Risk Management Support

Risk management is the identification, assessment, and prioritization of risks (defined in ISO 31000 as the effect of uncertainty on objectives) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities. Risk management’s objective is to assure uncertainty does not deflect the endeavor from the business goals.

When an entity makes an investment decision, it exposes itself to a number of financial risks. The quantum of such risks depends on the type of financial instrument. These financial risks might be in the form of high inflation, volatility in capital markets, recession, bankruptcy, etc.
So, in order to minimize and control the exposure of investment to such risks, fund managers and investors practice risk management. Not giving due importance to risk management while making investment decisions might wreak havoc on investment in times of financial turmoil in an economy. Different levels of risk come attached with different categories of asset classes.

Principles of risk management

The International Organization for Standardization (ISO) identifies the following principles of risk management and it should:

· create value – resources expended to mitigate risk should be less than the consequence of  inaction, or (as in value engineering), the gain should exceed the pain

· be an integral part of organizational processes

· be part of decision making process

· explicitly address uncertainty and assumptions

· be a systematic and structured process

· be based on the best available information

· be tailor-able

· take human factors into account

· be transparent and inclusive

· be dynamic, iterative and responsive to change

· be capable of continual improvement and enhancement

· be continually or periodically re-assessed