Friday, 28 April 2017

Risk Management

What is risk?

Risk encompasses all of the uncertain environmental variables that lead unpredictability of outcomes.

Taking risk is an integral part of conducting business and managing investment portfolios.

What is Risk Management?

While risk is generally seen in an unfavourable light, the challenge lies in carefully choosing, understanding and managing the risks entailed by your decisions.
  • Risk management is not about minimising risk - It is about actively understanding and embracing those risks that offer the best chance of achieving organization's goals with an acceptable chance of failure.
  • Risk management is not even about predicting risks - It is about being prepared for (positive or negative) unpredictable events such that their impact would have already been quantified and considered in advance.

Interaction between Risks

It is very important for organisations to recognise that risks interact, and that the interaction is more "toxic" in stressed market situations.

When different sources of risk come together, the combined risk is almost always non-linear in that the total risk faced is much greater than the simple sum of the individual risks, and this makes the situation even worse.

Most risk models and systems do not directly account for risk interactions.

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