Economists have conceived of subjective risk in terms of utility functions, liquidity preference, and capitalization of income streams. The risk averter, for example, can be described in terms of a utility curve that is convex from above when measuring his attitudes toward wealth or income. He may be described in terms of his penchant for cash and in terms of the interest return he requires for not holding cash. Finally, his risk may be described in terms of the rate at which he capitalizes a given income stream expected from an investment. Risk takers will end to exhibit opposite characteristics from risk averters. Some success has been achieved in identifying risk preference in economic terms; however., economists generally have not considered types of risk other than financial risk in their analysis.

Enterprise Risk Management (ERM) in business includes the methods and processes used by organizations to manage risks and seize opportunities’ related to the achievement of their objectives. ERM can also be described as a risk-based approach to managing an enterprise, integrating concepts of strategic planning, operations management, and internal control.In its “Overview” of Enterprise Risk Management,” the Casualty Actuarial Society describes ERM as “… the discipline by which an organization in any industry assesses, controls, exploits, finances and monitors risk from all sources for the purposes of increasing the organization’s short and long term value to its stakeholders.
Similarly, COSO (Committee of Sponsoring Organizations) defined ERM as: “… a process, affected by an entity’s board of directors, management and other personnel, applied in a strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity goals.”

There are eight components viz.,

Internal EnvironmentObjective settingEvent IdentificationRisk AssessmentRisk ResponseControl ActivitiesInformation and communication, andMonitoring.These eights components are used for achieving the four categories of objectives of the framework of ERM viz., (i) Strategic High level goals: designed to support the entity’s mission or vision (ii) Operations: efficiency of operations including achievement of performance, goals and safeguarding against loss (iii) Reporting: reliable financial and operational data and reports and (iv) Compliance: with laws and regulations.

Risk Management Versus Management : Management Defined : Management may be defined as the process of planning, organizing, Directing and controlling the resources and activities of an organization in order to fulfill the objectives of that organization at the least possible cost.

Risk Management Defined : Risk management may be defined as the process of planning, organizing, Directing and controlling the resources and activities of an organization in order to minimize the adverse effects of accidental losses on that organization at the least possible cost.

Management and Risk Management, Common Characteristics : Because risk management is a form of management it,, lie all management: (i) is Directed toward the goals of the organization, (ii) requires the making and implementing of decision, and (iii) is performed through the planning, organizing, directing and controlling of the efforts of others.

Risk is an important element in describing the basic development of society, which may itself be viewed as a risk-handling device. The more elaborate and structured a given society is, the more likely it is that persons within the society will exhibit risk aversion as an individual trait. However, this hypothesis can only be supported within Direct evidence.

Psychologists have Directed their efforts in identifying and measuring risk attitudes by studying personality variables. Other than financial risk, they have identified social or physiological risk. They have studied the degree of consistency of risk behavior across different variables and have analyzed and contrasted group versus individual risk attitudes. The risk averter is described in psychological terms as one who has a low need for achievement and whose life experience tends to show a lack of interest in activities commonly identified with the masculine role (through sports, dangerous or daring activities, and the like). The risk averter also exhibits a relatively high degree of ambivalence it the type of risk concerned is either physical or social. This same individual, however, may well be willing to take relatively high financial risk. This finding emphasizes the need for distinguishing different types or risk before attempting generalization. Psychologists have also shown that different measures of risk do not always agree with one another when tested on the same group of subjects. Thus, peer valuation may not agree with other measures of risk. Group discussion has been shown to have the effect of increasing the degree of individual member of the group. The popularity of the committee in business and social life may be explained by this fact, and group action may be an effective way to secure more acceptable decisions under uncertainty. This conclusion supports the position that increasing risk aversion in society has brought about increased use of committees that are able to produce decisions on risky matters with greater facility than individual managers.

Several aspects of religion may be described in terms of their risk dimensions. Empirical evidence supports the hypothesis that increasing concern with religious values reflects greater concern in society with subjective risk.

Insurance companies are prone to many risks in running the insurance business which can be classified as (a) Insurance Risks: Insurance risks such as product risk being priced inappropriately or mis-sold to the customers and the risk of the entity not being adequately insured. (b) Financial or Investments Risks reflect the exposure of the business to the performance of the investment market. Investment risk include equity/property risks, currency risk, interest rate risk, credit risk, liquidity risk or the asset liability mismatch risk. (c) Strategic risks arising from the inability to adapt to change in the business environment including economic changes, changes in competition, social change, regulatory change, operational risks.

