risk measurement and risk management

Ajibade A OluwaseunAjibade A OluwaseunPenexus Consulting LagosPenexus Consulting Lagos

(A presentation for Senior and Mid level executives of PHRC a (A presentation for Senior and Mid level executives of PHRC a subsidiary of NNPC)subsidiary of NNPC)

RecapWhat we knowWhat we do not knowWhat we shall learn

Managing risk is at the core of managing any organisation

Risk measurement and quantitative tools are very critical aids for supporting risk management

The duty of every manager within any organisation before anything else is managing risks

Managing Risks(Recap)Managing risks is about making tacticla and

strategic decisions to control those risks that should be controlled and to explore opportunities that could be exploited

It is the art of managing people, processes, and institutions as it is also the science of measuring and quantifying risks

Why is Risk Measurement Necessary?Risk measurement is necessary to support

the management of risks.Risk measurement is the is the specialised

task of quantifying and communicating Risk

Goals of Risk MeasurementUncovering known risks(Risks that can be

identified and understood)Making the Know risk easy to see understand

and compareTrying to understand and compare the

Unknown or anticipated risks

Types of Investment riskMarket Risks or systematic risks: is the

posssibility of an investor tto experience losses due to factors that affect overall performance.

Specific Risks (Unsystematic risks): tied directly to the performance of a particular security and can be protected against through investment diversification

Operational Risks(KRIs)Key risk indicators, operational risk, risk

mitigation—these terms pop up in most content focused on risk management. But, these terms aren't often used in a way that provides guidance on improving processes. We all need to understand what role KRIs play in risk mitigation, but do we all know how to get started turning concepts into action?

KRI definedKey risk indicators (KRIs) are an important

tool within risk management and are used to enhance the monitoring and mitigation of risks and facilitate risk reporting

Operational RisksOperational risk is defined as the risk of loss

resulting from inadequate or failed internal processes, people and systems, or external events. Operational KRIs are measures that enable risk managers to identify potential losses before they happen.

Effective KRIs should beMeasurable - metrics should be quantifiable

(e.g., number, count, percentage, dollar volume, etc.).

Predictable - provide early warning signals. Comparable - track over a period of time

(trends). Informational - measure the status of the risk

and control.

Leading & lagging KRIs

Leading KRIs are measures that are considered predictive in nature. They are derived from metrics that can help to forecast future occurrences. Lagging KRIs are metrics based on historical measures. These help to identify trends in the firm.

Importance of KRIsKRIs play an important role in risk management

by predicting potential high risk areas and enabling timely action.

KRIs enable firms to: Identify current risk exposure and emerging risk

trends. Highlight control weaknesses and allow for the

strengthening of poor controls. Facilitate the risk reporting and escalation

process. Operational risk management adds value to the

firm.

Session tied-inA risk that cannot be Accurately measured A risk that cannot be Accurately measured

cannot be properly managedcannot be properly managed

Thank You