Re-Examining Existing Risk Management

Rapidly changing economic and market conditions give rise to unusual changes in risks for many organizations.We take two very critical issues in such a situation. Issues that can bring down an empire in an instant.

1. Performance liked executive compensation
If we look back into the historical large scale losses, there is a strong link to such losses occurring because of the way compensation was structured. When compensation and bonuses are linked to performance, there is a tendency to take excessive risks, put a lot more at stake to make quick profitable bets and in turn be rewarded well. Many traders across the globe undertook such large scale positions, and continued to add to these open positions if they were resulting in losses hoping to make up in the end. Often these would be hidden, mis-reported etc.

In the absence of such compensation structure, there would not be enough incentives to expose the organisation to such large scale losses. In India, the derivative contracts entered into by CFOs of manufacturing companies is another example to place bets and make profits for an otherwise support function.

Secondly, when the business booms, there is often a complacency factor that creeps up. Policies and procedures are put on the back burner because business is top priority. Audit and risk department are comforted by the fact that if all necessary checks and balances and approvals were to be taken, the business would have been lost. After hearing these statements for over 10-12 times, these support watch dogs stop questioning and start accepting this as a way of life. Even the CEO starts to sign off on proposals that excessively add risks to the overall risk profile of the organisation.

So, what are the lessons learnt from the above issues. Well, firstly, there is a need to re-align the compensation structure to prevent large scale risks. Secondly, no matter whether you are beginning a race or nearing the finish line. You can never drive a car fast without brakes or should we say, never drive a car fast and purposely not apply brakes to slow down. Risk Management practices are like brakes. They need to be used where appropriate.

Other Services of Interest

  • HIPAA Awareness Training (Mandatory) - Riskpro India

    EVENT OVERVIEW: HIPAA stands for the Health Insurance Portability and Accountability Act and is a US regulation that deals with security measures for protecting patient’s medical records. Employees...
  • SEBI's Insider Trading Amendment - Free Webinar by Riskpro India

    Another important compliance topic that kicks off today. SEBI Amendment to Insider Trading Regulations. Join us for an hour to learn the important changes and how to deal with these. Register -...
  • Sox Training

    Our sox training covers the following points. 1. What is SOX? 2. The Act and its Sponsorors. 3. The background for bringing in this act. 4. Major Sections in the Act 5. Section 404 overview 6...
  • EUC Risks : Manage Spreadsheet risks - Riskpro India

    EVENT OVERVIEW Uncontrolled and untested spreadsheet models pose significant business risks. These risks include: lost revenue and profits; mispricing and poor decision making due to prevalent but...
  • 1 Day AML Training by Riskpro India - Mumbai

    Training event in Bangalore on Anti Money Laundering (AML) and KYC “Are we doing enough to protect integrity of Indian financial sector?” Banks face growing costs to comply with AML requirements...
  • Risk Management Software - Riskpro India's solution for Automating Risk Management

    Riskpro India finally offers small and mid enterprises a risk management tool that helps them to manage risks effectively. To request a 30 days trial, please contact info@riskpro.in Why is Risk...
  • EU-US Privacy Shield for Data Transfers

    Come GDPR (General Data Protection Act) and EU-US PRivacy shield will assume more importance. Privacy Shield Overview The Privacy Shield program, which is administered by the International Trade...
  • Reduce your GDPR implementation Costs - Hire GDPR Experts in India

    Reduce cost for GDPR Compliance - Remote Consulting from India GDPR readiness assessment and implementation can be costly. And time is short. Instead of paying premium fees to local GDPR consultants...
  • Riskpro India on top of Emerging Risks that bother you

    Riskpro India is well positioned to offer advisory services for emerging risks such as Data Protection (GDPR), information security, assurance services such as Third party risk management, internal...
  • Go to top