In the extremely volatile financial environment of today, risk management focuses on matters of insurance and is concerned with identifying potential risks, which may have a severe impact on a firm. Firms conduct risk management assessments in an effort to identify new ways of protecting their assets against sharp market fluctuations.

Originally, risk management was related to the acquisition of the proper insurance, which was offered in standardized forms, basically eliminating the need of risk management. Insurance was purchased to cover the cost incurred by fire, theft and liability losses. Over time, globalization and the increased volatility of financial markets has given birth to a great variety of risks, which can adversely affect organizations. This changed the concept of risk management radically, making it increasingly important.

Modern organizations use risk management as a common practice, particularly for any operation, which is related to financial or facilities management. However, risk management is not focused only on financial risks, but on a multitude of risks that may pose potential threats for a firm. In particular, some of the risks, which need to be alleviated or managed by risk management, are:

Financial risks: they are related to financial transactions. For example, if the organization plans to issue new bonds, it faces the risk of an increase in the interest rates before the bonds are brought to the market. Demand risks: they are related to the demand for the firm’s products or services. Given that sales profitability is particularly important for a firm’s viability, demand risks are very critical for the firm. Speculative risks: they are related to the speculations a firm makes in regards to potential gains from investment projects or marketable securities. Speculative risks are particularity important because they may incur gains and losses to the same extent. Liability risks: they are related to liabilities associated to the firm’s products, services or employees. For example, improper driving of corporate vehicles may incur huge costs for the firm. Property risks: they are related to the destruction of production assets from floods, fire and so on. Personnel risks: they are related to employee’s actions such as fraud, embezzlement, sex assaults and so on. Environmental risks: they are related to polluting the environment, an issue that has acquired increased public awareness and sensitivity in the last years.

Generally, liability, property, personnel and environmental risks are insurable risks, meaning they can be covered by insurance. However, in order to decide if a specific risk will be insured, managers need to evaluate all optimal alternatives. This is a major function of risk management, which facilitates the undertaking of optimal risk measures.

Organizations recurrently undertake a comprehensive assessment of potential risks, at least twice a year. The assessment is being performed by a corporate team comprising of staff members representing all the major functions of the organization.

A complete risk management assessment involves the following stages:

(a)    Identifying the risks

At this stage, risk managers identify the potential risks that may be a threat to the firm. It is important to understand, that risks should not be categorized only by how the industry insurance views them. Each firm performs different activities and undertakes different types of risk. On the other hand, insurance coverage includes a tiny set of risks that modern firms face. Therefore, risk managers should apply a holistic view of risk management to pursue effectively their business objectives. Such a holistic view encompasses risks, which are related to:

Business partners (interdependency risk, cultural conflict risk) Competition (market share, price war, industrial espionage) Customers (product liability, credit risk, lack of customer support) Distribution channels (transportation, service availability, cost) Financial operations (foreign exchange, interest rates, stock market) Operating activities (facilities, natural hazards) Human Capital (employees, independent contractors, training) Political conditions (war, terrorism, intellectual property rights) Regulatory & Legislative settings (antitrust, exporting licensing) Corporate reputation (corporate image, branding success) Strategic management (mergers & acquisitions, joint ventures, corporate agility) Technological issues ( complexity, obsolescence, virus attacks, hackers)

(b)   Measuring the potential effect of each risk

There are risks that are tiny and are not really posing any threat to the organization, while others may greatly impact organizational viability. Risk managers should be able to segregate risks by measuring their potential effect and then focus on the most serious threats.

(c)    Deciding on the appropriate handling of each risk

In most situations, risk exposure is anticipated and reduced by the use of several techniques. These involve, but are not limited to the following:

