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Factors for Effective Risk Management Procedures in Financial Industries

Name

Institutional Affiliation

Date of Submission
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Factors for Effective Risk Management Procedures in Financial Industries

Abstract

Over years, risk management is becoming one of the key areas that are being put into

consideration by financial institutions. This is particularly due to its important. The reason

behind this is due to the numerous uncertainties that are being observed in the financial sectors.

Additionally, the financial sector is also considered one of the volatile due to the regular

financial crisis. Numerous activities in this sector are marred with large number of risks. The key

reason for recommending a risk management is to help in reducing the associated or potential

risks.

Introduction

Topic

The topic that the paper is going to focus on is “Factors for Effective Risk Management

Procedures in Financial Industries”

The Issues Involved

The issues involved in this study is the financial industries’ turmoil that have been

observed over period.

Reason to be Concerned with Resolving the Issues

In this case, the article focuses on researching how to effectively manage risk so that to

effectively address or solve financial turmoil in industries. It is important to be concerned with

the resolution of this identified issues because, solving the issues will help in ensuring that there
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is an increase in project success. This will help in ensuring the achievement of success in

financial industries.

How Answering the Issues will Help Us

Since the paper focus on researching some effective risk management procedures that can

be utilized in financial industries, answering the issue will therefore require the various critical

success factors from the findings that will be utilized to help in the achievement of the success

particularly in financial industries. Therefore, the potential target group will be expected to

utilize the framework in order to increase the success of the project. Similarly, the researchers

may also share the information to foster further study.

Implications and Consequences of Dealing the Issues

The implication in this case, is regard as positive implication of dealing or solving the

financial industries’ turmoil. The consequence of solving these issues is first explained based on

the resources that are required to address the issue at hand. Various policies will have to be put

in place to remedy the situation. However, in doing so, resources will definitely be required to

catty out or to ensure effective implementation of the policies. Therefore, the implication is that a

lot of resources will be required to address the issue, secondly, other severe implications could

include: dislocation and retrenchment among other consequences that will be covered in the

paper.

Review of the Literature

This section examines several articles that are particularly relevant to the selected topic

“Critical success factors for effective risk management procedures in financial industries”. The

literature review section will focus on two parts: The Risk management part and the Critical
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success factors for risk management part. The first part will basically help us to comprehend the

various basics of risk management while the second part will basically provide emphasizes on

the critical success factors that will result in effective risk management procedures.

Part 1

Risk Management

Risk refers to the likelihood of an event happening, it also incorporates the degree of

incurring a lose as a result of the occurrence of the situation. The Losses that might be incurred

could include both direct as well as indirect. Events such as natural disasters for instance, the

earthquake may result in direct loss due to destruction of buildings but it might also result

indirect cost such as increased operational costs particularly during recovery processes,

therefore, the likelihood of an event happening will definitely affect or impact the achievement

of objectives (Partnerships BC, 2005 and NIST, 2004). Risk can basically be put into two

categories, which are the systematic as well as the unsystematic kind of risks (Al-Tamimi and

Al-Mazrooei, 2007). When we consider Systematic risk, we refer to the risk inherent to the entire

system or the whole market. This typically also is referred to as the market risk usually, it hard to

control such kind of risks. However, the unsystematic risk refers to the risks that are related to

the individual assets, it is usually easier to control such kind of risks through diversification.

They are usually specific risk.

Anderson and Terp (2006) defined risk management as a process which aims at

eliminating, reducing as well as controlling risks, improve benefits, and avoiding detriments

from potential exposures. It basically aims at maximization of the possibility of success while at

the same time minimization of the probability of future losses.

Essential Definition

Risk management procedure- refers to the way of tackling risks.

Risk identification This refer to the basic step or process of revealing as well as determining the

potential risks that are highly occurring. It is important to note that any appropriate or Correct

identification of the should have to ensure that the risk management turns out to be effectiveness

(Tcankova, 2002).

Risk analysis involves assessment of the potential effects of exposure as well as possibility of a

specific outcome taking place. The impact of exposure is determined based on several factors

such as: time, quality, benefit as well as resource.

