7/30/2019 August 23 Article the Risk Professor Series

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The Risk Professor Series

What is Risk Management?

Poor risk management has been fingered as one of the principal reasons for the crisis in theNations financial institutions, particular the banks. The five (5) banks whose CEOs have been

relieved of their posts have also been accused of taking poor leadership decisions that

resulted in huge risk exposures that threatened shareholder interest and depositors funds. The

question is, what exactly is Risk Management and how can a poor risk management system

lead to poor business performance.

Risk Management is a system of processes that a company uses to identify, assess, quantify

and control risks to achieving defined business objectives. Effective risk management

practices supports an organization to achieve the following;

Asset Protection- Protect the business from adverse events or occurrences as well asrecognizing potential opportunities that conform to the companys managementpolicy. Proper risk management strategies shield companies from risks arising from

blind pursuit of untested market opportunities. By deviating from using traditionally

stable collateral and security against loans, many banks succumbed to the temptation

of using share certificates as collateral for funding increased activity in the stock

market. The attraction of the quick profits from a stimulated stock market growth

provided a very weak foundation for experienced managers to jettison their

fundamentals and plunge too deep into trading in shares on the assumption that the

upward price movement will never stop.

Compliance- Ensures compliance with internal company management policies andexternal regulations by Government Agencies such as Central bank of Nigeria,

Department of Petroleum Resources, etc Build Trust- by communicating the existence of strong values inculcated into regular

principles and practice of effective risk assessment and management, customer and

consumer confidence is boosted. People would rather do business with institutions

they can trust.

Enhance Sustainable profitability- Experienced managers are always cautious whenemerging market trends in their industry generate huge returns on investment for

almost any player. This is because the road to wealth and profits is never flat,

common or popular. Effective risk management practices allow business managers to

shield their operations from diverting to practices that expose them to high risks that

are outside their control range. Although these might mean lower profits in the shortrun, the performance is more sustainable. As the positive momentum is sustained,

geometric growth is likely to result from compounding effects over the years.

Cost Savings- Good risk management systems save companies huge sums of money,time and resources. Timely risk assessments identify potential risks that if undetected

may lead to very high mitigation costs if detected at an advanced stage of business or

project implementation. A major satisfaction we get from the corporations we support

is the significant cost savings that result from developing and implementing effective

risk assessment and management systems.