Risk Management : Assignment Sample

Running head: RISK MANAGEMENT
Risk management
Name of the student
Name of the university
Author Note:

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Table of Contents
Introduction......................................................................................................................................3
Figure 1: Risk Management Process...............................................................................................4
Risk Management Model.................................................................................................................4
Reason for selecting the particular Risk Management Model.........................................................6
Integration of the Risk Management Model into the organization..................................................6
Sources and Types of Risk..............................................................................................................7
Impact of Global Trends on the Risks.............................................................................................8
Ways to avoid the Risks..................................................................................................................9
References......................................................................................................................................11

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Introduction
The following report deals with the risk management process of a particular organization.
The report is based on the risk management program of Bank X which has plans to establish and
start its operations in Australia. The report introduces the readers with a variety of different risks
that are involved in the operation of such a large project (Waemustafa and Sukri 2016). The
report has used a five scale risk management framework that starts with the identification of the
key risks at disposal and ends with the ways to mitigate the risks accordingly.
 Identification of the key risks- The following part of the report discusses the key system
risks that are The individual risks have been identified and segmented into specific risk
categories that helps to deal with the risks in a proper and systematic way (Gale and
Yorulmazer 2016). The more the project progresses, the more is the chance of the
formation of complex risks. The main purpose of the identification of the key risks is to
assess them and make necessary mitigation plans to counter them.
 Risk Mitigation and allocation strategies- The following part of the report discusses the
initial strategies that are taken for the mitigation of the risks. Each of the single risks are
unique and harmful in nature and thus they have to be mitigated accordingly as early as
possible (De Anglo and Stulz 2015). The strategies include the likes of the procurement
contracting, delivery strategies and that of associated risk transfer. Risk Management and Processes- The risk management plans and processes part deals
with the risks involved throughout the HSR system’s life cycle.

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The risk management process of the authority involves the likes of five of the key steps that
are needed to be implemented to reduce the chances of the risks that occur in the lifecycle of the
project. These are shown in the diagram provided below;
Figure 1: Risk Management Process
Source: (Gale and Yorulmazer 2016)
Risk Management Model
It is important for every business organization to identify and implement a solid risk
management model to make sure the business can avoid risks and progress smoothly with its
operations in the market. The banks are no odd ones out as the management of each and every
bank has to create a specific risk management model to ensure that they do not slip in the market.
Bank X which has been planning to enter the market of Australia must also plan a similar risk
management model to get rid of the different forms of risk and establish their supremacy in the

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market. The management of Bank X will be following a 5 step risk management model to make
an entry into the Australian Banking sector. The five step risk management plan will involve five
different steps namely;
1. Risk Identification- The risk identification process will be involving the management of
Bank X to measure the risks and identify their impact before the establishment of their
business in Australia. It is an essential part of the business management to make an
analysis of the risk that the bank may face in the market.
2. Qualitative Risk Analysis- The qualitative risk analysis of the business will involve the
calculation of the risks, their impacts on the bank and the amount of damage that they can
make to the business. The risk analysis of the business will thus help the organization to
have a clear and predefined idea of the market in advance which will help them to fix the
strategies of the business accordingly in Australia.
3. Quantitative Risk Assessment- The risks related to the different interest rates, lending
rates, loan rates and other risks from different interests are quantitative risks. The
Australian banking sector follows a federal principle and thus the bank has to take the
risks on their own (De Anglo and Stulz 2014).
4. Risk Response Planning- As mentioned earlier the measurement of the risks and the
differences in the calculation of the risks has to be done in accordance and adequate
action from the part of the management needs to be taken to ensure the success of the
bank in Australia. Different credit risks, operational risks must be tackled accordingly to
ensure the smooth operations of the banks.
5. Monitoring and control of the risk- The management of Bank X has to establish
different strategies and principles to tackle the risks that will be identified by the bank

