Risk Management
Transcript of Risk Management
UEL ID: U0949606 Sem. B 09/10
BACHELOR OF ARTS (HONS) IN ACCOUNTING & FINANCE
Researching in Accounting and Finance
FE 2040
Research Proposal
A Study on the Importance of Risk Management to an
Organization
1 / 23 FE2040 Research Proposal: A Study on The Importance of Risk Management to an Organization
UEL ID: U0949606 Sem. B 09/10
Passport Number: G27978722
UEL ID: U0949606
List of Contents
ABSTRACT 3
1.0 INTRODUCTION 4
1.1 OBJECTIVES 4
1.2 BACKGROUND 5
2.0 LITERATURE REVIEW (REFER TO APPENDIX A) 5
3.0 HYPOTHESIS 9
4.0 METHODOLOGY 9
4.1 RESEARCH DESIGN 9
4.2 DATA COLLECTION METHOD 10
4.2.1QUALITATIVE RESEARCH (EXPLORATORY) & QUANTITATIVE RESEARCH
(DESCRIPTIVE) 10
4.2.11 PURPOSE (EXPLORATORY & DESCRIPTIVE) 10
4.2.12 POPULATION & SAMPLE (EXPLORATORY & DESCRIPTIVE) 11
4.2.13 PROCEDURE 12
4.4 ANALYSIS 13
4.5 REPORTING 13
5.0 BUDGET/TIME 14
5.1 TIME 14
5.2 FEES 16
6.0 LIMITATIONS 17
7.0 CONCLUSION 17
BIBLIOGRAPHY/ REFERENCES 18
APPENDIX A 21
SUMMARY OF LITERATURE REVIEW 21
APPENDIX B 23
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Designing of Questionnaires 23
Abstract
According to ISO 31000, risk is defined as the effect of uncertainty on objectives.
Therefore, risk management can be considered as to identify, assess, and prioritize
risks followed by coordinated and economical application of resources to minimize,
monitor, and control the probability and impact of unfortunate events or to maximize
the realization of opportunities. Risks examples are credit risk, trading risk, firm wide
risk, operational risk, global risk, etc.
[Wikipedia, 31- 3- 10]
This project seeks to find out the importance of risk management to organizations,
and the acceptance of risk management by companies. The main goal is to figure out
the realization of importance of risk management. This project will conduct surveys
on 300 organizations in different industry and different nation, and research
information will be collected through internet and also library, as well as experienced
professionals. The project’s achievements will be evaluated for the success of the
proposed objectives and timetable segments. The researcher expects that this
project will bring information to organizations and increase the acceptance of risk
management.
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Proposal Title: A Study on The importance of risk management to an
organization.
1.0 Introduction
This research proposal will be prepared for study of the importance of risk
management to organizations; the researcher will plan the research carefully and
apply suitable methods to carry the project.
1.1 Objectives
The objectives of this research proposal are to find out the importance of risk
management to an organization, and also explore the related theories needed to be
known, and the advantages of risk management, and opportunities within risk
management.
This project is to figure out the advantages of risk management, possible research
areas include:
1) Risk management techniques, methods and risk management institutions
2) Responsibilities of a risk manager
3) Foreign Currency Exchange Risk
4) Optimization tools for risk management
5) Pricing and hedging techniques
6) Monte Carlo and quasi-Monte Carlo techniques
7) Types of Risks
8) Corporate risk management practices
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1.2 Background
The idea of risk managements comes from Wilson Quarterly, the idea is been
summed up by Stephen Lagerfeld right after World War I. The idea is that if we know
how to measure probability and we know about risk management, it will make our life
more productive, more prudent and avoid unnecessary waste of resources. The
concept of risk management developed from 1990 until today.
Nowadays, the world is facing different kinds of risks, the economic crisis the
terroristic attack, lack of resources, the fluctuation of oil price, etc. And there are
multibillion-dollar credit losses, it has become increasingly important for companies
and banks even government leaders to understand and adapt risk management to
their field. Risk Management pioneers and discovers the latest monetary and
hedging techniques in use around the world, and presents the foundation for creating
an incorporated, steady, and effective risk management strategy.
2.0 Literature Review (Refer to Appendix A)
“Derivatives: Transfer of (insurance) risk by means of issuing derivative instruments
with a risk specific underlying. This transaction type may emphasize the transfer of
risk of risk financing.”
[Frenkel, Hommel, Dufey, Rudolf, p347, 2000, 2005]
The researcher agrees with the authors, this quotation gives a clear definition of
derivatives.
