Risk Management Scope In Financial Services Sector

Importance of risk management in financial services sector

For determining risk management scope, there is a need to make scenario which consists of possibility and probability of the risk. This scenario must be under the organizational scope and objectives. As there are 1500 employees in the company who offers financials taxation solutions to their customers, there is a requirement of high level of financial and taxation skills, knowledge and ability within the staff to provide these services effectively and efficiently.

With time there are various amendments done in the taxation policy and the employees need to be updated on regular basis to that to provide service accurately. The organization need to be work with a pro-active strategy to compete with various issue and challenges by identifying the various activities associated with risks. This will help them by the provision of opportunities drive from the success path. In addition, this will result in effective control by curbing and reducing the various possible risks.

As the organization is working in the financial sector, a small mistake can cause a big loss to the company and customers. For this purpose, the organization needs to hire skilled, expert and professionals employees so that they can serve the clients with full accuracy. Another challenge that can affect the company decision is addressing the suitable plan and policy which can match the ability of the organization to accomplish the task with the risk associated with it.

This Australian based company is providing various services like personal taxation, corporate service etc. and this all is done in the area of Australian taxation solution which has strict regulations and policies. This is an area where risk management is necessary so that to control and minimize risks by providing service effectively.

For promoting an adequate solution, the internal staff working in the organization in all areas whether corporate service or small enterprise taxation to come and give their views about the risk involved in their area of work. Also, the organization can hire external consultants to gain his/her views on the various aspects of the risks associated. Stakeholders can also help the company by giving their opinion on the current challenges facing by the company.  

• Political Factors – Various legislative and regulatory changes, government change, and contractual issues affect the political risk and the business firms have no direct control but they have to be proactive and scan the environment on the continuous basis so that they can appropriate solutions on time. The external political risks are riskier as the internal political risks can be controlled through various effective measures like the restructuring of organizations management.
• Social factors – The change in the total market or the specific segment of the market which is targeted by the organization are driven by social risks which also includes a change in consumer taste and preference, profile and characteristics. Organizations Rand D department need to ensure that their researches are effectively aligning with the current and emerging market trends. These market trends can include a change in the buying behaviour of the consumer or a change in the perception of the consumer towards the brand identity of the organization etc. So, the business firm needs to ensure that they are adopting these changes with the time so that various risks can be eliminated.
• Economic factors – These factors affect a business firm on a continuous basis throughout its lifecycle. For example, if the economy is on boom level, every business firm will extend or diversify their products and services as there are chances of low losses in this period whereas, in the recession period, the organization will focus on good risk management strategies like focusing on core activities or transactions. The economic risk and factors have a direct impact on organization sales and revenue.
• Legal factors – These factors consist various guideline and code of practices which govern and manage the whole industry in which the firms are operating. These factors also have an impact on products and services that are offering to the public. These factors are related to; product safety, taxation requirements, industrial rules like work conditions and social justice.

They are the embedded responsibilities which an organization should appropriately aware as failure to comply with these legislations can lead to a diminishing of the goodwill, fines, stoppage in the work schedules or even closure. These factors are must include in the organization risk management system.

• Technological factors – For every business firm, technology will always be a high-risk area as it includes advancement in the technology in a particular industry, security regarding data and files and maintenance cost. Therefore, a business firm should always have strategies to work upon these technological risks and its impact otherwise its impact can be severe. 

Requirements for skilled and knowledgeable employees in the financial services sector

Risk planning and management include several goals, objectives, and strategies. For making and framing a risk management plan, Nautilus Boat Hire has to include these factors so that organizational goals can be effectively achieved. In this scenario, the goals under risk management system includes – increase in profit due to the expansion of the business, increase in number of houseboats as the number of tourists are increased, ensuring safety of all tourist specially the children’s who may drown during the swimming schedule, focus on all their resources, putting canvas on all boats so that tourist can be safe from sunburn and dehydrated. The objective in this scenario will be coming up with various measures to ensuring safety for all their resources, hire a person who can guide the tourist of using houseboats in a proper way so that damage can be avoided, and one of the main objectives will be retaining the old tourist and attracting more new tourist.

Nautilus Boat Hire will target the entire tourist so that they can get the relevant information relating to the tourist which will help the business to take necessary actions according to the need of the tourists. 

