Okechukwu Onwuka,

The Risk Professor

MD/CEO Business Risk Solutions, 07087814760
What is Risk Management? What is Risk Management?
What exactly is Business Risk Management and how can a good risk
management system lead to great business performance?
Risk Management is a system of processes that a company uses to
identify, assess, quantify and control risks that could impair the
achieement of de!ned business ob"ecties# $n reality, a business plan is a
set of procedures and strategy deeloped to naigate through the risks
associated with the business opportunity to increase the chances of
success# %hese strategies are best deeloped following the !ndings of
systematic risk assessments and ealuation#
&'ectie risk management practices support an organi(ation to achiee
the following)
Asset Protection* +rotect the business from aoidable aderse
eents or occurrences as well as recogni(ing potential opportunities
that conform to the company,s management policy# +roper risk
management strategies shield companies from risks arising from
blind pursuit of untested market opportunities# By deiating from
using traditionally stable collateral and security against loans, many
banks succumbed to the temptation of using share certi!cates as
collateral for funding increased actiity in the stock market# %he
attraction of the quick pro!ts from a stimulated stock market growth
proided a ery weak foundation for managers to "ettison their
fundamentals and plunge deep into trading in shares on the
assumption that the upward price moement will neer stop#
&ery entrepreneur must reali(e that each business opportunity is
associated with risks# -arefully deeloping strategies for
implementation signi!cantly reduces the risk of failure# .irect
plunge into the market without a strategy is recipe for disaster#
%aking calculated risks is di'erent from being rash# $t must also be
noted that there are alternaties that inested funds and resources
can be applied, hence if you must deploy resources or assets in any
area, it must be shielded from aoidable risks#
Compliance- &nsures compliance with internal company
management policies and external regulations by /oernment
0gencies such as -entral bank of 1igeria, .epartment of +etroleum
Resources, etc# 2iolation of compliance requirements may lead to
signi!cant disruptions to operations and in some cases, outright
closure#
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2009 Okechukwu Onwuka The Risk Professor
Build Trust* by communicating the existence of strong alues
inculcated into regular principles and practice of e'ectie risk
assessment and management, customer and consumer con!dence
is boosted# +eople would rather do business with institutions they
can trust#
Enhance Sustainable proftability- &xperienced managers are
always cautious when emerging market trends in their industry
generate huge returns on inestment for almost any player# %his is
because the road to wealth and pro!ts is neer 4at, common or
popular# &'ectie risk management practices allow business
managers to shield their operations from dierting to practices that
expose them to high risks that are outside their control range#
0lthough these might mean lower pro!ts in the short run, the
performance is more sustainable# 0s the positie momentum is
sustained, geometric growth is likely to result from compounding
e'ects oer the years# Because risk management systems proide
clear paths for business operations, it is easier to repeat successful
processes for sustainability#
Cost Savins- /ood risk management systems sae companies
huge sums of money, time and resources# %imely risk assessments
identify potential risks that if undetected may lead to ery high
mitigation costs if detected at an adanced stage of business or
pro"ect implementation# 0 ma"or satisfaction we get from the
corporations we support is the signi!cant cost saings that result
from deeloping and implementing strategies for e'ectie risk
assessment and management systems# 5nfortunately, many
corporate executies see risk management as an irritant that only
seres to assuage regulatory agencies instead appreciating the
extremely aluable bene!ts to the organi(ation#
!anipulation di"culties- Where a risk management system is
clearly documented and communicated to all employees and
directors, it makes it di6cult for any indiidual to manipulate or
iolate the codes# &en when you are the sole proprietor, your top
sta' members might gie you hints when you tend to deiate#
5sually, in risk management systems, only the highest leel
executies are authori(ed to waie risk acceptance guidelines for
high risk actiities but such waiers must be duly endorsed in
writing# $t is for this reason that senior executies are made liable
for the negatie consequences of any action taken on high risk
inestments, pro"ects, credits or operations# .isrespect for the
policies in a risk management system is as bad as a non*existent
risk management process, if not worse#
Basic Elements o# a $isk !anaement System
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2009 Okechukwu Onwuka The Risk Professor
Risk Management is a de!nite, written and communicated process for
identifying and managing risks# -onsequently, it must hae the !e 89:
basic elements of a standard management system#
Ob%ective- %he primary purpose of establishing the system should
be clearly de!ned# %his ob"ectie can be classi!ed into four broad
areas namely; <inancial risk, &nironmental Risks, Risks to people
8sta', public: and +ublic Reputation Risks# %o de!ne this ob"ectie as
clearly as possible, 0 Risk 0cceptance -riteria 8R0-: must be stated
for all areas of risk exposure# %hese de!nitions are usually
represented on a risk matrix together with easy to use working
de!nitions for parameters used in generating risk estimates# We,ll
discuss the +rocess of establishing a corporation,s Risk 0cceptance
-riteria in the future articles#
&ow* Policies & Procedures de!ne the roadmap for achieing stated
ob"ecties# %hey identify standards, tools and techniques to be used
in conducting risk analysis, risk estimation and guidelines for
determining adequacy of preentie and mitigatie safeguards or
management controls
'ho* Accountale and Res!onsile Resources# %hese identify the
people, "ob positions and experience required to implement the
requirements as stated in the +olicy and +rocedure Manuals# %he
leadership of companies usually hae the responsibility of driing
deelopment and compliance# &ery employee must also know how
they !t into the oerall framework of risk control and compliance
(erifcation ) !easurement* %here must be proision for
periodic auditing of performance, erifying compliance, and
identifying potential improement opportunities# %his process is of
prime importance# 0ssessment teams and sta' members should be
encouraged to gie candid feedbacks that would enhance the
process# %he challenge here is that employees who see their
manager or superisor as haing little or no regard to risk
management policies are more likely to impair the quality of audit
and=or compliance# Reiews may be conducted annually or more
frequently based on established industry practice and trend#
*eedback* for i"!ro#e"ents and u!$rade# %he senior management
must be committed to respecting the !ndings of regular assessment
teams and proiding resources 8<inancial, time, etc: required to
implement them and also steward the system upgrades that may
result#

0 ma"or challenge to risk management systems is innoation# Businesses
are required to continually innoate to meet new dynamics in the market
place and stay pro!table# Managers come under seere pressure when the
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2009 Okechukwu Onwuka The Risk Professor
industry they operate in moe sharply towards a new trend that yields
instant pro!ts# ?eeping to established risk management practices may
cast astute managers in bad light as underperforming compared to their
contemporaries# $magine the di6culties some managers would hae faced
during the hot pro!t days of the stock market boom by refusing to "oin the
fray# %oday, they are the winners for sticking to core ideals that guarantee
sustainable pro!tability#
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2009 Okechukwu Onwuka The Risk Professor