Analyzing and planning for response

Risk management should not be limited to only the process for identifying, analyzing and planning for response, but it should also be carried out in integration with the other processes within the organization.

Risk Management for Local Authorities’ Private Finance Initiative Projects, Glasgow Caledonian University. The Risk Management Committee is appointed by the Board of Commissioners from amongst its members and comprises four members.  Several risk management standards have been developed including the Project Management Institute, the National Institute of Standards and Technology, actuarial societies, and ISO standards.  Effective risk management is a must for a successful PPM implementation.  The role  of risk management is important as banks and bank monitoring bodies anywhere in  the world realize how good risk management practices plays an important role in  the success of a bank and the banking system as a whole.

It means that risk management should not be limited to only the process for identifying, analyzing and planning Risk management is the responsibility of the BoD, supported by the Corporate Risk Management Committee.for response, in an ad-hoc manner, but should also be carried out in integration with the other processes within the organization.  The urgency of risk management in PPM procurement and importance of adequate capability of public sector in terms of risk management discipline is discussed first, followed by the discussion of a proposed model for measuring the readiness level of risk management within the PPM context, including the result of investigation with analysis and conclusion.  It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.  This operational  risk management is responsible for managing the potentials of operational risks  which may arise and cause the bank to suffer losses.  Market & Liquidity Risk Management Department  menangani management risk yang  berkaitan risk liquidates dank risk pas.

Market and Liquidity Risk Management Department handles risk management related to market and liquidity risks.  As shown, the values of risk management maturity index of the surveyed organizations vary significantly, and all (except for two organizations showing Level 3 for the culture attribute) are found to be below Level 3 (Competent).  Up until June 5, 2008, The Risk Management Committee comprised of Sum Soon Limb (Chairman), Sino Tat Kiang, Roes Aryawijaya and Sextant P Santos.  This requires that  financing risk management be given more attention compared to other risks.  In this level, the principles of risk management has been adopted but not supported by a structured and formal processes.

Within this context, the term of risk management maturity can be defined as the description of the stages in the development of an organizational capability in introducing and implementing risk management process and practices, which can serve as a benchmark for other organizations (Hilton, 1997).

Financial Risk Management

The main objective of financial risk management is to minimize potential losses arising from unexpected changes in currency rates, credit, commodities, and equities. The risk of price volatility faced by the so-called market risk. Market risk present in various forms.


Although the volatility of prices or rates, management accountants need to consider other risks:
(1) liquidity risk, arises because not all products can be traded freely management,
(2) market discontinuities, refers to the risk that the market does not always lead to price changes gradually,
(3) credit risk, a possibility that the other party to the contract risk management can not meet its obligations,
(4) regulatory risk, is the risk arising from public authorities prohibit the use of a financial product for a particular purpose,
(5) tax risk, a risk that certain hedging transactions can not obtain the desired tax treatment, and
(6) the risk of accounting, is the chance that a hedging transaction can not be recorded in addition to part of the transaction to be hedged.


WHY MANAGING FINANCIAL RISK
First, management of exposure helps in stabilizing the company's cash flow expectations. Active exposure management allows companies to concentrate on the main business risks. Stock providers, employees, and customers also benefit from exposure management. Lenders generally have a lower risk tolerance than the shareholders, thus limiting the exposure of the company to balance the interests of shareholders and bondholders.


ROLE OF ACCOUNTING
Management accounting plays an important role in the risk management process. They help in identifying market exposure, quantify the balance associated with alternative risk response strategies, measuring the potential risks faced by the company against certain, noting certain hedging products and evaluate the hedging program.


The basic framework is useful for identifying the various types of market risks could potentially be called as risk mapping. This framework begins with the observation of the relationship of the various market risk trigger value of a company and its competitors. Trigger value refers to the financial condition and operating performance outposts major financial affecting a company's value. Market risk includes the risk of foreign exchange rates and interest rates, and commodity and equity price risk. Source country currency purchases declined relative to the value of the currency domnestik State, then these changes can lead to domestic competitors able to sell at a lower price, this is referred to as competitive risks facing currency. Management accountants must enter such probability function related to a series of output value of each trigger. Another role played by accountants in the process of risk management includes balancing process-related quantification alternative risk response strategies. Foreign exchange risk is the risk that one of the most common and will be faced by multinational companies. In a world of floating exchange rates, risk management include: (1) anticipation of exchange rate movements, (2) measurement of foreign exchange risk faced by the company, (3) designing appropriate protection strategies, and (4) development of internal risk management control. Financial managers must have information about the possible direction, timing and magnitude of changes in exchange rates and can arrange adequate defensive measures to more efficiently and effectively.


Potential foreign exchange risk arises when the exchange rate changes also change the value of the net assets, earnings, and cash flows of a company. Traditional accounting measures against potential foreign exchange risk is centered on two types of potential risks: translation and transactions.
Translational gauge potential risk of foreign exchange rate changes influence the domestic currency equivalent value of assets and liabilities in foreign currencies held by the company. Because of the amount in foreign currency is generally translated into domestic currency equivalent value for purposes of monitoring or management of external financial reporting, the influence of the translational pose an immediate impact on the desired profit. Excess of assets exposed to the risk of liability exposure (ie items denominated in foreign currencies are translated based on current exchange rates) cause exposed net asset position. This position is often called the positive potential risks. Devaluation of foreign currencies relative to the reporting currency translation losses rise. Revaluation of foreign currency translation gains yield. Conversely, if the company has a net liability position exposure or potential exposure to downside risk if the liability exceeds the assets exposed. In this case, the devaluation of foreign currency translation gains cause. Revalusi foreign currency translation losses caused.


