Advances in the Risk Management Process

René Doff

This chapter will apply the behavioural theories discussed so far to the general risk cycle. The risks faced by an organisation generally boil down to two factors: changes in the external environment and/or their internal processes. For instance, external changes could be the changing financial markets, a catastrophic event, government policies changing or ethical preferences of the general public. Internal changes are mostly due to deliberate decisions (provided it is a well-governed organisation) such as decisions to change the asset allocation, launch a new product, regular price updates, optimise the liquidity buffer, or set up a new communication strategy. Decisions can be well founded, properly organised or more implicit. However, it is good to be aware of the changes in risk profiles that every business decision can cause. This distinction of external and internal changes in the risk profile is crucial. After all, when external changes happen it is not usually within our power to influence the event itself. However, a good risk manager will understand that the consequences of that particular event can (and should) be managed.

We will build this chapter on the general