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“A scenario analysis measures the changes in market value that would result if
market factors were changed from their current levels, in a particular, specified way.”
[Michael, Alan, Howarth, Dempster, p14, 2002]
The researcher agrees with this idea, but the way the author explained the term is
too complicated and professional, and they didn’t give a brief definition for this term.
“Trading Risk Management: this is a macro risk management at the level of individual
traders and trading desks. This Activity is focused on quantifying risk to changes in
risks factor and implementing specific hedges”
“Firm wide risk management: this is an aggregate risk management at the level of
trading desk, business and the firm itself. This activity is focused on matching risk
with capital to ensure the ability of the firm to absorb trading risk.”
[Satyajit Das, p4, 2006]
The author had given a clear definition and it is easy to understand these two
phrases through his writing.
“Coupon Curve Duration: measures the price sensitivity of mortgage-backed
securities to changes in interest rates”
[Golub, Tilman, p48, 2000]
The author failed to give to more specified definition for this term; it is hard to get the
full understanding of this phrase.
“Credit Risk is the risk of loss following a change in the factors that drive the credit
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quality of an asset.”
“Market Risk is the risk of losses arising from changes in market risk factors.”
“Operational Risk refers to financial loss resulting from a host of potential operational
breakdowns that we can think of in terms of people risks, process risks and
technology risks.”
[Crouhy, Galai,Mark, p14, 2006]
The author had given examples to support his theory and the definition is
understandable.
“Risk: A condition in which there exists a possibility of deviation from a desired
outcome that is expected or hoped for.”
“Peril: A Peril creates the potential for loss”
“Hazard: A condition that may create or increase the chance of a loss arising from a
given peril.”
[Gallati, p8, p9, 2003]
The definition for risk is too professional; the author has to give examples to make it
easier to understand for non professionals.
“Balance of the Yin and the Yang: hard side (Yang) focuses on processes, systems
and reporting, the soft side (Yin) focuses on the people, skill, culture, values and
incentives.”
[James Lam, p22, 2003]
The researcher agrees with the author, however, the explanation can be more
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specified.
“Risk Management Objectives
1) Escape severe losses to the company from insurable risks.
2) Costs and risk management are kept with reasonable bounds.
3) Constant progress in loss reduction is recorded.
4) Determine methods to be used to analyze new projects before financial
commitments.
5) Long term risk reduction and profit maximization plans to be developed and
periodic assessments of progress in fulfilling these plans be made.
6) Constant study of new exposures to effectively handle the potential risks.”
These are some evaluations of a manager’s performance.
[Greene, Serbein (1983) P79]
Through the reading, the researcher has a clear idea of the objectives of risk
management and the author has not specified how companies evaluate manager’s
performance.
3.0 Hypothesis
To carry this project, the researcher will start by asking a question: is there a
considerable market demand for risk management globally? The appearance of risk
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management is to forecast and control the possible or insurable risks, and maintain
and maximize the company’s benefits. Reduce the impact of risks and make the
situation better off.
There are two possibilities to this hypothesis; the most possible one is that there is a
large demand for risk management. And if this prove to be wrong, the alternative
hypothesis will become true. So if it is proved to be wrong, the researcher may
assume that there is little demand in the market place for risk management.
4.0 Methodology
4.1 Research Design
This research proposal will be a descriptive one, for the aim of finding out the global
market demand level for risk management. It will be supported by exploratory
research. Descriptive research is commonly used and it is a statistical research
which is much suitable for this research.
This project will be in medium breadth, and will go deep into information concerning
practices. In order to understand more about certain areas and aspects of this
research, the researcher will use various methods to get a well mixture of breadth
and depth of information.
The researcher will use questionnaires to quickly collect interested information from a
group of companies, and then hold seminar to get more in-depth information from
certain respondent companies and professionals of the project issue. For further
depth of this research, the researcher will carry out case studies; it will contain more
in-depth analysis of unique and notable cases, for example those who benefited or
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not from the risk management. And also the research will apply forecasting or
statistical and perhaps financial approaches to point out the importance of risk
management.
4.2 Data Collection Method
There are two types of data, qualitative and quantitative. The quantitative data will be
collected through e-mail and letter surveys, the researcher will use a cover letter and
enclose with the questionnaires to 300 companies from different industries and
different countries. The qualitative data will be gathered by library resources,
journals, publications, internet information, case studies, and in-depth interviews with
a group of professionals. All the data will be critically evaluated and strictly chosen,
then summarize, finally arrange in order, and logically presented by the researcher.