Transferring the risk to an insurance company: Depending on the nature of the risk, it may be to the firm’s best interest to transfer the risk to an insurance company and pay a premium for it. However, there are cases that self-insurance is less costly for the firm, which prefers to bear the risk directly instead of paying another party to bear it. Transferring the risk to a third party: This technique applies mainly to manufacturing firms that may undergo liabilities as a result of problems in their transportation fleet for example, which would have a huge impact on transferring the products from the manufacturing plant to various points across the country. In this case, the firm may contract with a trucking company to undertake the shipping, thus passing the risk to a third party. Purchasing derivatives contracts to reduce the risk: Firms use derivatives to hedge risks. For example, financial derivatives can be used to reduce risks that arise from interest rates and exchange rates changes. Reducing or eliminating the probability of occurrence of an uncertain event: The losses incurred by an adverse event are a function of the probability of occurrence and the dollar loss if the event occurs. In some instances, risk managers may reduce the probability of occurrence by taking appropriate risk measures. For example, to anticipate the demolition of property by fire, the firm may use fire-resistant materials in areas with the greatest fire potential. In other cases, a firm may discontinue a product or a service line if the risks associated outweigh the returns.

Select appropriate controls or countermeasures to measure each risk. Risk mitigation needs to be approved by the appropriate level of management. For example, a risk concerning the image of the organization should have top management decision behind it whereas IT management would have the authority to decide on computer virus risks.

The risk management plan should propose applicable and effective security controls for managing the risks. For example, an observed high risk of computer viruses could be mitigated by acquiring and implementing antivirus software. A good risk management plan should contain a schedule for control implementation and responsible persons for those actions.

According to ISO/IEC 27001, the stage immediately after completion of the Risk Assessment phase consists of preparing a Risk Treatment Plan, which should document the decisions about how each of the identified risks should be handled. Mitigation of risks often means selection of Security Controls, which should be documented in a Statement of Applicability, which identifies which particular control objectives and controls from the standard have been selected, and why.

Implementation

Follow all of the planned methods for mitigating the effect of the risks. Purchase insurance policies for the risks that have been decided to be transferred to an insurer, avoid all risks that can be avoided without sacrificing the entity’s goals, reduce others, and retain the rest.

Review and evaluation of the plan

Initial risk management plans will never be perfect. Practice, experience, and actual loss results will necessitate changes in the plan and contribute information to allow possible different decisions to be made in dealing with the risks being faced.

Risk analysis results and management plans should be updated periodically. There are two primary reasons for this:

1. to evaluate whether the previously selected security controls are still applicable and effective, and

2. to evaluate the possible risk level changes in the business environment. For example, information risks are a good example of rapidly changing business environment.

As business operations continue to get more and more complex an increasing number of companies are initiating the employment of company-wide Enterprise Risk Management software. The development of such software has paved the way for substantial growth for business organizations as it effectively enables the organization to manage risks, minimize wastage and maximize the use of resources.When it comes to Enterprise Risk Management software you need to know what distinguishes one product from the other since there are so many out there in the market. One of the key features that you should look for is transparency. Since the objective of the software is to simplify the entire procedure, transparency is of utmost importance. Secondly the software should provide you reassurance with respect to the fact that the entire range of enterprise risks are documented.  At the same time it should provide you with clear and simple accountabilities enabling you to pin point not only the problem but the source of the problem as well. Lastly the product should have been built according to the standards of the day and there should be no conformance issues either technical or otherwise.After the risk management software has been determined and implemented those responsible need to make sure that the systems and controls are all in place and working as required. As is the norm in business organizations, the board does not like to be plied with unnecessary detail for the purpose of reassurance. On the contrary the ERM should equip the organization to get quick answers as and when required.

Integration is one of the key features of Enterprise risk management software but you need to be aware of the fact that not all products will offer you this feature. Only software based on an integrated risk management information system will be able to give you diverse business compliance. Such software will endow you with management collaboration and control of the entire business process. Along with enterprise risk management this type of software is currently being used for strategic risk framework, operational risk management, risk profiles, insurable risk profiles, risk matrix configuration and project risk management.

There are a few other distinguishing features that you need to look out for when it comes to selecting enterprise risk management software. Flexibility of the system is one of the core considerations that you will need to make. The ease with which it can be configured is another powerful aspect that can make or break the risk management software. Ideally you should look for software that can offer you powerful board reporting, task based calendars, workflows, emails, libraries and last but not least, security. All these features should be adaptable with multiple databases.

