- 20 Marks
Question
An oil exploration company is planning to overhaul its risk management infrastructure. Prior to this time, there has been an upsurge in the number of oil spillages and fire outbreaks at its production facilities. Preliminary investigation narrowed the cause of these incidents to inadequate and ineffective risk identification system. You have been appointed to head the newly constituted risk committee, saddled with the responsibility of strengthening the company‟s risk identification system.
Required: Prepare a report detailing the following:
a. Meaning, purpose, and importance of risk identification.
(7 Marks)
b. The risk management process.
(8 Marks)
c. Responsibilities of a risk committee.
(5 Marks)
Answer
Report on Strengthening the Company‟s Risk Identification System
To: The Board of Directors From: Head, Risk Committee Date: [Current Date] Subject: Report on Risk Identification and Management
a. Meaning, Purpose, and Importance of Risk Identification:
- Meaning: Risk identification is the process of finding, recognizing, and describing risks that might affect the achievement of objectives.
- Purpose: To develop a comprehensive list of risks that could impact the organization, providing a basis for risk analysis and response.
- Importance:
- Enables proactive management of risks.
- Improves decision-making.
- Enhances organizational resilience.
- Ensures compliance with regulations.
- Reduces potential losses from unidentified risks.
- Facilitates resource allocation.
- Promotes a risk-aware culture.
b. The Risk Management Process:
- Step 1: Risk Identification: Use techniques like brainstorming, interviews, checklists.
- Step 2: Risk Analysis: Assess likelihood and impact (qualitative/quantitative).
- Step 3: Risk Evaluation: Compare risks against criteria to prioritize.
- Step 4: Risk Treatment: Develop responses (avoid, mitigate, transfer, accept).
- Step 5: Monitoring and Review: Continuous monitoring, reporting, and updating.
- Step 6: Communication and Consultation: Engage stakeholders throughout.
- Step 7: Recording and Reporting: Document the process for accountability.
- Step 8: Context Establishment: Define external and internal context.
c. Responsibilities of a Risk Committee:
- Oversee risk management framework.
- Review risk policies and procedures.
- Monitor key risks and mitigation strategies.
- Report to the board on risk issues.
- Ensure integration of risk management into business processes.
- Uploader: Samuel Duah