Prof. S.

Sudeep Kumar
Accidental Fire
Breakdown of machinery
 Transit Risk

Damage to goods during shipment by air/rail/road/sea

Pollution-liability
Professional Liability (Architects/Auditors etc.)

Accountants for faulty audit or Architects for damages resulting from faulty design.
Liability arising from gender inequality, harassment, racial discrimination
or sacking of employees
 Employer’s liability

For injury to workmen at workplace

 Product liability risk

Liability for injury/sickness caused by use of products

 Public Liability Risk

For injuries from rides in amusement parks, stadiums etc.

Commodity price risk

Input (raw materials) Output (Finished goods)

Interest Rate Risk
Exchange Rate Risk
Credit risk of Banks
Strategic Risk
Accidents causing
Death/Disability,
Medical expenses
illness causing disability and medical expenditure
Longevity Risk
 Omnipresent
 Organizational or personal
 External or internal
 Natural calamities or man-made
 Avoidable , inevitable or willingly accepted
 Can have either two outcomes or three.
 Most risks cause depletion of wealth while

some cause mental agony, depression etc.

 ERMT course deals with risks depleting wealth

of organizations.
“Uncertainty concerning occurrence of a loss”.
A situation where there is a probability of an event
causing loss.
Deviation from expected outcome also constitutes risk.
Risk also signifies ‘exposure to a peril or hazard’
Used in a different context by Insurers where it
signifies quality of Underwriting.
They would refer to policy holders as good or bad risks
depending on the claims experience.
Occurrence must be fortuitous and totally beyond
control.
 Pure Risk : When the occurrence of event could
create only two outcomes:
 (1) Loss
 (2) Status Quo
 Causes depletion of wealth in society
 Speculative Risk: When the occurrence could
create three outcomes:
 (1) Heavy loss
 (2) Windfall gain
 (3) Status Quo
 Wealth just moves from one entity to another
 PURE-RISKS
All natural calamities, accidents & man-made
disasters
SPECULATIVE-RISKS
1) Gambling/betting
2) Trade related risks : Loss of market-share,
increase in raw-material costs, export-rejection etc.
3) Financial-risks : Credit-risk/Interest-rate risk
etc.
 According to CAS(Casualty Actuarial Society)
ERM is the process by which organizations in
all industries assess, control, exploit, finance
& monitor risks from all sources for the
purpose of increasing organization’s short &
long-term value to its stakeholders.
 CAS categorization of risks:
 1) Financial
 2) Operational
 3) Strategic
 4) Hazard
 Corporate Risks

Strategic risk Operational Financial

Financial risk Hazard risk
Risk

Political

Technologi Output Price risk Input price risk Damage to assets

cal

Manpower risk Legal liability

Exchange rate risk

Supply chain risk Employee dishonesty

Production risk Interest rate risk

Employee benefits

Credit risk
 Major types of personal risk
Physical Financial
Earnings Medical Liability assets assets
Longevity
Expenses

Death Auto Stocks

Auto

Disability Home Bonds

Home

Aging Boats

unemployment
Other

Watercraft

Electronics
 Fire & natural calamities like
flood/storm/earthquake
 Burglary & theft
 All accidents & illnesses
 Business interruption
 Liability suits
 Commodity prices
 Liquidity risk
 Credit rating
 Inflation
 Wrong/Incomplete reporting
 Information/Business reporting
 Shortage of skilled staff, product recall,
supply chain disruption, capacity, efficiency,
product/service failure.
 Empowerment(Leadership)
 IT risk
 Reputation
 Competition
 Demographic and social/cultural trends
 Technological innovations/patents
 Regulatory & political trends

The Precursors
 Risk Management
 Corporate Risk Management
 Business Risk Management
 Strategic Risk Management
 Integrated Risk Management

(Today most conglomerates have a CRO or

Chief Risk Officer at the senior level)
 Enron Disaster which made Directors as well as
Auditors liable to investors.
 COSO Model 1992( Committee of sponsoring
organizations- Treadway commission)
 Sarbanes Oxley Act,2002
 COSO II 2004
 Basel II,2004
 Assumed higher importance after catastrophic
events like 9/11Terror attack(2001) & financial
disasters like Great recession of 2008
 In their 2010 review of the ‘Decade in
Management ideas’, editors of Harvard
Business Review identified ‘Enterprise Risk
Management’ as one of the most influential
management ideas of the millennium so far.