Unit 7 Assignment 1: Risk Management in a Business Model
Risk Management in a Business Model
This report entitled the overview of understand the risk management functions in business, understand how business risk is assessed and managed, understand the effects of business risks and how they can be managed and understand approaches to crisis management and business continuity planning. The aim of this assignment is to raise business risk awareness and develop skills to assess, monitor and control business risks and to develop an appreciation of the implications of business risks
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1 Examine the role of the risk management function in business
Risk management is particularly vital for small businesses, since some common types of losses such as theft, fire, flood, legal liability, injury, or disability can destroy in a few minutes what may have taken entrepreneur years to build. Such losses and liabilities can affect day to day operations, reduce profits, and cause financial hardship severe enough to cripple or bankrupt a small business.
A financial institution should ensure an adequate risk management structure exists within the organization. Some institutions have a separate risk management department that is responsible for overseeing the areas of information security, business continuity planning, audit, insurance and compliance.
The board is responsible for overseeing and approving the development, implementation, and maintenance of a comprehensive, written information security program, as required by the Gramm-Leach-Bliley Act.
Similar to information security, business continuity planning should be a corporate-wide strategy. Business continuity planners should assess business continuity across all lines of business. The business continuity function often resides in the risk management organizational structure.
Senior management and the board should ensure cooperation between management and IT audit. It should also ensure timely and accurate response to audit concerns and exceptions. The IT audit area should report directly to the board of directors or a designated committee of the board comprised of outside directors.
Senior management should ensure the involvement of regulatory compliance staff whenever a new system or application affects compliance with regulations. New implementations or application changes can cause noncompliance through inaccurate interest rate calculations, inadequate or inaccurate disclosures, weak security controls over the storage or transmission of customer information, and poor customer verification procedures.
P1.2 Assess the role of business function sin the management of risk
The universe of uncertainty that each company faces is comprised of endogenous and exogenous dimensions. Endogenous uncertainty arises from the nature of the internal (i.e. project and organization level) environment. Exogenous sources of uncertainty, in turn, arise at three levels: industry, competition and external environment.
The implementation of strong and effective risk management and controls within securities firms promotes stability throughout the entire financial system. Specifically, internal risk management controls provide four important functions:
* to protect the firm against market, credit, liquidity, operational, and legal risks;
* to protect the financial industry from systemic risk;
* to protect the firm's customers from large non-market related losses (e.g., firm failure, misappropriation, fraud, etc.); and
* to protect...