Lesson 2 of 8 · All lessons in this module
- Risk, risk exposure and what risk management is
- The risk management framework
- Risk governance and the enterprise view
- Risk tolerance and risk budgetingVideo lesson
- Financial and non-financial risks, and how they interact
- Risk drivers and risk metrics
- Modifying risk: avoid, accept, transfer or shiftVideo lesson
- Integrated case: hedging the currency of a foreign bond holding
Lesson 2 of 8 · 13 min
The risk management framework
A risk management framework is the infrastructure, processes and analytics that let an organisation measure its risks and keep them in line with its tolerance; it is custom-built, but every framework addresses the same seven factors.
In short
- A risk management framework is the infrastructure, process and analytics needed to support effective risk management. It is customised to the organisation, never one size fits all.
- Seven factors every framework addresses: risk governance; risk identification and measurement; risk infrastructure; policies and processes; risk monitoring, mitigation and management; communications; strategic analysis or integration.
- Governance sets the context; identification and measurement is the analytical (quantitative) core; monitoring, mitigation and management acts when exposure is out of line with tolerance.
- The process loops: measure → monitor → are risks in line? If no, modify exposures and re-check; if yes, keep monitoring and report.
- Individuals use a scaled-down version: set goals, choose investments and identify risks, evaluate and modify exposures, then review.
Unlock this lesson free for 7 days
Create a free account to get 7 days free: every lesson, video and flashcard, and the question bank. No card needed.