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before their establishment in Australia (De Anglo and Stulz 2014). Apart from this the
company has to also establish a new risk management team that can formulate different
types of risk management plans and mitigate the risks accordingly.
Reason for selecting the particular Risk Management Model
The particular risk management model has been selected by Bank X as because the five
step risk model provides the necessary support and balance to the management of Bank X for
providing a proper and efficient risk management plan that will be helpful for them to make a
dynamic entry into the Australian market (Chance and Brooks 2015). Apart from this the
mentioned model provides the fluidity and the dynamic ability to the business to mitigate all
risks and bring success to the banking operations in Australia.
Integration of the Risk Management Model into the organization
The fives step risk management model will be integrated by the management of Bank X
in an organized process to ensure the success of the business in the market;
1. Strategic Objectives decomposition- The risk management team of Bank X has to
identify the risks and then break them down into different segments and transform them
into tactical or operational Key Performance Indicators. The formulation of the different
kinds of Key performance indicators will help the organization to mitigate the risks.
2. Identification of the factors associated with uncertainty- The factors that are associated
with uncertainty must be highlighted to take cover from any types of risks that may be
associated with such.

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3. Performance of Risk analysis- The risk analysis of the organization should be performed
in a proper and efficient way to make sure that the tools are used for the in depth analysis
and the identification of all the risks that are associated with the operations and
sustainability of the mentioned bank in Australia.
4. Turning the analysis into solid actions- The risk analysis reports must be taken seriously
and immediate actions must be taken by the concerned team to mitigate the risks
accordingly and establish a proper risk management plan to ensure a sustainable future
for the business.
Sources and Types of Risk
Risks in banking sector may be defined as the “possibility of loss”. This can be both financial
loss and loss to the image or reputation. Like the other commercial organizations banks also tend
to take considerable risks which is quite inherent in any forms of business. The management of
Bank X has to make sure that the organization has to take risks to make a grand entry into the
Australian market. The banks may take a number of different risks that may seem too risky.
However taking such steps of great risks can ensure maximum success for the bank in the future.
Some of the main risks that Bank X may face and their sources are as follows;
a. Credit Risk- Credit Risk occurs at the time when the borrowers of the bank and some
other counterparties refuse to pay the borrowed amount to the individuals or any group.
In doing so, the parties also fail to fulfill the contractual obligations (Chance and Brooks
2015). The main financial risk of Bank X is credit risk and most of them arise in the
bank’s lending operations. The bank is sometimes also exposed to credit risks that arise

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from the treasury activities of the bank. The bank will always be open to such a risk no
matter of its well diversified portfolio.
b. Market Risk- The bank defines the market risk as the risk of valuation loss or the
reduction in the expected earnings of the bank. This may happen due to the adverse
fluctuations in the exchange rates of the country, different rates of interest and cross
country currency basis spreads. The management of Bank X must make sure to obtain
cost efficient funding that may come from a vast range of sources (Bessis 2015).
c. Liquidity Risk- Liquidity risk is defined by the management of Bank X as the risk of
incurring losses just because of the incapability of the bank to meet the payment
obligations to the lenders in a timely and proper manner when the amount becomes due.
The management of Bank X aims to make sure that they do not incur the liquidity risk as
such a risk can hamper the future of the bank in the island continent.
d. Risk from other competitors- The presence of other competitors in the market is always a
risk for the business like that of banks. The presence of Commonwealth bank of Australia
and other local and international banks is a great risk for the Bank X. The popularity of
the other banks and the market share will be hard to achieve for the mentioned bank.
Impact of Global Trends on the Risks
The traditional practices and concepts in the banking sector are being slowly discontinued
and new practices and trends are slowly being followed to gain success in the modern banking
market. Some of the latest trends and their impacts on the banks are as follows;
1. Regulations will continue to broaden- The changing times in the banking and the
increasing risks that are being associated with the banks, there awaits more new