The active management of credit risk has been receiving increasing regulator attention and strategic focus at many financial institutions. Regulators cite poor credit risk management at the portfolio level, weak credit standards for borrowers and counterparties, and insufficient attention to changes in economic and other circumstances affecting the capacity of borrowers and counterparties as the highest contributors to inadequate credit risk management. Regulators have changed capital charges to make financial institutions more responsive to actual credit exposure and have set new rules for how much capital banks must set aside to cover potential losses.The basic principles for an effective credit risk management process were outlined in the consultative paper “Principles for the Management of Credit Risk,” issued by the Basle Committee on Banking Supervision. We consider it appropriate to underscore these principles in view of the current regulatory and credit market influences.

Definition of Credit Risk

Credit risk is the risk of loss arising from a borrower’s or counterparty’s inability to meet its obligations. The majority of a financial institution’s credit risk arises from its lending activities – outstanding loans and leases, trading account assets, derivative assets, and unfunded lending commitments that include loan commitments, letters of credit, and financial guarantees. It also exists in other activities such as acceptances, interbank transactions, trade finance, and retail and investment settlements.

Managing Credit Risk

It is important to formulate and implement a structured credit policy and related processes to manage credit risk. Strategies for credit risk management, including credit policy development and risk monitoring, is the responsibility of business unit and senior management, and the board of directors.

Financial institutions should establish credit limits to control the risk in all credit-related activity. Limits by industry sector, geographical region, product, customer, and country should be specified, along with the approaches to be used for calculating exposures against those limits, and made part of credit policy. Consideration should also be given to the spread across industries or regions as the default of one firm or industry may also affect others. Larger financial institutions might also consider multiple limits for each borrower or borrower group, by product, operational unit, and borrower member so that banking and trading activities of those borrowers or borrower groups creating credit risk can be more adequately monitored. While the trend has been that many financial institutions monitor total exposures in those categories, most have not set maximum limits on those exposures.

Commercial Portfolio Credit Risk Management

Credit risk in the commercial portfolio can be managed based on the risk profile of the borrower, repayment source, and the nature of underlying collateral given current events and conditions. Commercial credit risk management should begin with an assessment of the credit risk profile of an individual borrower or counterparty based on current analysis of the borrower’s financial position in conjunction with current industry, economic, and macro geopolitical trends. As part of the overall credit risk assessment of an obligor, each commercial credit exposure or transaction should be assigned a risk rating and be subject to approval based on approval standards defined in credit policy. Subsequent to loan origination, risk ratings should be adjusted on an ongoing basis as necessary to reflect changes in the obligor’s financial condition, cash flow, or ongoing financial viability. The regular monitoring of a borrower’s or counterparty’s ability to perform under its obligations allows for adjustments to be made that will affect the credit exposure measurement.

Risk rating aggregations should be considered for measurement and evaluation of concentrations within portfolios. Risk ratings are also a factor in determining the level of assigned economic capital and the allowance for credit losses.

To manage the relative risk within the commercial portfolio, many financial institutions utilize participation or syndication of exposure to other financial institutions or entities, loan sales and securitizations, and credit derivatives to manage the size of the loan portfolio and the relative associated credit risk. These activities can play an important role in reducing credit exposures for risk mitigation purposes or where it has been determined that credit risk concentrations are undesirable.

Consumer Portfolio Credit Risk Management

Credit risk management for consumer credit should begin with initial underwriting and continue throughout a borrower’s credit cycle. Consumer and other common attributes to evaluate credit risk. Statistical techniques may be used to establish product pricing, risk appetite, operating processes, and metrics to balance risks and rewards appropriately. Statistical models can be purchased or created that use detailed behavioral information from external sources such as credit bureaus, along with internal historical experience. These models should be validated periodically to assure they continue to be statistically valid and reflect performance of the institution’s customer base, particularly if used for credit scoring. When used, these models will form the foundation of an effective consumer credit risk management process and may be used in determining approve/decline credit decisions, collections management procedures, portfolio management decisions, adequacy of the allowance for loan and lease losses, and economic capital allocation for credit risk.

