Fundamentals of Risk Management: Understanding, Evaluating and Implementing Effective Risk Management

Dedication......Page 6
Table of contents\n......Page 8
Figures......Page 18
Tables......Page 20
Preface......Page 24
Acknowledgements......Page 26
Introduction......Page 28
Learning outcomes for Part 1......Page 36
Part 1 Further reading......Page 37
Definitions of risk......Page 38
Types of risks......Page 40
Risk description......Page 41
Risk classification systems......Page 43
Risk likelihood and magnitude......Page 44
Risk importance......Page 47
Impact of hazard risks......Page 48
Attachment of risks......Page 49
Risk and reward......Page 50
Risk and uncertainty......Page 52
Attitudes to risk......Page 53
Timescale of risk impact......Page 55
Hazard, control and opportunity risks......Page 56
Hazard tolerance......Page 58
Management of hazard risks......Page 59
Uncertainty acceptance......Page 60
Opportunity investment......Page 61
Origins of risk management......Page 63
Insurance origins of risk management......Page 67
Specialist areas of risk management......Page 68
Enterprise risk management......Page 69
Levels of risk management sophistication......Page 70
Risk maturity models......Page 72
Principles of risk management......Page 73
Importance of risk management......Page 74
Risk management activities......Page 75
Efficient, effective and efficacious......Page 76
Perspectives of risk management......Page 77
Implementing risk management......Page 78
Scope of risk management standards......Page 80
Risk management framework......Page 83
COSO ERM cube......Page 85
Features of RM standards......Page 86
Control environment approach......Page 89
Case study: Barclays Bank – risk management objectives......Page 90
Learning outcomes for Part 2......Page 92
Part 2 Further reading......Page 93
Risk architecture, strategy and protocols......Page 94
Risk management policy......Page 96
Risk management strategy......Page 99
Risk management protocols......Page 100
Risk management guidelines......Page 101
Record of risk management activities......Page 103
Risk response and improvement plans......Page 104
Event reports and recommendations......Page 105
Designing a risk register......Page 106
Using a risk register......Page 110
Allocation of responsibilities......Page 114
Range of responsibilities......Page 115
Statutory responsibilities of management......Page 117
Role of the risk manager......Page 119
Chief risk officer (CRO)......Page 120
Risk architecture......Page 122
Corporate structure......Page 124
Risk committees......Page 125
Risk communications......Page 127
Risk maturity......Page 128
Alignment of activities......Page 130
Styles of risk management......Page 131
Defining risk culture......Page 132
Components of a risk-aware culture......Page 133
Measuring risk culture......Page 134
Establishing the context......Page 135
Risk training and risk culture......Page 137
Risk information and communication......Page 138
Shared risk vocabulary......Page 139
Risk management information systems (RMIS)......Page 140
Consistent response to risk......Page 142
Case study: Tesco – risk management responsibilities......Page 144
Learning outcomes for Part 3......Page 146
Part 3 Further reading......Page 147
Importance of risk assessment......Page 148
Approaches to risk assessment......Page 149
Risk assessment techniques......Page 150
Risk matrix......Page 152
Risk perception......Page 153
Risk appetite......Page 154
Short, medium and long-term risks......Page 158
Examples of risk classification systems......Page 159
FIRM risk scorecard......Page 161
PESTLE risk classification system......Page 162
Hazard, control and opportunity risks......Page 164
Application of a risk matrix......Page 167
Inherent and current level of risk......Page 168
4Ts of risk response......Page 170
Risk significance......Page 171
Risk capacity......Page 173
Risk likelihood......Page 175
Risk magnitude......Page 176
Hazard risks......Page 177
Loss prevention......Page 178
Cost containment......Page 179
Upside of risk......Page 181
Opportunity assessment......Page 183
Riskiness index......Page 184
Upside in strategy......Page 187
Upside in projects......Page 188
Upside in operations......Page 189
Importance of BCP and DRP......Page 190
Business continuity standards......Page 191
Successful BCP and DRP......Page 193
BCP and ERM......Page 195
Civil emergencies......Page 196