Support for risk management policies and procedures can be encouraged by communicating with those people who are involved in or affected by the risk management system. It is necessary that these people should know the proper procedures for identifying a particular type of risks, how it can be assessed and what will be the outcomes of this risk assessment. The support can be obtained through: 

• Measuring the effectiveness of the current policy and strategy in the business.
• Evaluating the degree of a business reliance on the external environment like suppliers and external services.
• By consulting with various relevant stakeholders and experts.
• Communication of plan and policy to the employees and customers.
• Implementing feedback from stakeholders and customers.
• Assessing the resource constraint.
• Promoting awareness through providing proper training and education.
• Held general meetings for the communication of the requirements.

So, it is necessary that the support and initiatives in risk management system must be started from all the levels and staff must understand the general understandings of risk management which include managing, mitigation, elimination and acceptance. The skills which are required in getting support under risk management activities are effective research skills, communication skills, influencing and negotiations skills with the basic understanding of organizations, its operations, various stakeholders and the key areas where the risk have maximum impact. 

If the business is planning for an extension and diversification, it is necessary to assess all business risks including social, ethical, environmental, financial and operational. The parties and people which I will invite to assist in risk identification will include the senior executives of the organization including the managers and employees. Risk identification and management is an organized process that covers the whole organization in the assessment if the risk so that various strategies can be made regarding identifying threat and opportunities relating to the organization goal. This will assist the organization in various ways like the people who are directly involved in the risk management process can help the organization by assisting them in stating the key areas where risk can occur and have maximum impact and it will help the organization in assembling of various feedbacks so that the proactive solutions can be made for proper control. 

Part 1 – Various tools that can be used to collect risk related information are –

• One to One discussion meetings
• Brainstorming
• Departmental/Project meetings
• Risk identification workshops
• Customer feedback forms
• Suggestion boxes
• Simulations 

Part 3 – Categorizing risk help the business firm in differentiating and giving credit to high impact risk threat as compared to less probable risks. It helps in identifying the risks to a consistent level of detail. The four advantages of categorizing risks are –

• Categorizing risks according to the common root causes can help the business firm in developing an effective risk response.
• The risks which are categorized leads to greater ability monitor and controlling of risks which are identified and classified under the same area or map (Borghesi & Gaudenzi, 2012).
• Grouping the risk help to identify the long and short terms risk control mechanisms.
• It also helps in risk assessment by meeting with the members selected for their familiarity with a specific risk category. 

Part 1 – Risk treatment help the organization in developing a range of ideas and options which can help in the mitigation of risk and evaluate those options for preparing and implementing actions plans. The risk which is rated at maximum credit points needs to be addressed as a matter of urgency.

• Avoidance – Here, the organization does not take any actions that are causing the risk.
• Prevention – Area where risks are not allowed to occur.
• Reduction – Use various mitigation steps to reduce the risks at a manageable state.
• Spreading and Sharing – Distribution of risk over the different area range to reduce the impact. 

• Risk can be accepted if the cost of treatment far exceeds the benefit.
• When the level of risk is low and a specific risk treatment is not appropriate for the following resources.
• If there is no treatment of the risks. 

Insurance is not a real risk control as it cannot directly control or manipulate the risks by reducing, eliminating or treating the risk. It can only mitigate the risks circumstances by providing financial aid to the business firm. 

Part 3 – Using the template, create an action plan to show you would proceed. 

The plan is needed to be communicated to the senior management executive as the accounting information is a very critical and the senior management can only assist in this matter.

The employees and the department of Abacus should also be communicated the plans so that it can help in any emergency or problem.

An effective and best communication procedure in this situation will be –

• Meetings – The information here should be given out to all the employees as they are will be present at that time.
• Communication can be done here via memos and newsletter also.
• And another way is to meet the senior executive for communicating the plans.  

These risk management standards guide an individual about the risk management guidelines and principles. Various risks like health and safety risks and natural hazard can affect a business in a negative way and so Risk management is becoming an integral part of the management process.

References 

Wilson, C. (2013). Brainstorming and Beyond: A User-Centered Design Method. USA: Newnes.

Borghesi, A., Gaudenzi, B. (2012). Risk Management: How to Assess, Transfer and Communicate Critical Risks. New York: Springer Science & Business Media.

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