Risk Management Policy
Mis à jour : 24 juin 2019
Version française à la suite de la version anglaise
Our Views on Risks
Risk can be seen has the probability of an event happening that will have an impact (+ or -) on your business objectives. Some are linked to what the business is, is doing and how it’s doing it (reputation, failure to deliver, information system, equipment, etc.). Other risks are linked to the potential for events outside of the business to give rise to opportunities or threats; foreign exchange risk is one of the latter.
How does a Risk Management Policy Fit within Your Organization?
Managing current and future risk, both opportunity and threat, is vital to any businesses. Therefore, a Risk Management Policy becomes the anchor of a proactive approach to the management of all risks impacting strategies, the operations and goals achievement of the corporation. It’s a framework by which the corporation can view, manage and respond to risk – again, threats or opportunities – in a robust and organised manner. A certain amount of risk is required and some is unavoidable; risk management is a planned approach to the identification, assessment and management of the threats and opportunities facing the corporation.
What is the Goal of a Risk Management Policy?
A risk management policy aims to define clear roles, responsibilities and reporting lines for identifying and managing risk while ensuring that an appropriate level of risk management is consistently applied across the corporation. It increases awareness and reinforces the importance of effective risk management through shared learning of best practice and experience throughout the corporation and develops a culture where risk management is an integral part of key management processes for success and not a self-defeating bureaucratic burden.
Why Should You Have a Risk Management Policy?
Generally speaking, the advantages achieved by a risk management policy are improved strategic, operational, and financial management, continuity of knowledge, improved compliance with business process, meeting best practice, improved services to clients and, of course, improving performances - risk being the corollary of performance!
Some of the tangible benefits of an effective risk management policy are such that it helps making sure your organisation is in compliance with several key aspects of your business processes. This means the program is comprehensive and designed to protect the organization against degrees of loss. Compliance is one of the most underestimated benefits of a risk management policy. It demonstrates to your banker that your corporation is in touch with its risk (performance) reality – improving thereof your bankability.
It is also through an effective risk management program that system and provider weaknesses can be identify and their impact mitigate before an adverse event occurs. Most of the time, system failure happened because organizations fail to identify and address problems in their business process.
When Is a Risk Management Policy Useful?
Sooner or later, businesses will likely face a significant adverse event. An effective risk management program is the organisation's first line of defense; it will help mitigate collateral losses following an unfavorable occurrence. It can also provide ample opportunities for meaningful improvement which positively impact growth because it provides a framework for data gathering / analysing.
More importantly, an effective risk management program will reduce the number, the type and the severity of adverse event, hence the cost of doing business.
How Does a Risk Management Policy Mean Improved Competitiveness?
Any organization that knows its strengths and exposures and corrects its weaknesses will be better prepared to handle competition. The attitude and approach to risk management by senior officers makes all the difference in the effectiveness of the program and to what degree employees participate and provide input. Risk management should not be something that is imposed to the corporation / people but rather something that is executed by the people for the corporation.
Risk as an engine of value creation,
its management as a key driver of sustainable growth
Currency Risk Management Policy
A currency risk management policy is an element of the enterprise risk management process. Exchange rates may move up (down) by 10%, even 20% within any single year, which can seriously impact the firm cash flow. A 10% decline in the value of a receivable, or a 10% rise in the value of a payable can impact significantly the profit margin of a commercial operation.
Foreign exchange risk can erase part or all of your export profits or can make your import costs rise substantially. Companies should not be speculating on the future value of a currency, nor should they purely ignore the impact of foreign exchange market volatility on their competitiveness and financial results.
A currency risk management policy will add value to a corporation. It will improve pricing stability, smooth cash flows, lessen the risk of operating in foreign markets, improve the corporation ability to raise money (equity or debt) and, of course, enriched valuation.