pob week 2 finance seminar 8

Principles of Business Introduction to Finance – seminar 8

Overview

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• Financial risk management

An introduction to risk

Examples of types of risk:

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• Business risk – The overall risk of something happening that would impact on the organisation’s overall objectives

• Financial risk – The risk of something happening that would impact on the organisation’s ability to present a true and fair view of it’s financial position

• Ethical risk – The risk of the organisation acting, or being seen to act, in an unethical manner.

• Reputational risk – The risk of something happening that could impact on the reputation of the organisation

Exercise 1

Examples of types of risk:

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• Using a company that you are familiar with (please use Pearson if you would like), analyse the risks that organisation faces into the following categories:

- Business - Financial - Ethical - Reputational

Understanding risk

L1 Financial Frameworks 1 5

Overall risk for a board of directors

= IR x CR x DR

- If control risk is higher then detection risk should be lower (and vice versa)

Mitigating the risks that you have identified: internal controls


Examples of preventative controls

• Authorisation• Physical controls• Segregation of duties



Examples of detection controls

• Reviews• Reporting• Audits (financial, internal, compliance, supplier)• Observation & Monitoring

Exercise 2

Control risk exercise:

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1. What are the key risks that Ryanair face? 2. Design appropriate controls for the risks that you have identified.



Ryanair

• a strong and independent Board which meets at least 4 times a year and has separate Chief Executive and Chairman roles;

• a clearly defined organisational structure along functional lines and a clear division of responsibility and authority



Ryanair

• a comprehensive system of internal financial reporting which includes preparation of detailed monthly management accounts, providing key performance indicators

• quarterly reporting of the financial performance with a management discussion and analysis of results;



Ryanair

• Weekly Management Committee meetings, comprising of heads of departments, to review the performance and activities of each department in the Company

• Detailed budgetary process which includes identifying risks and opportunities and which is ultimately approved at Board level;



Ryanair• Board approved capital expenditure and Audit

Committee approved treasury policies which clearly define authorisation limits and procedures

• a risk management programme in place throughout the Company whereby executive management reviews and monitors the controls in place, both financial and non financial, to manage the risks facing the business.

pob week 2 finance seminar 8

Economy & Finance