Risk evaluation -This is the process of determining if the risks are acceptable or require any

treatment. This is then followed by Risk treatment which incorporates the selection as well as the

implementation of options that will facilitate the treatment of risks. Risk monitoring and review

involves monitoring so that t make sure that the environment doesn’t modify the risk priorities

while at the same time ensuring an effective risk management process.

Factors for Effective Risk Management

Commitment and support from top management

Ifinedo (2008) examined the effects of contingency aspects for instance, the top

management support, business vision, as well as the external expertise. His results indicated that

top management support has a significant impact on the success level of the organizational

system. Additionally, Zwikael (2008) claims and hold on the fact that the top management

support is possibly the essential Success Factors that enhance effective project management. In
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this regard, the top management support might involve effective development of the project

procedures which in this case should incorporates the procedures from the initiation stage,

training programs et cetera. Additionally, Young and Jordan (2008) suggested that “the essence

of top management support related to effective decision-making to manage risk and to authorize

business process change. A successful project is typically propelled by the top management

support, this is because, the management is able to improve decision making that facilitate

effective management of risk. In this regard, we look at the Top-level management in the angle

that, they are able to responds to business processes as well as the management of the risk.

Arguably, it is also important to note that Successful mitigation of risk is considered contingent

and also one of the top management commitments. Additionally, the commitment as well as

support from top management is quite important for the success of all the initiative that can be

implemented by the organization (Hasanali, 2002). The Top management formulate and also

make decisions regarding the various objectives as well as strategies regarding the organizational

risk management activities, the mission et cetera.

It is also important to note that the organization also utilize the risk management in

projecting the probability of a negative effect which is likely to be brought by the risk

management hence able to determine if the top-level management support is required.

Additionally, top management commitment as we’ll as support helps in ensuring an effective

decision-making process that will in turn result in an effective management of the risk.

Therefore, we summarize that, both top management Commitment as well as support is quite

essential for the management of the risk.

Communication

Typically, good communication is quite important to any organization. Effective internal

communication is key considering the facts that it supports the various business strategy while at

the same time improving the various processes of the business thus, in turn., improving the

performance. Secondly, it is important to also note that effective communication helps in setting

clear as well as mutual expectations, objectives together with the goals that have to be achieved.

Usually, Communication facilitate comprehension among the team members who will turn

support each other (Clutterbuck and Hirst, 2002). In this regard therefore, good management

should have effective communicator skills so that they can be able to effectively communicate to

their employees. In this regard therefore, the paper acknowledges communication as an

important factor for effective management of the risk. Grabowski and Roberts (1999) examines

the importance or significant of communication in the mitigation of the risk. According to him,

communication offers a chance for clarification, and also provide a platform where the

employees can be able to carry out a discussion regarding the manner in which they can be able

to know the manner in which they can improve the organization. Additionally, they can also be

able to know the effects of using a variety of risk mitigation strategies. Certainly, the

communication process offers a better chance for the employees of the organization to

comprehend their roles as well as their responsibilities with the changing organizational

structure.

Information Technology (IT)

Information Technology (IT) to consist of two components: the information systems on

which the vital functions of the business as well as business processes depends upon, the

computer technologies which provides support to the processing, storage as well as the

distribution of the information of the organization. For this reason, the Organizations typically

requires the consideration of the IT as it helps in increasing competition, increasing the levels of

the performance, increases the level of globalization as well as liberalization. Additionally, the

IT also helps in ensuring that the objectives of the organization is achieved. It has also been

found that, the IT is associated with all factors regarding the processes of the business, involving

the sharing of the infrastructure such as knowledge, human assets, core competencies, resource

allocation, performance management, project tasking as well as communication support

(Mutsaers, Zee and Giertz, 1998). IT also helps to reduce costs of activities for instance, the

documentation cost et cetera. With this in mind, Xenomorph (2007) claimed that “Effective risk

management is impossible without effective information technology” he described that IT

architecture is critical for the risk management. This also allows the sharing of the information

among individuals in an organization. A lot of researchers have shown how important the IT is in

driving the effective management of the risk. This is because, the IT may formulate an essential

link between the risk management and corporate performance. It offers the data security thus

able to prevent risks. In this regard therefore, we conclude that the Information Technology (IT)

is key as far as the management of the risks is concerned.

