Lecture Art of Leadership and Motivation - Lecture 25

Art of Leadership & Motivation
HRM – 760
Lecture ­ 25

FACILITATOR
Prof. Dr. Mohammad Majid Mahmood


Role of Leaders in
Risk Management


What is Risk?
 Risk arises from uncertainty; but all 

uncertainties do not carry risk.
 Possibility of an unfavorable outcome of an 
uncertainty is risk.

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Is Risk Management a 
development planning issue?
 Planners are responsible for the protection of 

company assets.
 Planners must work to improve shareholders’ 
value, which is not possible without taking 
some risks.
 Not taking risks may be the biggest risk.

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Why take risks?
 Because you have to.
 Because it brings rewards.

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Risk Management Process
 Risk Identification
 Risk Assessment
 Selection of risk management techniques
 Implementation
 Review

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Risk Identification
 Risk profile of a company
 Formal listing of all potential risks.
 External professional help
 Risk is inevitable; however unfavorable 

consequences of risk can be controlled.

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Classification of Risk
 Production risk
 Risk of inputs
 Risk of outputs
 Environmental risk
 Political risk
 Economic conditions risk

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Risk Assessment
Having listed all the potential risks, ask:
 How likely is it for any of these risks to 
actually materialize?
 What is the maximum possible loss that can 
arise from each of the listed situations?
 Can you stand that loss?

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Risk Management Techniques
 Risk avoidance
 Loss prevention and control


Internal controls

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Internal Control
 All that a company does internally to protect 

its assets, ensure the proper conduct of its 
affairs and accuracy of its records.
 Risk management is not just part of 
“protecting the assets of a company”, it is an 
essential feature of proper conduct of its 
affairs.

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Objectives of 
Internal Control
 That the company pays only what should be 

paid out
 That all incomes, expenses, assets and 
liabilities are properly recorded
 That the assets of the company are protected
 That the company’s records are reliable

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Tools of Internal Control
 Defined Procedures
 Controls





Physical (cash in safe, maintenance)
Managerial (e.g. budgets, limits, approvals, etc.)
Supervision
Checks

 Selection of right personnel

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Setting Internal Controls
 Document all procedures
 Train the staff
 Ensure that the procedures are being 

followed.

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Designing Procedures
 Nature of work.

 Extent of risk.
 Cost of procedure.
 Facilitate work, not hamper it.
 Compliance with laws, regulations
 Promote efficiency culture
 Immediate notice of exceptions
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Monitoring Internal Controls
 The system should generate reports.



Frequency of reports
Adequacy of reports

 Regular review of reports and action there­

on. 



Follow up.
Investigation of major lapses

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Internal Audit

 Includes checking, analyses, appraisals, 

recommendations, advice and information.
 Regular or Need based.

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The internal auditor
 Detects errors and frauds
 Helps management correct errors and 

minimize impact of frauds
 Helps improve controls.

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Advantages of 
Internal Audit
 Keeps workers alert
 Timely detection of errors & frauds
 Enhances reliability of accounting and 

supporting records
 Reduces external audit work

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Types of Internal Audits
 Regular, continuous internal audit
 Need based investigation
 Pre­disbursement and post­payment audits.

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Risk Management Reporting
 Audit Committee’s Report
 Board’s Statement on Internal Controls

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Audit Committee’s Report
 List significance risks; how they are being 

identified, assessed and managed.
 Report on effectiveness of the systems put in 
place to manage these risks
 List of actions being taken to remedy 
significant weaknesses
 Comment on need for greater monitoring of 
procedures
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Board’s Statement on
Internal Control

Essentially it is about status of internal controls, e.g.
 There is an ongoing process for identifying, evaluating 

and managing significant risks.
 It is being regularly reviewed by the Board.
 It is in accordance with Turnbull Guidance

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Turnbull Report
 Risk Assessment
 Control Environment
 Control Activities
 Information and Communication
 Monitoring

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Risk Assessment
 Clear objectives, clearly communicated to all 

concerned.
 Significant risks assessed regularly




Market risks

Credit and liquidity risks
Reputational risks, legal risks

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