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regulations that are both financial as well as non financial (Bessis 2015). The regulatory
frameworks generally come into existence because of the fraudulent means of wasting
money or any big scandals related to the loss of public money from the banks. The
regulatory frameworks are now strong enough mainly due to the financial crisis of 2008.
The financial crisis has forced both the private as well as the public sector banks of the
developed economies to strengthen and also secure their financial economy.
2. Rise in the customer expectations- The vast technological innovation have changed the
way people thought a decade earlier. The technological innovation in the financial sectors
has ushered in a new set of competitors for the banks who are ready to offer the
customers with digital based financial solutions. The customers naturally are more prone
to shift their loyalty to such institutions and thus expect their banks to match such kind of
advanced services to usher in a new revolution in the banking sector and make the
banking more favorable for the customers.
3. New forms of Banking- As said earlier the introduction of the latest technological
innovations has changed the way people thought about banks. The ushering of the latest
forms of technology has paved the way for a digital revolution within the banks (Berger
et al. 2016). This includes the likes of the use of Big data, Machine learning, online
banking, mobile banking, crowd sourcing and many more as such.
4. New forms of risk- New forms of advanced and untraceable risks are creating havoc in
the banking industry. The new risks are smart enough and cannot be mitigated without
expert technology. Some of the risks include Model Risks, Cyber security Risks,
Contagion Risks and many more as such.

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Ways to avoid the Risks
The management of Bank X must follow some basic principles to avoid the risks that can
damage their future business planning’s for Australia. Some of them are as follows;
1. Implement stronger protection against lending- The implementation of stronger rules
and regulations can help the bank to avoid any form of risks that may occur from lending
money to institutions or public in general.
2. Establish new and friendly policies and products- The bank can introduce attractive
products that are unique in nature and will have an immediate impact on the customers.
Such an offer can ensure a tough fight in the Australian market and will help the Bank to
claim some amount of market share in the beginning.
3. Embracing Technology- Technological adoptions are one of the latest and best things
that can be used to establish supremacy in the market. The adoption of technological
reforms will help the organization to gain considerable market share.

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References
Berger, A.N., Bouwman, C.H., Kick, T. and Schaeck, K., 2016. Bank liquidity creation
following regulatory interventions and capital support. Journal of Financial Intermediation, 26,
pp.115-141.
Bessis, J., 2015. Risk management in banking. John Wiley & Sons.
Chance, D.M. and Brooks, R., 2015. Introduction to derivatives and risk management. Cengage
Learning.
De Anglo, H. and Stulz, R., 2014. Liquid-Claim Production, Risk Management, and Bank
Capital Structure: Why High Leverage is Optimal for Banks.
DeAngelo, H. and Stulz, R.M., 2014. Liquid-claim production, risk management, and bank
capital structure: why high leverage is optimal for banks.
DeAngelo, H. and Stulz, R.M., 2015. Liquid-claim production, risk management, and bank
capital structure: Why high leverage is optimal for banks. Journal of Financial
Economics, 116(2), pp.219-236.
Gale, D.M. and Yorulmazer, T., 2016. Bank Capital Structure, Fire Sales, and the Social Value
of Deposits.
Haq, M., Hu, D., Faff, R. and Pathan, S., 2017. New evidence on national culture and bank
capital structure. Pacific-Basin Finance Journal.
Hugonnier, J. and Morellec, E., 2017. Bank capital, liquid reserves, and insolvency risk. Journal
of Financial Economics, 125(2), pp.266-285.

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McNeil, A.J., Frey, R. and Embrechts, P., 2015. Quantitative risk management: Concepts,
techniques and tools. Princeton university press.
Stulz, R.M., 2015. Risk‐taking and risk management by banks. Journal of Applied Corporate
Finance, 27(1), pp.8-18.
Waemustafa, W. and Sukri, S., 2016. Systematic and unsystematic risk determinants of liquidity
risk between Islamic and conventional banks.