Executive Summary
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The events of 2008 make it unsurprising that we are preoccupied with financial risk.
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Financial risk is part of overall business risk—business risks have financial consequences.
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As well as being viewed individually, risks should be viewed holistically.
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A holistic approach to risk means looking at each risk in the context of others.
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Managing business risk can be positive and offer opportunities.
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The credit crunch is an example for all companies, not just banks.
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There is a simple, clearly defined process for managing business risks.
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Risk pervades every element of the overall business process.
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The whole organization should be engaged in the risk management process.
Introduction
After arguably the greatest credit crisis in history, it is unsurprising that lenders, borrowers, and investors alike have become preoccupied with financial risk. Its magnitude seems to have dwarfed all other business risk considerations. It can be hard to take a pragmatic view when the strictures in the financial markets may have put the corporation at risk, but the correct perspective is for all risk to be captured in a holistic framework.
Apart from the consequences of events in the financial markets, some recent risk considerations have been imposed rather than occurring naturally. Among those that were more prevalent prior to the credit crunch were the issue of corporate manslaughter and the need to comply with burgeoning health and safety regulation.
What seems sometimes to have been overlooked is that all financial risks are business risks (i.e. a risk to the business), and all business risk has financial consequences. There are those, especially in the public sector, who seem preoccupied with budgets and spending, rather than planning. The advent of business process reengineering (BPR) in the 1980s seemed to coincide with downsizing or rightsizing, as companies trimmed or even slashed their budgets.
What BPR and business planning have in common is the need to put the horse in front of the cart. Financial transactions are the consequence of business decisions. Budgets are the consequence of business planning. Cost efficiencies should only arise from BPR where the exercise is to design or redesign the organization to deliver the current strategy in the current markets and circumstances.
In summary, all risks have potential consequences for financial and business continuity. A holistic approach means looking at each risk in the context of others, and of the business and financial risk as a whole.
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