Risk Assessment and Looking for Exposures

Recently in class we have been discussing a lot of things regarding risk assessment of exposures for a company. Therefore I decided to research more about this process of risk management and see exactly how companies go about it. I found a PowerPoint Presentation from the University of Illinois that had a lot of great information.

One of the first things I found interesting was the following chart:

This was interesting to me because it gives a clear picture of a formal process companies go about for analyzing their risks and determining if they are acceptable or not. As you can see some risks may be acceptable for the time being (since no company can be completely risk free), but these exposures definitely need to be reevaluated to insure they are still acceptable over time. Other exposures may be unacceptable and therefore require control in the form of various risk management techniques.

As discussed in class, some ways that it can be determined if these exposures are acceptable, uncertain, or unacceptable is through various processes. This can include looking through financial statements, analyzing internal company pro forma statements, looking at organizational charts, or even risk mapping.

Another interesting thing I read in this UIC PowerPoint Presentation was the view that risk assessment and management is “not an objective scientific process; facts and values frequently merge when we deal with issues of high uncertainty; cultural factors affect the way people assess risk.” This is definitely something we have touched on in class, and I think it is a very important thing to remember in looking at how different companies deal with different risks. Though there are many mathematical and scientific approaches to understanding why companies may view some exposures as more important than others, a great deal of it also has to do with the individual values and culture of the company. Many companies are different and value different things, so as much as none of them are going to like losing cash flows due to a risk factor, they will be accepting of it to different degrees based on the foundation of the company.


UIC PowerPoint Presentation on Risk Assessment and Exposure