It is a view held by some Authorities that “strategic management” would be a better term in place of “risk management” in order to describe and explain the management techniques suitable for any types of uncertainty. Strategic management, in its broader sense would differ from risk management of exposures to accidental losses (a) Strategic management encompasses both pure and speculative risks with equal importance, (b) Strategic management aims at growth of an organization to fulfill its full productive potential (c) Strategic management focuses on an organization as a whole and not only on loss exposures. Thus, risk management of exposures to accidental losses can be viewed as part of strategic management and therefore becomes an independent discipline and part of the more generic strategic management. As against, the major Risk Management objectives for an enterprise can be mere survival, peace of mind, lower risk management costs and thus higher profits, fairly stable earnings, little or no interruption of operations, continued growth, satisfaction of the firm’s sense of social responsibility or desire for a good corporate image, satisfaction of externally imposed obligations (e.g., legislative requirements). “Risk Management” is as such become a popular term. Its use has grown as experts in multiple fields have recognized their inability to precisely predict outcomes in specific situations within their areas of operation.

Risk management is the process of making and carrying out decisions that will minimize the adverse effect of accidental losses upon our company. The risk management process is vital to the personal health and safety of employees and the safety of the public. In financial terms, it is vital to our ability to pursue our goals, commence and operate programs, and to perform duties in an efficient and professional manner.The senior management of organization has formed a risk management program to pursue our risk management goals and objectives. These goals and objectives include:
Avoiding exposure to accidental loss by not undertaking functions, contracts, programs or activities where the potential loss is greater than the potential benefit to be derived from these undertakingsPreventing loss by identifying loss exposures and implementing policies and procedures to reduce the risk of these losses occurringControlling losses that do occur by: Assisting and supporting injured parties Developing contingency plans for possible loss scenarios Proper documentation and investigation of lossesDetermining the most cost effective balance of different risk financing tools.Raising the awareness of all board members, senior managers, employees, volunteers and residents concerning risk management within our organization. These goals and objectives will be accomplished by: Establishing a Risk Management Committee with representatives from each department, whose responsibilities will be to implement, monitor, evaluate and revise plans to achieve our goals and objectives Electing a Risk Management Coordinator to serve as the head of the Risk Management Committee and report to the council Including risk management as an item for discussion at every staff meetingCooperation is needed, and expected, from all management and employees. Only by working as a team with common goals and objectives can we ensure the success of this risk management program.

Risk Management: Reputation Risk Management: Reputation risk is the risk of loss resulting from damage to a company’s reputation, in lost revenue or destruction of shareholder value, even if the company is not found guilty of a crime. Reputation risk can be a matter of corporate trust but serves also as a tools in crisis prevention. Usually reputation risk is informational in nature and could be difficult to realize financially. Extreme cases could even lead to bankruptcy. Factors influencing reputation are (i) brand (ii) financial strength (iii) Leadership and management (iv) quality of products and services (v) risk management (vi) work place culture (vii) corporate social responsibility (viii) media coverage (ix) crisis management (x) customer relationship and (xi) mission and values.

Reputation Risk Management is a set of actions and policies taken and established while reputation problems are still latent in order to reduce the probability and/or the expected costs of latent reputation problems materializing. Example of potential internal reputation risks are lack of coherent strategy, corporate responsibility issues, bad quality of service, work stress environment, management related issues, internal fraud, corruption/money laundering, data privacy issues, misspelling practices. The external reputation risks are natural catastrophes, cybercrimes, regulatory and market environment and change in consumer behavior.

Reputation Risk Management like Risk Management framework requires (a) early identification of potential reputation risks and tracking of current risks (b) monitoring of potential and actual reputational risks (c) risk assessment (d) Risk prioritization (e) Actions to mitigate risks.

Risk Management Versus Anti-money laundering related risks : Anti money laundering as a risk category came into focus from 2001 after the vulnerability of financial sector money laundering was considered as a serious issue globally. IRDAI has prescribed the framework for controls from AML Angle. Verification of customer KYC, training of employees and sales force, monitoring of customer transactions, system of generation of alerts for suspicious and cash transactions are some of the key controls prescribed. Whilst internal controls can be managed it is the external controls such as field practices of sales persons are required to be monitored. Risk Management and Rick control units must have strong supervision on the field practices and advice management of the controls to be put in place. AML violations are in high risk category.

Risk Management Versus Business Continuity and Disaster/Emergency/Catastrophe – Recovery Planning: Catastrophe, disaster and emergency, Management – all of these terms are low frequency high severity which may lead to: substantial loss of life, high value property damage, long interruption periods and all other associated effects.

Catastrophe, disaster and emergency – all of these terms are low frequency high severity which may lead to: substantial loss of life, high value property damage, long interruption periods and all other associated effects.