Meaning and Definition of Corporate Risk Management
Corporate risk management is the practice of defining the risk level a firm desires, identifying the risk level of a firm currently has, and using derivatives or other financial instruments to adjust the actual level of risk to the desired level of risk. In this approach, risk management is closely identifying with the types of instruments that can be used to manage risk.
According to Jorion___” Risk management is the process by which various risk exposures are identified, measured and controlled. Our understanding of risk has been much improved by the development of derivatives markets”.
Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/ or impact of unfortunate events. Risks can come from uncertainty in financial markets, project failures, legal liabilities, credit risks, accidents, natural causes and disasters as well as deliberate attacks from an adversary.
Features of Corporate Risk Management
- Risk Permeates the Organization: The risk management function has evolved to become a core area of business practice, driven by the board but embedded at every level of the organization. The aim is no longer simply to avoid losses, but to enhance reputation and yield competitive advantage.
- Awareness of Risk is the Key: With the battle for support from the board largely won, the key determinant for success in risk management has become the need to ensure that a strong culture and awareness of risk permeates every layer of the organization. Setting a clear risk appetite and establishing well-defined systems and processes to another ongoing risks are also crucial.
- Increase in Investment is Predicted: Firms of all sizes and in all areas of the world are planning to increase investment in most areas of risk management over the coming years, suggesting that the business discipline, although evolving rapidly, will continue to expand and deepen its reach within organizations.
- Companies create a Figurehead for Risk:
- Many Drivers to Strengthen the Function: