Year: 2020

The risk of an investment refers to the variability of its rate of return from the expected rate of return. Statistically, it can be measured with variance, standard deviation, range, and beta.

Risk Management is a five-step process:

Step 1: Establish the context

Step 2: Identify the risks

Step 3: Analyse the risks

Step 4: Evaluate the risks

Step 5: Treat the risks

Throughout each step, it is essential that there is consultation and communication with everyone

in organisation about its functions, activities and events (refer to diagram).

Step 1: Establish the Context

Before risk can be clearly understood and dealt with, it is important to understand the context in

which it exists. You should define the relationship between your club and the environment that it

operates in, so that the boundaries for dealing with risks are clear.

Establish the content by considering:

• The strategic context: The environment within which the organisation operates
• The organisational context: The objectives, core activities and operation’s of the club.

Step 2: Identify the Risks

The purpose of this step is to identify what could go wrong (likelihood) and what is the consequence (loss or damage) of it occurring.

Risks can be physical, financial, ethical or legal.

Physical risks are those involving personal injuries, environmental and weather conditions and the physical assets of the organisation such as property, buildings, equipment, vehicles, stock and grounds.

Financial risks are those that involve the assets of the organisation and include theft, fraud, loans, license fees, attendances, membership fees, insurance costs, lease payments, pay-out of damages claims or penalties and fines by the government.

Ethical risks involve actual or potential harm to the reputation or beliefs of your club, while legal risks consist of responsibilities imposed on providers, participants and consumers arising from laws made by federal, state and local government authorities.

Step 3: Analyse the Risks (& Evaluate)

This involves analysing the likelihood and consequences of each identified risk and deciding which risk factors will potentially have the greatest effect and should, therefore, receive priority with regard to how they will be managed. The level of risk is analysed by combining estimates of likelihood (table 1) and consequences (table 2), to determine the priority level of the risk (table 3).

It is important to consider the consequences and the likelihood of risk in the context of the activity, the nature of your club and any other factors that may alter the consequences of likelihood of risk.

Risk evaluation involves comparing the level of risk found during the analysis process with previously established risk criteria, and deciding whether risks can be accepted. If the risk falls into the low or acceptable categories, they may be accepted with minimal further treatment. These risks should be monitored and periodically reviewed to ensure they remain acceptable. If risks do not fall into the low or acceptable category, they should be treated using one or more of the treatment options considered in step 4.

Step 4: Treat the Risks

Risk treatment involves identifying the range of options for treating the risk, evaluating those

options, preparing the risk treatment plans and implementing those plans. It is about considering the options for treatment and selecting the most appropriate method to achieve the desired outcome. Options for treatment need to be proportionate to the significance of the risk, and the cost of treatment commensurate with the potential benefits of treatment.

According to the standard, treatment options include:

• Accepting the risk: For example, most people would consider minor injuries in participating in the sporting activity as being an inherent risk.
• Avoiding the risk: Is about your club deciding either not to proceed with an activity, or choosing an alternate activity with acceptable risk, which meets the objects of your club. For example, a cricket club wishing to raise funds, may decide that a rock-climbing competition without a properly trained and accredited instructor, equipment, etc. may be risky and may decide on a safer way of raising funds.
• Reducing the risk: Likelihood, or consequences, or both, is commonly practiced treatment of a risk within sport; for example, use of mouth guards for players in some sports (i.e. contact sports).
• Transferring the risk: In full or in part, will generally occur through contracts or notices, for example your insurance contract is perhaps the most commonly used risk transfer form used. Other examples include lease agreements, waivers, disclaimers, tickets, and warning signs.
• Retaining the risk: Is knowing that the risk treatment is not about risk elimination, rather it is about acknowledging, the risk is an important part of the sport activity, and some must be retained because of the inherent nature of the sport activity. It is important to consider the level of risk which is inherent and acceptable.
• Financing the risk: Means the club funding the consequences of risk i.e. providing funds to cover the costs of implementing the risk treatment. Most community nonprofit sport clubs would not consider this option.

Step 5: Monitor and Review

As with communication and consultation, monitoring and review is an ongoing part of risk management that is integral to every step of the process. It is also the part of risk management that is most often given inadequate focus, and as a result, the risk management programs of many organisations become irrelevant and ineffective over time. Monitoring and review ensure that the important information generated by the risk management process is captured, used and maintained.

Few risks remain static. Factors that may affect the likelihood and consequences of an outcome may change, as may the factors that affect the suitability or cost of the various treatment options.

Review is an integral part of the risk management treatment plan. As discussed earlier, risk management is an integral part of all core business functions, and it should be seen and treated as such. Risk management should be fully incorporated into the operational and management processes at every level of the organisation and should be driven from the top down.

Immunization, also known as multi-period immunization, is a risk-mitigation strategy that matches the duration of assets and liabilities, minimizing the impact of interest rates on net worth over time. For example, large banks must protect their current net worth, whereas pension funds have the obligation of payments after a number of years. These institutions are both concerned about protecting the future value of their portfolios and must deal with uncertain future interest rates.

Immunization helps large firms and institutions protect their portfolios from exposure to interest rate fluctuations. Using a perfect immunization strategy, firms can nearly guarantee that movements in interest rates will have virtually no impact on the value of their portfolios.

Immunization is considered a “quasi-active” risk mitigation strategy since it has the characteristics of both active and passive strategies. By definition, pure immunization implies that a portfolio is invested for a defined return for a specific period of time regardless of any outside influences, such as changes in interest rates.

The opportunity cost of using the immunization strategy is potentially giving up the upside potential of an active strategy for the assurance that the portfolio will achieve the intended desired return. As in the buy-and-hold strategy, by design, the instruments best suited for this strategy are high-grade bonds with remote possibilities of default. In fact, the purest form of immunization would be to invest in a zero-coupon bond and match the maturity of the bond to the date on which the cash flow is expected to be needed. This eliminates any variability of return, positive or negative, associated with the reinvestment of cash flows.

In finance, interest rate immunisation, as developed by Frank Redington is a strategy that ensures that a change in interest rates will not affect the value of a portfolio. Similarly, immunisation can be used to ensure that the value of a pension fund’s or a firm’s assets will increase or decrease in exactly the opposite amount of their liabilities, thus leaving the value of the pension fund’s surplus or firm’s equity unchanged, regardless of changes in the interest rate.

Interest rate immunisation can be accomplished by several methods, including cash flow matching, duration matching, and volatility and convexity matching. It can also be accomplished by trading in bond forwards, futures, or options.

Other types of financial risks, such as foreign exchange risk or stock market risk, can be immunised using similar strategies. If the immunisation is incomplete, these strategies are usually called hedging. If the immunisation is complete, these strategies are usually called arbitrage.

Cash flow matching

Conceptually, the easiest form of immunisation is cash flow matching. For example, if a financial company is obliged to pay 100 dollars to someone in 10 years, it can protect itself by buying and holding a 10-year, zero-coupon bond that matures in 10 years and has a redemption value of $100. Thus, the firm’s expected cash inflows would exactly match its expected cash outflows, and a change in interest rates would not affect the firm’s ability to pay its obligations. Nevertheless, a firm with many expected cash flows can find that cash flow matching can be difficult or expensive to achieve in practice. That meant that only institutional investors could afford it. But the latest advances in technology have relieved much of this difficulty. Dedicated portfolio theory is based on cash flow matching and is being used by personal financial advisors to construct retirement portfolios for private individuals. Withdrawals from the portfolio to pay living expenses represent the stream of expected future cash flows to be matched. Individual bonds with staggered maturities are purchased whose coupon interest payments and redemptions supply the cash flows to meet the withdrawals of the retirees.

Difficulties

Immunisation, if possible and complete, can protect against term mismatch but not against other kinds of financial risk such as default by the borrower (i.e., the issuer of a bond). It might also be difficult to find assets with suitable cashflow structures that are necessary to ensure a particular level of overall volatility of assets to have a proper match with that of liabilities.

Once there is a change in interest rate, the entire portfolio has to be restructured to immunise it again. Such a process of continuous restructuring of portfolios makes immunisation a costly and tedious task.

Users of this technique include banks, insurance companies, pension funds and bond brokers; individual investors infrequently have the resources to properly immunise their portfolios.

The disadvantage associated with duration matching is that it assumes the durations of assets and liabilities remain unchanged, which is rarely the case.

Risk Management

According to the Marquette University Risk Unit, risk management is the continuing process to identify, analyze, evaluate, and treat loss exposures and monitor risk control and financial resources to mitigate the adverse effects of loss. We typically simplify this a bit and describe it as the Identification, Analysis (or Measurement), Treatment and Monitoring of risk. 

Risk Management is the art, science, process and all the ongoing activities involved in identifying, understanding, assessing, monitoring and then effectively reducing one’s exposure to risks, and the likelihood, impact and undesirable results should any of those risks materialize.

Although risks can be managed, it’s important to appreciate that risks are always evolving (Old risks can metamorphose and change, while new, unfamiliar risks are always emerging) and can never be truly eliminated.

Risk Measurement is the effort to “quantify” the likelihood and potential impact of a given risk or set of risks occurring. It’s just one of the many possible elements of risk assessment.

Measuring risk is generally conducted by using probability and statistical analysis of historic data that conforms to a classic “normal” bell curve distribution. As a result “Standard deviation” is the most common unit now used for risk measurement.

This approach was first articulated by Prof. Frank Knight, in his 1921 book “Risk, Uncertainty, and Profit.” In that book Dr. Knight was the first person to observe that the principal difference between Risk and Uncertainty is that “Risk” can be measured (using statistical methods) and “Uncertainty” cannot be measured. That’s so because the variability of the range of outcomes of uncertain phenomena do not conform to the bell curve distribution model, and by definition cannot measured.

As a result its extremely important to recognize the risk measurement is only reliable when its used in analyzing phenomenon where bell curve distribution patterns are the norm, (outcomes are unknown, but probabilities are known) such as casino gambling, slot machines, lottery, height, weight, and life expectancy.

Attempting to measure risk in areas where uncertainty reigns, (Outcomes are unknown and probabilities are unknown) such as romance, war, earthquakes, business, and investing is flawed & problematic from the very start.

Risk Organization is the process of identifying, quantifying, and managing the risks that an organisation faces. As the outcomes of business activities are uncertain, they are said to have some element of risk. These risks include strategic failures, operational failures, financial failures, market disruptions, environmental disasters, and regulatory violations. Risk is a statistical concept that is measured using statistical concepts that are related to the unknown future. Almost all investments are exposed to it.

Risk Organization involves identifying the types of risk exposure within the company, measuring those potential risks, proposing means to hedge, insure or mitigate some of the risks and estimating the impact of various risks on the future earnings of the company.

While it is impossible that companies remove all risk from the organisation, it is important that they properly understand and manage the risks that they are willing to accept in the context of the overall corporate strategy. The Organization of the company is primarily responsible for risk Organization, but the board of directors, internal auditor, external auditor, and general counsel also play critical roles.

Risk can be managed in a number of ways: by the buying of insurance, by using derivative instruments as hedges, by sharing risks with others, or by avoiding risky positions altogether.

Customer Relationship Management (CRM) can be beneficial to both supplier and customer. The supplier reduces costs by offering only products that are wanted, when they are wanted, and he passes the cost savings on to the customer who signed up for the company’s CRM. To implement such a system, extensive information about the customer must be collected and stored. The two concerns with regard to this system are customer privacy and the accuracy of the information collected.

Collecting Customer Data

Ethical issues originating with the collection of customer data for CRM are related to secure collection methods and to the verification of the information. Ethical companies ensure that sensitive information such as credit credit card numbers or medical histories are collected in a secure environment and transmitted back to the databases securely. During data collection, it is also critical to verify the identity of the customer and the accuracy of the information being submitted. High security for these functions is costly but ethically necessary.