Case study: Invensys – risks and uncertainties......Page 198
Learning outcomes for Part 4......Page 200
Part 4 Further reading......Page 201
Corporate governance......Page 202
OECD principles of corporate governance......Page 203
LSE corporate governance framework......Page 204
Corporate governance for a bank......Page 206
Corporate governance for a government agency......Page 207
Evaluation of board performance......Page 209
Range of stakeholders......Page 212
Stakeholder dialogue......Page 213
Stakeholders and core processes......Page 215
Stakeholders and tactics......Page 216
Stakeholders and operations......Page 217
Simplified business model......Page 219
Core business processes......Page 220
Efficacious strategy......Page 221
Effective processes......Page 222
Reporting performance......Page 223
Introduction to project risk management......Page 225
Development of project risk management......Page 226
Project life cycle......Page 227
Project risk analysis and management......Page 229
Operational risk......Page 232
Definition of operational risk......Page 233
Basel II......Page 234
Measurement of operational risk......Page 235
Difficulties of measurement......Page 237
Developments in operational risk......Page 239
Importance of the supply chain......Page 241
Scope of the supply chain......Page 242
Strategic partnerships......Page 243
Outsourcing of operations......Page 244
Risk and contracts......Page 246
Case study: Hercules Incorporated – outsourcing logistics......Page 248
Learning outcomes for Part 5......Page 250
Part 5 Further reading......Page 251
Enterprise-wide approach......Page 252
Definitions of ERM......Page 253
ERM in practice......Page 254
ERM in energy and finance......Page 256
Future development of ERM......Page 258
Risk capacity......Page 260
Risk exposure......Page 262
Nature of risk appetite......Page 263
Cost of risk controls......Page 266
Risk management and uncertainty......Page 267
Risk appetite and lifestyle decisions......Page 269
The 4Ts of hazard response......Page 271
Risk treatment......Page 275
Risk transfer......Page 276
Project and strategic risk response......Page 277
Hazard risk zones......Page 280
Types of controls......Page 281
Preventive controls......Page 284
Directive controls......Page 285
Detective controls......Page 286
Risk control......Page 288
Control of financial risks......Page 289
Control of infrastructure risks......Page 292
Control of reputational risks......Page 297
Control of marketplace risks......Page 299
Learning from controls......Page 300
Importance of insurance......Page 304
History of insurance......Page 305
Types of insurance cover......Page 306
Evaluation of insurance needs......Page 308
Purchase of insurance......Page 309
Captive insurance companies......Page 311
Case study: Intercontinental Hotels Group – loss-control strategy......Page 314
Learning outcomes for Part 6......Page 316
Part 6 Further reading......Page 317
Nature of internal control......Page 318
Purpose of internal control......Page 319
Control environment......Page 320
Features of the control environment......Page 322
CoCo framework of internal control......Page 323
Risk-aware culture......Page 325
Financial assertions......Page 326
Risk management and internal audit......Page 327
Role of internal audit......Page 329
Management responsibilities......Page 331
Audit committees......Page 333
Role of risk management......Page 335
Risk assurance......Page 336
Hazard, control and opportunity risks......Page 337
Control risk self-assessment......Page 338
Benefits of risk assurance......Page 339
Risk documentation......Page 340
Sarbanes–Oxley Act of 2002......Page 341
Risk reports by US companies......Page 342
Charities risk reporting......Page 344
Public sector risk reporting......Page 345
Government Report on National Security......Page 347
CSR and corporate governance......Page 348
CSR and risk management......Page 349
CSR and stakeholder expectations......Page 350
Supply chain and ethical trading......Page 351
CSR reporting......Page 353
Review of benefits of risk management......Page 354
Steps to successful risk management......Page 355
Changing face of risk management......Page 358
Concept of risk appetite......Page 359
Concept of upside of risk......Page 360
Future developments......Page 361
Case study: BP – risk reporting......Page 363
Appendix A: Glossary of terms......Page 365
Appendix B: Implementation guide......Page 375
Index......Page 378