the strengths and weaknesses of its competitors, availability of raw material, factors internal to the company like the competence andoutlook of the management, state of industry relations, dependence on foreign markets for inputs,sales, or finances, capabilities of its staff, and other innumerable factors. Each corporate needs toidentify the possible sources of risks and the kinds of risks faced by it. This requires an intimateknowledge of the company, the market in which it operates, the legal, social, political and culturalenvironment in which it exists, as well as the development of a sound understanding of its strategicand operational objectives, including factors critical to its success and the threats and opportunitiesrelated to the achievement of these objectives.The risk identification process must be comprehensive, as risks that have not been identified cannot beassessed, and their emergence at a later time may threaten the success of the company and causeunpleasant surprises. Risk identification should be approached in a methodical way to ensure that allsignificant activities within the company have been identified and all the risks flowing from theseactivities defined. A number of techniques can be used for risk identification, but brainstorming is apreferred method because of its flexibility and capability, when appropriately structured, of generatinga wide and diverse range of risks.Information used in the risk identification process may include historical data, theoretical analysis,empirical data and analysis, informed opinions, and the concerns of stakeholders.The output is a comprehensive list of possible risks, usually in the form of a risk register, withmanagement responsibilities allocated to them. A list of the most important categories of risks is thefollowing

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Business risk, is the risk of failing to achieve business targets due to inappropriate strategies,inadequate resources or changes in the economic or competitive environment.

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Credit risk, is the risk that a counterparty may not pay amounts owed when they fall due.

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Sovereign risk the credit risk associated with lending to the government itself or a partyguaranteed by the government.

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Market risk, is the risk of loss due to changes in market prices. This includes

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interest rate risk

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foreign exchange risk

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commodity price risk

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share price risk

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Liquidity risk the risk that amounts due for payment cannot be paid due to a lack of availablefunds.

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Carl Olsson, “Risk Management in Emerging Markets. How to survive and prosper.”

Category:	Research > Business & Economics
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Upload Date:	05/04/2009
Copyright:	Attribution Non-commercial
Tags:	risk risk management risk risk management (fewer)

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