Risk Management in Banks and NBFIs

1. Risk mitigation is defined as taking steps to reduce adverse effects. There are
four types of risk mitigation strategies that hold unique to Business Continuity
and Disaster Recovery. It's important to develop a strategy that closely relates to
and matches your company's profile.
Risk Acceptance: Risk acceptance does not reduce any effects however it is still
considered a strategy. This strategy is a common option when the cost of other
risk management options such as avoidance or limitation may outweigh the cost
of the risk itself. A company that doesn’t want to spend a lot of money on avoiding
risks that do not have a high possibility of occurring will use the risk acceptance
strategy.
Risk Avoidance: Risk avoidance isthe opposite of risk acceptance. It is the action
that avoids any exposure to the risk whatsoever. Risk avoidance is usually the
most expensive of all risk mitigation options.
Risk Limitation: Risk limitation is the most common risk management strategy
used by businesses. This strategy limits a company’s exposure by taking some
action. It is a strategy employing a bit of risk acceptance along with a bit of risk
avoidance or an averageof both. An example of risk limitation would be a company
accepting that a disk drive may fail and avoiding a long period of failure by having
backups.
Risk Transference:
In some instances, businesses choose to transfer risk away from the organization.
Risk transfer typically takesplace by paying a premium to an insurance company
in exchange for protection againstsubstantial financial loss. For example, property
insurance can be used to protect a company from the financial losses incurred
when damage to a building or other facility takes place. Similarly, professionalsin
the financial services industry can purchase errors and omissions insurance to
protect them from lawsuits brought by customers or clients claiming they received
poor or erroneous advice.
Risk transference is the involvement of handing risk off to a willing third party. For
example, numerous companies outsource certain operations such as customer
service, payroll services, etc. This can be beneficial for a company if a transferred
risk is not a core competency of that company. It can also be used so a company
can focus more on their core competencies.
So how can I be a leader in Business Continuity Management (BCM)
Governance, Risk and Compliance (GRC) and balance my risks and
opportunities?
If you’re a BCM Practitioner, you’ve probably been asked this question from your
senior management: “How compliantis our Business Continuity program and how
does it compare to others in our industry? “ Are you still trying to figure out what
industry standards fit your program or are using manual inefficient tools that are

2. holding you back? A BCM GRC software tool is something you should consider
today.
How a BCM GRC Tool Helps You
In a nutshell, a BCM GRC tool helps you better manage your program by balancing
the risks and opportunities for improvement. If you’ve devised your own system of
assessing your compliance, such as using a manual process, it gets a little trickier
to assess and report on compliance on a regular basis. And if you’ve ever let
something accidentally slip through the cracks, you can appreciate a better way
to manage this process. While not every BCM GRC platform features questions
modeled after industry standards and weighted by importance, permits task
assignments and comprehensive management reporting you’ll benefit from
choosing one that does. Unless, that is, you have your own personal assistant who
keeps you up to date about everything regarding BCM compliance…and these
days, who does?
Compliance and Resiliency
If your goal as a BCM Practitioner — and let’s face it, every one of us has this as
a goal — is to raise your compliance and resiliency, you need a reliable system for
assessing compliance and a BCM GRC tool can play a major role in making all
these business processes much easier. Let’s say you’ve been asked to assess
your BCM compliance. In your BCM GRC tool, you can quickly and easily assess
the compliance of the five dimensions (Program Administration, Crisis
Management, Business Recovery, Disaster Recovery and Supply Chain Risk
Management) of your program. You can attach supporting documentation, so you
have everything that relates to that assessment in one handy place. You can
assign fellow planners to have access to specific programs or auditors to view
reports on your compliance. You can add tasks and assign responsible parties
for resolution to keep the program moving down the compliance trail. You can run
management scorecards and reports on each dimension outlining the state of the
program. This kind of highly valuable data givesa big picture analysisof whatthe
compliancelandscape looks like. For example, perhapsthe tool identifiesyour BIA
process is critically weak and does not comply with industry standards. This is
worth considering. Perhaps it might be time to revise your BIA questionnaire, or
look to outside agencies to implement a best practice approach.
REDUCE YOUR FINANCIAL RISK
Taking risks is part of running a business - it comes with the territory. For small-
business owners, there are many things that prevent risk: developing products,
manufacturing them, selling them, earning a profit on these operations and
managing growth. Also, if the entrepreneur is a sole proprietor, they face additional
personal liability risks and financial risks. Take the right risks, however, and you
may accelerate your business growth.

3. Here are seven strategies that help you reduce your financial risk so you can get
back to running the business.
1. Plan for potential and existing risks
Every business needs to plan ahead for future difficulties, whether they are
foreseen or not. Smart business owners create an inventory of all risks ahead and
then assess how the company can afford and manage them. This might also
require some scenario planning - a tool developed years ago by Shell. Creating
contingency plans and margins of safety are regarded as best practice for risk
management.
2. Keep a lid on debt
Having a business that relies too heavily on debt, short-term and long-term, is
risky. With cost pressures a constant, it leaves the business vulnerable to interest
rate hikes. If you have debt, manage it. Refinance variable rate debt with a fixed
rate debt which ensures future payments to your lender are more predictable.
Alternatively, convert the debt into equity, giving investors a slice of the company
in exchange for funds.
3. Insure against specific risks
It is important to know the specific risks the business faces and insure against
them. A retail shop, for example, should insure inventory. And do you need
insurance for fire, storms, and breakdowns of equipment, public liability, personal
accident and property damage?
4. Focus on cash
Profit is what the accountants tell you, but cash is king. Sales contribute to an
accounting profit but the cash flow tells the real story. If cash receipts lag cash
payments, the business suffers a short-term cash short call. In the worst case, it
could be making a profit and going broke.
Cash-flow analysis manages that risk. It takes in variables such as accounts
payable, receivables, costs, inventory and work in progress. Create a cash-flow
forecast. The forecast should tell you who you are paying, when the payments are
due, who is paying you and when that's coming in. The forecast also sets out all
your costs for the month.
A good forecast model can anticipate risks so you can take action to avoid them.
It can be used to develop assumptions on sales, costs, credit and funding to
produce monthly cash-flow projections well ahead and assess the impact of cash
flow on future sales, costs and credit terms and replacement of assets, such as
office equipment and cars.
5. Have a business plan
Business plans are essential for managing risk - no small-business owner can
afford to not have one. A plan goesthrough every step with a fine-toothed comb so
you can have a better idea of when and where most of the risks are and how you
can go about managing them.
6. Conduct a market analysis
To anticipate risks, analyze every trend, both current and future, in the market
you intend to sell in. Research your target audience. With that information, you
can then work out how you will meet their needs. Also, look at similar businesses

4. or products that have failed and succeeded. Now plan for how you intend to stand
out.
7. Don't put all your eggs in one basket
To minimize financial risk, stick to a conservative capital structure and diversify.
Keep in mind that the more money you invest in any one thing, the greater the risk
it represents. This holds true even if all your research indicates it is a safe bet.
Spread the risk and diversify. If a risk doesn't pay off on a given project, at least
you have a few back-up plans.
Md.AlamgirHossain
SeniorOfficer- Financeand Accounts
NRB Bank Corporate Head Office:
Richmond Concord (7th Floor)
68 Gulshan Avenue, Gulshan Circle-1
Dhaka-1212, Bangladesh
M:+88016-88-522-387
Work Phone: +8809666456228
E: alamgir.hossain@nrbbankbd.com
www.nrbbankbd.com