4 .2.1 Qualitative Research (Exploratory) & Quantitative Research (Descriptive)
4 .2.11 Purpose (Exploratory & Descriptive)
The purpose of doing a qualitative research in this project is to explore the
advantages of risk management, and the researcher will provide the user with
detailed qualitative information. Focused research will be used to explore all the
background and theories related to this topic to support the quantitative research.
After doing the qualitative research, the researcher will carry out an e-mail and letter
study using questionnaires that will send to companies. These approaches had been
chosen by a reason of low cost and higher efficiency. The purpose of doing this is to
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explore the number of firms that have already applied risk management to their
company, and the overall level of acceptance of risk management worldwide. And
also figure out the attitude of companies. It will be in large numbers to represent the
target population and predict the global trend of risk management.
4 .2.12 Population & Sample (Exploratory & Descriptive)
The researcher will conduct 12 professionals who have more than 30 years
experiences in this particular field and these professionals will be have sufficient
knowledge and information regarding risk management. The reasons of choosing a
focus group of professionals are that they are more knowledgeable in this field, and
as they are coming from different countries, it will be a global view. They will be from
6 different countries. The sample will be chosen as follows:
Country China India America UK Australia Singapore
Number 2 2 2 2 2 2
The researcher will send letters and e-mail questionnaires to 300 companies; the
study area will cover 6 countries and 10 different industries. This will bring out a
quantitative data that will be useful to risk management institutions.
The sample will be selected as follows:
Country America U.K China India Australia Singapore
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Number of
companie
s
50 50 50 50 50 50
Type of
industries
30 30 30 30 30 30
4 .2 . 1 3 Procedure
The researcher will gather information from these 12 professionals through online
webcam meeting. They will be discussing this topic for two weeks to figure out the
global trend of risk management. The researcher will also get help from the library for
the books that can be used to do this research, and read these books to gather
useful information, make notes. And also the researcher will use other available
resources, then combined the useful information and present in a logical sequence.
The researcher will set up a list of questions relating to questions concerned in this
project and e-mail them with introduction of the research objectives to the companies
that selected at random. The respondent company will be in different size, large,
medium and small. And wait all the respondents to send back the questionnaires and
then arrange and analyze the data. Finally carry out the report.
4 .4 Analysis
After collection of data, the researcher will conduct the analysis, the researcher will
use statistical analysis techniques to analyze the quantitative data, and the
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techniques will be used are: standard deviation, correlation, trend analysis and
tabulation analysis. For qualitative data, the researcher will analyze the data
systematically and analyze the variables both independent and dependant. Combine
the analysis and then make a conclusion of how to achieve the project goals and the
constraints of achieving them. And finally lead to the solution of the research
question.
4 .5 Reporting
After gathering and transfer all the data into useful information, the researcher will
write a complete and detailed report on this project, then carry a meeting with the
user of this report to find out the shortage and weakness of this report, make
arrangement accordingly, after approval of the project a power point presentation will
also be made by the researcher.
5.0 Budget/Time
5.1 Time
The following time table is strictly designed, and there will be over-lapping periods to
allow the most of the respondents to send back the questionnaires, and also for
rearrangements of the project report. There will be enough time for collecting and
summarizing the information.
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Process Seven Months (Week)
1st 2nd
-
4th
5rd
-
6th
7th
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15th
16th
-
18th
19th
-
21th
22th
-
26th
27th
-
28th
29th 30th
Research Design
Literature Review
Prepare Questionnaires
Seminar/Webcam Meeting
Improve
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Questionnaires
Data Collection
Arrange & Summarize Data
Data Analysis
Write Report
Conduct client and make
improvements
Power Point Presentation
5.2 Fees
Budget Items Cost ($)
Expenses
Rents (Meeting Room) 800.00
Internet Charges 200.00
Printing Costs 250.00
Transportation 850.00
Telephone Charges 600.00
Water and Food (For Seminar) 500.00
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Fees to Researcher 550.00
Research Assistants Salary—3 Person 900.00
Total Cost 4650.00
6.0 Limitations
The researcher found out that there are limitations in this project, the problems are:
the respondents may not answer the questionnaires carefully and honestly this will
lead to errors in the analysis process; and companies will chosen in random and the
group is small, so the reliability of the analysis cannot be guaranteed; different
industries may have different demand level for this subject. And the research apply
descriptive research which have a shortage that the research will not able to describe
what cause the situation and it can’t be used to get a causal relationship.
