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

  • Global Compliances - Free Webinar on key Global Regulations

    EVENT OVERVIEW: Riskpro India is conducting a free webinar on how to be future ready with respect to Global Compliances. Alleviate risk and strengthen your control on global compliance with this...
  • Sarbanes Oxley (SOX) Compliance - Free Webinar

    EVENT OVERVIEW: Riskpro India is conducting a free webinar on SOX (Sarbanes Oxley) Compliance which will take you through the applicability and requirements of the SOX 404 and 302 Act. The...
  • Auditing EUC - Free Webinar

    EVENT OVERVIEW Uncontrolled and untested spreadsheet models pose significant business risks. These risks include: lost revenue and profits; mis-pricing and poor decision making due to prevalent but...
  • Personal Data Protection Services (PDP) - India

    Overview of the Indian PDP Bill (draft) 2018 The Indian PDP Bill (draft) 2018 is one of the most momentous steps towards safeguarding the personal data of citizens. The Bill gives citizens a say...
  • SSPA Assessment - Microsoft DPR Assessments

    The Supplier Security and Privacy Assurance (SSPA) and Data Protection Requirement (DPR) previously known as the Vendor Privacy Assurance Program is an assessment for Microsoft suppliers/vendors who...
  • Self Assessment Software Login - India Data Protection Regulation

    Riskpro India has developed a Self Assessment tool to evaluate and manage the compliance gaps against the almost here regulation on Data Protection. The Free Login access provides you the ability...
  • India: Data Protection Services

    The EU General Data Protection Regulation (GDPR) is the most important change in data privacy regulation in 20 years. Now India has its own version of Data protection regulation that will change...
  • Fire Safety Assessments and Training

    Some of our features of Fire Safety Assessments and Training • Fire Science • The common causes of fire • Identify fire hazards • Types of fires and extinguishers • Fire...
  • Data Protection Officer (DPO) Services

    Why a DPO The General Data Protection Regulation (GDPR) makes it compulsory for certain companies to appoint a DPO. this is a mandatory position that is expected to carry out certain defined tasks....
  • Go to top