Business risk what is this

BUSINESS RISK INCREASES AS ENVIRONMENT CHANGES • Fierce competition • Pressure for increased productivity, responsiveness and responsibility, while reducing costs • Powerful new techn

BUSINESS RISK - WHAT IS IT

Threats to achieving organization’s business objectives

BUSINESS RISK INCREASES

AS ENVIRONMENT CHANGES

• Fierce competition

• Pressure for increased productivity,

responsiveness and responsibility, while reducing costs

• Powerful new technologies

• Increased external scrutiny

• More decentralized accountability

WHAT CAN YOU DO ABOUT RISK

HOW DO YOU MITIGATE RISK?

• Brainstorm ways to reduce

or remove risk

• Research best practices

• Select the best alternative (cost-effective)

processes, procedures, safeguards, access security, authorization

MONITORING:

throughout

INTEGRATED INTERNAL CONTROL FRAMEWORK

Adapted from Committee of Sponsoring Organizations of the Treadway Commission (COSO) http://risk.ifci.ch/00013184.htm

C O M M U N IC AT IO N

CONTROL ENVIRONMENT

organization and development of people

RISK ASSESSMENT

goals

• Identify internal and external

factors that must be addressed

• Evaluate potential impact of the risk

risk

CONTROL ACTIVITIES

• Policies (guidelines) and procedures (how

work is to be performed) help ensure that management directives are carried out.

• Ensure necessary action is taken to

address risk

Include:

 Approvals & Authorizations

 Top level performance reviews (actual vs

budget/ forecast/ prior period)

 Track major initiatives.

 Physical Controls (inventories/ equipment/

cash/ other assets)

 Information Processing

 Segregation of Duties

INFORMATION & COMMUNICATION

information to the right people at the right time

organization

Includes:

– Necessary Resources (human/ financial)

– Must be sufficient in detail

– Must be accurate and relative

– Duties & Control responsibilities effectively communicated

– Channels of communication must exist

– Management must be receptive to employee suggestions

– Must be effective communication across the organization

– Must be timely / appropriate follow-up

Assesses the quality of the organizations

performance over time

• Ongoing Monitoring Activities

– Reports review

– Planning Sessions

– Routine assessment on internal controls

– Investigation of information received that may indicate problems

• Good management practice

improvement in decision making

• Risk Management is the name given to a logical and

systematic method of

identifying, analysing,

treating and monitoring the

risks involved in any activity

or process.

• Risk Management is

now an integral part of

business planning in

Vietnam.

Process Steps in Risk Management

• Evaluate the Context

• Identify the Risks

• Analyse the Risks

• Evaluate the Risks

• Treat the Risks

• Monitor and Evaluate

• Communicate and Consult

• Example of Business

Risk in Exports

Corruption Perception Index

Host Country Political and Legal

Environment

• A manager needs to understand the following issue regarding a foreign country/market

▪ Political risk – the risk that politics in the

host country will develop in a way which

makes it difficult for businesses to operate profitably

▪ Economic risk -

▪ How to manage the risk

▪ The influence of politics and law

Political Action and Risk

• Ownership risk – danger to

property and life

• Operating risk – interference with operations of a business

• Transfer risk – interference with the transfer of funds

Operating Risk

• Confiscation – host government

transfers foreign-owned assets to a

domestic company without

compensation

• Expropriation – host government

transfers foreign-owned assets to a domestic company and

compensates the foreign owners

• Nationalization – host government

transfers all assets of an industry that are foreign-owned to domestic companies

Transfer Risk

• Currency repatriation – risk

related to not being able to

transfer money out of the host

country

• Currency inconvertibility – risk

related to not being able to

change the host country’s currency into any other currency

Intellectual Property Rights

• Intellectual property rights (IPR) and the protection of those

rights are an important

consideration for businesses

• The important issues to consider are:

– the unwanted transfer of those rights

– the failure in some countries to protect those rights, resulting in the unauthorized copying and use of intellectual property

Economic Risk

• Exchange controls – controls applied to specific goods or companies

• Tax policy – tax policies may

be used to control companies and their capital

• Price controls – price controls may be used to control prices of imported goods or services

Managing Risk

risky area of the host country

government by giving guarantees on local hiring

ownership interests