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Risk Control

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4 views

Risk Control

Uploaded by

vsugadev123
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Risk Control

Meaning
Once the sources of the risk has been

identified, next step should be taken to


control the risk
Risk control means techniques or measures

taken to avoid, eliminate or reducing the


chances of loss – producing event occurring
or limiting the severity of losses that do
happen
Example
Infrastructure risk - reduced – process of
regular inspections
Equipment failure risk – reduced – regular
maintenance according to predefined schedule
Risk due to Fire – reduced – testing fire
detectors every six months
Credit risk facility – reduced – making proper
enquiry about customer creditworthiness
Information security risk – reduced – by
sending msg to client each time when their
bank account accessed
 Human error in financial reporting – reduced –

changing into computerized format


 Financial reporting frauds – reduced – regular audit

 Data loss risk – reduced – regular back ups

 Safety risks in work area - reduced – framing


policies and monitoring it
 Customer service failure risk – reduced – giving soft

skills training for employee


 Poor reviews about new product – reduced – double

quality check
Methods followed to control
risk
Risk avoidance

Risk reduction

Risk financing

1. Risk retention

2. Risk transfer
I. Risk Avoidance
Avoidance takes place when decisions are

made that prevent a risk from even coming


into existence
Personal advancement of individual or

growth of economy requires risk taking


If avoidance used extensively, firm may not

be able to achieve it primary objectives


Example
1. Business firm take a decision not to
manufacture a dangerous products

2. One can avoid the risk of death or


disability in a plane crash by refusing to
fly

3. Losses from fire can be completely


avoided by constructing a fire proof
building
II. Risk Reduction
Means minimizing the risk i.e., minimizing

the loss
Reducing the potential severity of those

losses
Some risk cannot be avoided completely,

but great extent risk can be reduced


Example
 Accidents increase by speed or drunk driving –
reduced – not driving after drinking alcohol –
reduces probability of accident
 Prohibition against smoking in areas where
flammables are present – to reduce – fire accident
 To decrease employees injury while handling
machinery – by installing protective devices around
machinery
 Fire accident – reduced – installing sprinkler system
 Air bags in automobiles which are activated
without human intervention
 Keeping first aid kit to reduce severity of injury
III. Risk Financing
Arrangements of funds to meet those

losses that do occur


It consists of two types

1. Risk retention

2. Risk transfer
i. Risk Retention
An individual or business firm retains the

obligations to pay for part or all of the


losses
Types of Risk Retention

Conscious retention

Unconscious retention
Conscious retention
Individual or organization recognized that

risk will incur.


Retention can be done with a formal plan to

fund losses can be paid by the firm

For ex: A transport company may decide to


retain the risk that cash flows will drop due
to increases in price of oil
Unconscious retention
Unconscious retention occur when
individual or organization didn’t recognized
when risk will occur

Example:

1. Even if a person has mediclaim policy, he


can pay for small medical expenses and he
does not need to claim from the insurance
company
ii. Risk Transfer
 Transferring the risk of a individual or organization to

other shoulders

THREE FORMS:
 Transfer of risk through purchase of insurance
contracts
 Risk transfer is the process of hedging, in which an

individual guards against risk of price changes


 Risk transfer take the form of contractual
agreements
Examples
1. Fire accident – Fire insurance policy

2. A farmer sells at future contracts, which is

actually a promise to deliver at a fixed


price in future.

3. A tenant may agree under the terms of

lease to pay any loss that arise out of the


use of premises

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