Storing CRM Data

Once customer data is safely in a company database, ethical companies adhere to four principles regarding storage. Data is only stored with the agreement of the customer. Customers must be able to view their data and either change their data or ask for it to be changed. Customers can withdraw from the program, and such a withdrawal causes their data to be erased. The ethics behind these principles are that the data belongs to the customer and the customer must be able to control his data.

Using CRM Data

Given that much of the customer data for CRM is sensitive, ethical companies ensure the data is kept private to the maximum extent possible. To achieve this, the company must store the data in a form or in a location not generally accessible. The data must only be consulted when necessary for the fulfillment of a CRM task, and only those employees who handle the data to complete the task are able to access the data. When sub-suppliers need to use the data, they must first commit to restrictions similar to what the CRM company has in place.

Disposing of CRM Data

Since customers must be able to withdraw from the CRM program and since their data is then erased, the company needs a procedure in place for safely destroying customer data when it is no longer needed. While deletion from the database is initially sufficient as long as the database remains secure, data on obsolete equipment and equipment that changes status to non-secure is at risk. An ethical company has detailed policies and procedures for tracking and destroying data and keep accurate records of such activities.

Mobile CRM, or Mobile Customer Relationship Management, is a CRM tool designed for mobile devices including smartphones and tablets. By connecting through mobile CRM, you allow your sales team’s access to customer data through a mobile CRM app or through a web-based browser with cloud CRM. A key benefit of using mobile CRM is to allow your sales force to access real time data while out in the fields meeting prospects and customers.

Getting started with Mobile CRM

Before you begin to implement your mobile CRM, it is important that you define goals on what you want to achieve by having a mobile CRM and what your work force needs in order to take advantage of real time data access.  I’ve outlined three highly important areas you will need to address before launching:

1. Internal buy-in

Before you implement a mobile CRM app, it is important that you get internal buy-in from the sales force. Your sales teams are the ones that will be using the smart phone application daily and in order to get their buy-in, you need to implement extensive in-house training on how to use the application in the form of user guides and training programs as well as explaining the key benefits of what they can achieve by working with the mobile CRM.

2. Provide the device

People love getting things for free and one of the easiest ways to get your sales team to adopt a smart phone CRM is to provide the device itself to your sales force and include the application pre-installed. Although most CRM mobile apps are supported by iOS, Android and Blackberry, make sure that you check with the provider before giving it to your sales force.

3. Mobile app usability

Your sales force will rarely need access to complete functionality on their CRM mobile app to all the same data and reporting they would access via their desktop. Start out by providing only basic access that the teams use on a day to day basis. For example, writing and sending an email, scheduling a meeting and/ or updating contact information.

Selling on the move – The next generation of CRM

Introducing mobile CRM to your sales operation can be a dramatic change for the better. Your salespeople can update and synchronise information on the move, sharing real-time data from across the business. Day-to-day sales tasks are freed from the desktop, so a salesperson carrying a tablet or smartphone can:

• Plan the day with calendar integration
• Dial in to meetings with click-to-call
• Access and update leads, contacts and oportunities
• Open and share files
• Access dashboards

But today’s mobile CRM platforms can do so much more. Add cloud storage to mobile CRM functionality and you’re no longer synchronising data with a local copy you’re accessing live, centrally held information from whichever device you choose. Distributed teams can share files and background information and can update, share and send proposals on the move.

Custom apps can feed information directly into your CRM back end, with new app releases rolled out to your sales team in real time. Every salesperson has the benefit of complete CRM data, analytics and customer-facing material at their fingertips, on any device freeing them to spend more time on sales and less on administrative tasks.

Expert answers, anytime, anywhere

Using a CRM platform to handle and track customer service activity already makes sense, and adding a mobile dimension brings even more benefits. Combining mobile with social CRM gives you a whole new range of capabilities. Not only can your customers now contact you where and when they choose, but you can track, manage and respond to every case with the full capability of your CRM platform.

A mobile CRM platform means instant, simple escalation, with issues routed straight to the right subject matter expert, product manager or executive, regardless of location. You can implement round-the-clock cover for urgent queries and respond on the same platforms your customers use no more losing issues as they change from one channel to another.