Efficient Corporate Image Management as a Strategy for Enhancing Profitablity

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A practical guide to risk assessment*
How principles-based risk assessment enables organizations to take the right risks

*connectedthinking

pwc

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A practical guide to risk assessment

Table of contents

The heart of the matter

2

Effective risk assessment is increasingly important to the success of any business.

An in-depth discussion

4

Risk assessment forms the foundation of an effective enterprise risk management program. Defining risk assessment A foundation for enterprise risk management Key principles for effective and efficient risk assessments What this means for your business 5 12 15 20

Effective risk assessment requires a consistent approach, tailored to the organization. Essential steps for performing a risk assessment Common challenges to effective risk assessment Risk assessment: benefits and opportunities 21 33 35

December 2008

The heart of the matter

Effective risk assessment is increasingly important to the success of any business.

2

Today’s business world is constantly changing—it’s unpredictable, volatile, and seems to become more complex every day. By its very nature, it is fraught with risk. Historically, businesses have viewed risk as a necessary evil that should be minimized or mitigated whenever possible. In recent years, increased regulatory requirements have forced businesses to expend significant resources to address risk, and shareholders in turn have begun to scrutinize whether businesses had the right controls in place. The increased demand for transparency around risk has not always been met or met in a timely manner, however—as evidenced by the financial market crisis, where the poor quality of underlying assets significantly impacted the value of investments. In the current global economic environment, identifying, managing, and exploiting risk across an organization has become increasingly important to the success and longevity of any business. Risk assessment provides a mechanism for identifying which risks represent opportunities and which represent potential pitfalls. Done right, a risk assessment gives organizations a clear view of variables to which they may be exposed, whether internal or external, retrospective or forward-looking. A good assessment is anchored in the organization’s defined risk appetite and tolerance, and provides a basis for determining risk responses. A robust risk assessment process, applied consistently throughout the organization, empowers management to better identify, evaluate, and exploit the right risks for their business, all while maintaining the appropriate controls to ensure effective and efficient operations and regulatory compliance. For risk assessments to yield meaningful results, certain key principles must be considered. A risk assessment should begin and end with specific business objectives that are anchored in key value drivers. These objectives provide the basis for measuring the impact and probability of risk ratings. Governance over the assessment process should be clearly established to foster a holistic approach and a portfolio view—one that best facilitates responses based on risk ratings and the organization’s overall risk appetite and tolerance. Finally, capturing leading indicators enhances the ability to anticipate possible risks and opportunities before they materialize. With these foundational principles in mind, the risk assessment process can be periodically refreshed to deliver the best possible insights. Organizations that vigorously interpret the results of their risk assessment process set a foundation for establishing an effective enterprise risk management (ERM) program and are better positioned to capitalize on opportunities as they arise. In the long run, this capability will help steer a business toward measurable, lasting success in today’s ever-changing business environment.

The heart of the matter

PricewaterhouseCoopers

3

An in-depth discussion

Risk assessment...
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