Effective Risk Management Strategies in Development Planning

2. Development Planning and Administration MPA – 403 Lecture-9 • FACILITATOR • Prof. Dr. Mohammad Majid Mahmood Bagram

3. Risk Management

4. ReflectionsTime Management in Development Planning and Administration

5. What is Risk? • Risk arises from uncertainty; but all uncertainties do not carry risk. • Possibility of an unfavorable outcome of an uncertainty is risk.

6. Is Risk Management a development planning issue? • Planners are responsible for the protection of company assets. • Planners must work to improve shareholders’ value, which is not possible without taking some risks. • Not taking risks may be the biggest risk.

7. Why take risks? • Because you have to. • Because it brings rewards.

8. Risk Management Process • Risk Identification • Risk Assessment • Selection of risk management techniques • Implementation • Review

9. Risk Identification • Risk profile of a company • Formal listing of all potential risks. • External professional help • Risk is inevitable; however unfavorable consequences of risk can be controlled.

10. Classification of Risk • Production risk • Risk of inputs • Risk of outputs • Environmental risk • Political risk • Economic conditions risk

11. Risk Assessment Having listed all the potential risks, ask: • How likely is it for any of these risks to actually materialize? • What is the maximum possible loss that can arise from each of the listed situations? • Can you stand that loss?

12. Risk Management Techniques • Risk avoidance • Loss prevention and control • Internal controls

13. Internal Control • All that a company does internally to protect its assets, ensure the proper conduct of its affairs and accuracy of its records. • Risk management is not just part of “protecting the assets of a company”, it is an essential feature of proper conduct of its affairs.

14. Objectives of Internal Control • That the company pays only what should be paid out • That all incomes, expenses, assets and liabilities are properly recorded • That the assets of the company are protected • That the company’s records are reliable

15. Tools of Internal Control • Defined Procedures • Controls • Physical (cash in safe, maintenance) • Managerial (e.g. budgets, limits, approvals, etc.) • Supervision • Checks • Selection of right personnel

16. Setting Internal Controls • Document all procedures • Train the staff • Ensure that the procedures are being followed.

17. Designing Procedures • Nature of work. • Extent of risk. • Cost of procedure. • Facilitate work, not hamper it. • Compliance with laws, regulations • Promote efficiency culture • Immediate notice of exceptions

18. Monitoring Internal Controls • The system should generate reports. • Frequency of reports • Adequacy of reports • Regular review of reports and action there-on. • Follow up. • Investigation of major lapses

19. Internal Audit • Includes checking, analyses, appraisals, recommendations, advice and information. • Regular or Need based.

20. The internal auditor • Detects errors and frauds • Helps management correct errors and minimize impact of frauds • Helps improve controls.

21. Advantages of Internal Audit • Keeps workers alert • Timely detection of errors & frauds • Enhances reliability of accounting and supporting records • Reduces external audit work

22. Types of Internal Audits • Regular, continuous internal audit • Need based investigation • Pre-disbursement and post-payment audits.

23. Risk Management Reporting • Audit Committee’s Report • Board’s Statement on Internal Controls

24. Audit Committee’s Report • List significance risks; how they are being identified, assessed and managed. • Report on effectiveness of the systems put in place to manage these risks • List of actions being taken to remedy significant weaknesses • Comment on need for greater monitoring of procedures

25. Board’s Statement onInternal Control Essentially it is about status of internal controls, e.g. • There is an ongoing process for identifying, evaluating and managing significant risks. • It is being regularly reviewed by the Board. • It is in accordance with Turnbull Guidance

26. Turnbull Report • Risk Assessment • Control Environment • Control Activities • Information and Communication • Monitoring

27. Risk Assessment • Clear objectives, clearly communicated to all concerned. • Significant risks assessed regularly • Market risks • Credit and liquidity risks • Reputational risks, legal risks

28. Control Environmentand Activities • Who controls? Are they independent? • Are controls/ authority/ responsibility/ accountability defined? • Does company culture permit controls? • Demonstration of will to control • Communication to all concerned • How are adjustments made when needed?

29. Information & Communication • Frequency and adequacy of reports generated by internal control system. • Who receives what report at what intervals? • How reliable are these reports? • What checks are in place to ensure reliability of these reports?

30. Monitoring

31. ConclusionRisk Management has a vital role in development planning and administration.

32. Thank you for your kind attention! • FACILITATOR • Prof. Dr. Mohammad Majid Mahmood Bagram