Accurate Calculations of Exposures

Assuring accurate calculations of exposures against limits is critical to managing credit risk. Methodologies will vary according to product types. For lending products and current accounts, the book balance is considered an appropriate measure, with related accruals included as part of the exposure as default of a counterparty on the primary exposure would also likely lead to loss of interest income. The current market value should be used for issuer exposures on bonds and equities, with replacement cost of the trade used as measure for any unsettled trades. For foreign exchange and derivatives, exposure should be measured at the replacement cost of the trades plus an add-on value based on the nominal value to reflect potential future adverse movements in the replacement cost.

Concentrations of Credit Risk

Portfolio credit risk should be evaluated to assure that concentrations of credit exposure do not result in undesirable levels of risk or in violations of regulatory requirements. Regular review and measure of concentrations of credit exposure against established limits by product, industry, geography, and customer relationship should be performed. For specialized industries, additional measurement categories may be appropriate, such as geographic location and property type for commercial real estate loans. When exposures exceed established limits, an escalation process should be triggered to avoid potential conflicts and to assure senior management is aware of all excesses. Periodic revalidation of established limits would be appropriate to assure that the limits continue to match the strategic risk appetite, provide for targeted asset mix, and recognize potential exposures as anticipated.

Examination of Credit Risk Management

Regulatory examination activities use a variety of techniques to assess a financial institution’s credit risk, including a sampling of loans and review of the institution’s credit management processes. Consideration is given to the complexity of the financial institution’s products and activities, and overall risk management practices. Designing, implementing, and adjusting processes and practices to effectively manage credit risk will limit unanticipated exposures.

No matter who you are, where you are and what you are doing, there are always going to be risks. Minimizing your risks, for the most part, depends on your judgment.Losing money in network marketing is a risk but if you learn fast, than you will develop the needed skills and the faster you break even from this business. If you do want to make a comfortable living then you will need to stay in the MLM for the duration. Not setting high enough financial goals will encourage only a part time or half hearted effort which really is going to see a payment of the “part time” income mentality. Others think that if they can find that single opportunity with two to four downlines, which will network build for them, then their conclusion is that they will be “set for life.” There is no getting around it. Becoming a part of a MLM company is hard work. It takes time and lots of effort to realize a dream of $10,000 a day every month vs. $0.01 doubling every day per month.  $10,000 times 30 days equals $300,000. $0.01 doubling daily would product $5,368,709.12 and if there is one more day, the total would be over 10 million.

The first six months are your education months Learning and hands on experience is what is needed in the MLM industry to succeed. Remember…”Rome wasn’t built in a day.” You will need to pace yourself and be aware of your financial limitations. There are questions which you will need to ask of yourself. Can you afford the joining fees or are you prepared to pay for the overheads like gas, food and training materials? How about survival if you don’t make money the first six months? Will you tighten your financial belt or cut down on unnecessary items to make your dream come true? And, last but not least…Is learning a part of your vocabulary.

All of us have to learn something and not all of us have to learn something fast. With network marketing learning fast means an income sooner. Sure there are risks but to some degree, you are in control as to how you will fare when confronted with a risk taking proposition. As was mentioned, minimizing those risks is largely in your hands. By building on your dreams and realizing that it is up to you to make anything happen, than risk management will be put to good use in the network marketing business.

This process aims at facilitating the information exchange along with the exchange of expertise across various disciplines and countries. The basic idea behind risk management is the generation of ideas and promotion of good practice for those people who have been involved in the business of risk management.Many a times, the judgment of investment risk is made crudely and thus the consequences that can be faced are serious which might include the loss of opportunities, lost reputation, business loss and also in some cases loss of life. The long-established risk management places emphasis over risks originating from the official or corporal causes.

Therefore, it is essential to begin analysis with the problem source for the risk identification for the reduction of market risks. After the analysis is made, it is a must to assess the potential severity of loss and also the probability of occurrence. One must make a decision on what methods can be used in combination so that risks can be made. Also it is essential that the risks are properly recorded and agreed by the suitable management level.

Placing risk management processes at priority, an organisation can get maximum time for getting recovered from the risks that are many a times faced by the companies. Risk management is essential for the company because if the risks are not analysed properly, a lot of time can be wasted to deal with the risks associated with losses. Wasting time on assessing the unlikely risks can deflect the resources that can be put to better use. Hence it is essential to consult a risk consultant who can guide the company to follow a particular risk management plan.