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7.0 Conclusion
This project will be carrying out for risk management institutions and companies that
need information about risk management and the market situation for risk
management companies. The researcher will doing research on focused group, both
quantitative and qualitative researches will be arranged, data will be analyzed strictly
and the report will be reviewed by users and making further improvements according
to customer needs.
Total: 2193Words.
Bibliography/ References
Books:
Bennett W. Golub,Leo M. Tilman, (2000)
Risk Management: Approaches for fixed income market
John Wiley & Sons, Inc, ISBN 0 471 33211 9
Christopher L. Culp, (2001) The Risk Management Process: Business Strategy and
Tactics
John Wiley & Sons, Canada
ISBN 0 471 40554 X
Jacqueline Jeynes, (2002) Risk Management: 10 Principles
Biddles Ltd, Great Britain, ISBN 0 7506 5036 2
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James Lam, (2003), Enterprise Risk Management: From Incentive to Controls
John Wiley & Sons, Inc ISBN 0 471 43000 5
M. A. H. Dempster,Michael Alan Howarth Dempster,(2002)
Risk Management: Value at risk and Beyond, Cambridge University Press
ISBN 0 521 78180 9
Michael Frenkel,Ulrich Hommel,Gunter Dufey,Markus Rudolf, 2nd Edition (2000,2005)
Risk Management: Challenge and Opportunity, Springer Berlin
ISBN 3 540 22682 6
Michel Crouhy, Dan Galai, Robert Mark (2001), Risk management
McGraw-Hill, ISBN 0071357319, 9780071357319
Michel Crouhy,Dan Galai,Robert Mark, (2006)
The Essentials of Risk Management, McGraw-Hill companies, Inc
ISBN 0 07 142966 2
Reto R. Gallati, (2003), Risk Management and Capital Adequacy
McGraw-Hill, ISBN 0 07 140763 4
Sergio Focardi,Caroline Jonas,Frank J. Fabozzi Associates (1998)
Risk Management: Framework, methods and practice
Frank J. Fabozzi Associates 1998
ISBN 1 883249 35 X
Satyajit Das, Risk Management, (2006)
John Wiley & Sons (Asia) Pte Ltd
ISBN13 978 0 470 82165 7
Websites:
http://www.managementhelp.org/research/analyze.htm
http://www.lums.lancs.ac.uk/phd/PhDproposal/
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http://www.socialresearchmethods.net/tutorial/tutorial.htm
http://ic.daad.de/accra/download/How_to_write_a_research_proposal.pdf
http://www.users.drew.edu/sjamieso/Resources/Proposal.pdf
http://researchproposalguide.com/
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http://insight.aon.com/?elqPURLPage=3907
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_EXT_KNOVEL_DISPLAY_bookid=1263
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http://www.managementhelp.org/research/planning.htm
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Appendix A
Summary of Literature Review
The aim of this section is to gather information and knowledge related to the topic,
the terms, definition, objectives and other important elements for risk management
that managers and companies and also institutions need to be mastered.
Through data collection and literature review, the researcher put the important
elements into category as below:
It is better for companies, individuals and also institutions to be familiar with the
following information:
1. Knowledge of the objectives of risk management.
2. The background and recent reputation and position of risk management.
3. Global Risk Management Institutions.
4. The types and origin of risks.
Trading Risk
Credit Risk
International Risk
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Market Risk
Political Risk
Management Risk
Historical Risk
5. Techniques to measure and control risks.
Capital Asset Pricing Model (CAPM)
Standard Deviation
Correlation
Variance
Expected Return
Coefficient of Variation (CV)
6. Risks in different fields, and risk management services and products.
7. Advantages of adapting risk management, cases of companies or government
department applied risk management to reduce risk and maintain benefit.
8. Risk Management Process
9. Risk Transfer
Hedging
Insuring
Diversifying
10. Valuation of Assets
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Appendix B
Draft Questionnaires
Designing of Questionnaires
The questionnaires will be designed to gather data on 300 companies; the questions’
format will both close and open the script questions are as follow:
1. Did your company apply risk management or not?
2. Do you know anything about risk management?
3. How do you value risk management?
4. Do you think it will make your company much better if you adopt this section into
your company?
5. What are your expectations of risk management?
6. Will you adopt risk management to your organization in the future?
7. What do you think about risk management?
8. What is your company’s main goal?
9. What is your product?
10. Have your company ever face risks?
11. What would you comment on your company’s management?
12. Does your company have international business?
13. Can you give a brief summary of your company’s five year performance?
14. What is your company’s long term strategy?
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15. Do you know the current global economy situation?
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