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Establishing a Risk Management Program. Elements of an Effective Program. Setting objectives Defining authority and responsibility Organizing the program Controlling the program Formulating a written risk management policy. Pre-Loss Objectives. economy of operations tolerable uncertainty
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Elements of an Effective Program • Setting objectives • Defining authority and responsibility • Organizing the program • Controlling the program • Formulating a written risk management policy RM Program and Policy Statement
Pre-Loss Objectives • economy of operations • tolerable uncertainty • legality • humanitarian conduct RM Program and Policy Statement
Post-Loss Objectives • survival • continuity of operations • profitability • stability of earnings • humanitarian conduct • growth RM Program and Policy Statement
Responsibilities of Risk Manager • regarding overall program • regarding risk control • regarding risk financing RM Program and Policy Statement
Reporting Relationships • depends on senior management’s concern about exposures • depend on organization’s mission RM Program and Policy Statement
Organizing the Program • risk management department - small department - medium department - large department - alternative structure RM Program and Policy Statement
Organizing the Program (cont.) • cooperation with other departments - accounting - data processing - legal - personnel - production - sales/marketing RM Program and Policy Statement
Flow of Information • information about loss exposures coming from within the organization • information about loss exposures going from the risk management department to others in the organization RM Program and Policy Statement
Flow of Information (cont.) • exposure related information coming from outside of the organization • exposure related information sent from risk management department to others outside the organization RM Program and Policy Statement
Controlling the Program • setting performance standards • comparing actual performance with standards • taking corrective action RM Program and Policy Statement
Advantages of Formulating a Risk Management Policy Statement • establishes general goals and objectives • defines duties and authority • coordinates treatment of loss exposures • establishes communication channels • provides for program continuity • provides framework for controlling exposures RM Program and Policy Statement
Risk Management Policy Statement • Should clearly state the RM goal and policy. • support the RM framework; • Should be communicated within the organization and to the appropriate external parties • Clearly states to need for RM within the organization • Stanford University • http://www.stanford.edu/dept/Risk-Management/about/ • Example p. 5.7 RM Program and Policy Statement
Advantages of Formulating a Risk Management Policy Statement • emphasizes importance of the risk management function • states the risk management department’s position within the organization RM Program and Policy Statement
Written Policy Statement • each statement must be individualized • general guidelines RM Program and Policy Statement