Organizational Structure

The organizational structure incorporates the internal relationships, authority as well as

the communication. The structure typically consists of the authority formal lines as well as the

communication together with the information. The organizational structure therefore, plays a
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crucial role in the management of the risks. This is because, it offers the concept, guideline,

direction as well as support particularly to the workers hence able to take appropriate measures

that could help in prevention of the risks. The role of the management will therefore be making

recommendations regarding the various policies that will be required for the management of the

risk. In this regard therefore, we see Grabowski and Roberts (1999) claiming that the risk

management is majorly related to the organizational structure fluidity. Typically, researchers

acknowledge that the EWRM is typically founded or established on an effective organizational

structure.

Training

Training is quite important for the organization. Training aims at equipping individuals with

knowledge, skills and competencies that are required for the execution of a specific task. It is actually

meant to improve performance and productivity. Training typically helps in improvement of the

knowledge, skills as well as attitudes thus, increasing the individual’s confidence, motivation as well as

job satisfaction (Fill and Mullins, 1990). The risk management required intensive training; this is why

training is quite important as far as risk management is considered. Typically, an effective risk should

incorporate or embrace the good business practice as well as staff training.

DISCUSSION

The paper generally focused on the examination of the factors that could lead to an Effective

Risk Management Procedures in Financial Industries”. From the discussion that the paper has

already provided. The answer to the issues that was being examined by the article has been

provided in various stages of the article development. Therefore, the paper carried out the

Literature analysis of at least five articles, these articles have basically presented information that

have answered the issues under consideration. This is because, now I understand that there are

various factors that may be employed in the organization to ensure effective Risk management
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procedures, such factors discussed include Organizational culture, Organizational structure,

Training, the information technology and Communication among other many factors. Based on

the articles the adoption of these discussed factors id important because it ensures effective risk

management strategy that will in turn help the organization accomplish their objectives hence

resulting in a higher success of the organizational projects.

How the Sources Help in Answering the Issue

In consideration of the reviewed articles, it is important to note that all the reviewed articles have

in one way or another contributed towards the answering of the issue. To give a general commends

regarding this section, all the five articles have talked about how a particularly factor have or can be

handled to help in the management of the risks. Therefore, without going back to the details that each

article has provided, we conclude that the reviewed articles have typically helped in examination of the

factors that would help in management of the risks. The articles have therefore, helped in answering the

questions in both the three main strategies, these strategies include: both articles have directly provided

the answers to the question, the direct strategy have seen all the articles agreeing with the answer

expected. Another strategy that the reviewed documents or articles have used to answer the

question is the indirect and substantive strategy where the articles have typically have offered

key information as well as analysis which is quite important to answer the question, this can be

seen and justified by the defining key terms, explaining of the key process among others. Lastly,

the Articles have finally provided a general or background information which is basically

considered essential to the reader to understand at a glance what the whole paper is about. In this

regard, the general information is important for the reader to comprehend the issue.

Questions about the Topic

In consideration of the reviewed articles and the whole developed article, various questions related to the

topic have not been answered by the articles. Therefore, in this regard, other questions I feel that the

articles have not answered include:

Conclusion

Uncertainty of conditions acknowledges the fact that financial industries are currently

encountering significant number of risks. This therefore, justifies the importance of the risk

management that have to be adopted by these organization. From the above reviews, we can see

that effective risk management is quite essential since it significantly contribute to the increasing

in the success of the project. In this regard therefore, it is important to understand that the risk

management framework may be consequentiated particularly from the International Organization

for Standardization (ISO/DIS 31000, 2008) et cetera. The first part of the Literature review,

provided a description of the various term and process regarding risk management, therefore, the

key includes the risk identification, risk analysis as well as risk evaluation, treatment of the risk,

communication and lastly consultation, then risk monitoring and controlling. The paper majorly

examined the key success factors that are essential for effective risk management procedures. A

set of critical success factors has been found in previous studies. The examination of these

factors is important in answering the research question. In this regard, the major findings of this

paper show that the top management Commitment and support, Communication, the Information

technology, the Organizational structure, Training among other factors are key in determining a

successful risk management process by the organization. These factors have therefore been used
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to answer the question. Therefore, for effective risk management, these factors should be

strategically followed.