A sound risk culture promotes an environment of open communication and effective challenge in which decision-making processes encourage a range of views; allow for testing of current practices; stimulate a positive, critical attitude among employees; and promote an environment of open and constructive engagement. Incentives Performance and talent management encourage and reinforce maintenance of the financial institution’s desired risk management behaviour. Financial and nonfinancial incentives support the core values and risk culture at all levels of the institution. 4 1 4 1 Indicators of a sound bank risk culture (continued) Source: Guidance on Supervisory Interaction with Financial Institutions on Risk Culture, Financial Stability Board (2014)
Weeks 4 to 7
The risk management process is: Definition of the Risk Management Process The systematic application of management policies, procedures and practices to the activities of communicating, consulting, establishing the context, and identifying, analysing, evaluating, treating, monitoring and reviewing risk 4 3
The Aim of Setting the Risk Context 4 4 The aim of the ‘establish the context’ step in the risk management process is to articulate the organisation’s objectives, define the external and internal factors that could be a source of uncertainty, scope and structure the risk management activity, and finally design the criteria to subsequently assess the risk. It is therefore a necessary first step in the risk management process. If not executed properly, we may miss a significant source of risk or develop risk management strategies that are inconsistent with the organisation's goals, culture or operating environment (including regulation and laws). It should be regularly reviewed due to the potential for organisational goals and internal and external environments to change.
AU/NZ ISO 31000 Process for Establishing the Context By establishing the context, the organization articulates its objectives, defines the external and internal parameters to be taken into account when managing risk, and sets the scope and risk criteria for the remaining process. 4 5
Articulating the Organisation’s Objectives 4 6 The highest expression of organisation’s intent and purpose. Objectives typically reflect the organisation’s explicit and implicit goals, values and imperatives. Individual to every organisation and will vary in more detail by function and management level within an organisation. Objectives may be expressed as: – Financial (e.g. Increase ROE by 25%) – Non-financial (e.g. Increase customer satisfaction by 10%) – Values (e.g. act ethically at all times)
Identifying Stakeholders and Their Objectives Establishing the context involves identifying key stakeholders and developing an understanding of their objectives and characteristics.
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