Potential risks of the transaction, gains and losses related to foreign exchange arising from the settlement of transactions denominated in foreign currencies. Transaction gains and losses have a direct impact on cash flow. Report potential risk transaction contains items that generally do not appear in conventional financial statements, but it raises transaction gains and losses such as foreign currency forward contracts, purchase commitments and future sales and long-term lease.
To minimize or eliminate the potential risks, a strategy is needed that includes balance sheet hedges, operational, and contractual. Balance sheet hedging can reduce the potential risks faced by the company by adjusting the level and value of monetary assets and liabilities denominated corporate exposure. Operational hedging focuses on the variables that affect the revenues and expenses denominated in foreign currencies. Structural hedges include relocation of manufacturing to reduce the potential risks faced by the company or change the State is the source of raw materials and component manufacturing. Contractual hedging developed to provide greater flexibility to managers in managing the potential risks faced by foreign exchange.


ACCOUNTING TREATMENT
FASB issued FAS No. 133, which clarified through FAS 149 in April 2003 to provide a single comprehensive approach to the accounting for derivatives and hedging transactions. This standard is the basic provision:
- All derivative instruments are recorded on the balance sheet as assets and liabilities,
- Gains and losses from changes in fair value of derivative instruments Is not the asset or liability,
- The hedge must be highly effective in order to deserve a special accounting treatment, the gain or loss on the hedging instrument is apt niai should offset gains and losses are something that protected values
- The hedging relationship must be fully documented for the benefit pemvaca report
- Profit or keruhian of net investments in foreign currencies were initially recorded in other comprehensive income
- Gains or losses on cash flow hedging future is uncertain, as export sales forecasts, are initially recognized as a part of comprehensive income.
Although the rules guiding the FASB and IASB have issued many pengukuan clarify recognition and derivatives, still there are some problems. The first relates to the fair value. Complexity of financial reporting also increased if the hedge is deemed ineffective to offset the foreign exchange risk.
International Financial Management: MNC
Companies continually create and implement new strategies to improve their cash flow in order to increase shareholder wealth. A number of strategies has required the expansion in the local market. Other strategies require penetration into foreign markets. Foreign markets can be very different from the local market. Overseas markets create opportunities incidence increased cash flow.
Many barriers to entry into foreign markets that have been revoked or reduced, encouraging companies to expand international trade. Consequently, many companies nationwide turn into multinational companies (multinational corporation) are defined as companies that engage in some form of international business.


MNC own goal in general is to maximize shareholder wealth. Goal setting is very important for an MNC, because all decisions that will be made should contribute to the achievement of these goals. Each corporate policy proposals not only need to consider the potential return, but also the risks. An MNC must make decisions based on the same goal with the aim of purely domestic firms. But on the other hand, MNC companies have a much wider opportunity, which makes the decision became more complex.


The process of goal achievement can not be separated from the barriers or obstacles that would hinder the achievement of these objectives. MNC as a company which operates in many countries should be able to delegate authority to the managers of existing subsidiaries abroad. Cost of this condition known as agency cost. Agency cost the company MNC agency cost is greater than the domestic firms. This discrepancy may occur for several reasons such as the difficulty of monitoring the managers of the subsidiaries are located far from the country of origin. Managers of foreign subsidiaries that grow in different cultures may not want to pursue objectives that uniform. The large size of the giant multinational corporations also created a large agency cost.
The amount varies according to the agency cost management of a multinational force. Centralized management style bias reducing agency cost because the style of this kind enables managers to control the holding company subsidiaries abroad, thus reducing the power of subsidiary managers. However, managers may not be as good as the parent company managers subsidiary because the parent company managers lack knowledge about the environment subsidiaries. In contrast, decentralized management style bias raises the larger agency cost if the subsidiary managers make decisions that are not based on objective maximizing the overall value of the parent company. This management style has other advantages, namely managers close to the operating subsidiaries and subsidiaries environment.


The existence of cost-benefit of using one of the above management style, a number of multinational companies seek to exploit the advantages of both the management style. Parent company allow subsidiary managers make important decisions about their own operations, but still monitored by the parent company's management to ensure that decisions are in harmony with the goal of the parent company.


In addition to agency cost, there are some constraints experienced by MNC companies such as, environmental constraints, regulatory constraints, and ethical constraints. Environmental constraints can be seen from the different characteristics of each country. Regulatory constraints in the form of differences in each country's regulations such as, tax, currency conversion rules, and other regulations which may affect the cash flow of subsidiaries. Ethical constraints described himself as a business practice varies in each country.


MNC, in doing international business, in general can use the following methods.
1. International trade
2. Licensing
3. Franchising
4. Joint venture
5. Acquisition of companies
6. Establishment of new subsidiaries abroad


International business methods requested direct investment in their operations overseas or better known as Foreign Direct Investment. International trade and licensing is usually not considered a DFI because they do not involve direct investment in foreign operations. Franchising and joint ventures are likely to ask direct investment, but in relatively small quantities. Acquisition and establishment of the new subsidiary is the greatest element of DFI.


Various opportunities and benefits can not be separated from an MNC risks will arise. Although international business an MNC can reduce exposure to economic conditions the country of origin, international business usually also increase the MNC's exposure to exchange rate movements, foreign economic conditions, and political risk. Most of the international business asking for the exchange of one currency with another currency to make payments. Due to fluctuating exchange rates, the amount of cash needed to make payments is also uncertain. Consequently, the number of units of home country currency needed to pay its suppliers could change even though the price did not change. In addition, when multinational companies enter foreign markets to sell the products, the demand for these products depends on the economic conditions in the market. Thus, the multinational company's cash flow is affected by economic conditions abroad. Potik own risk arises when a multinational company established a subsidiary in another country, they are open to political risk, namely political measures taken by the government that may affect the company's cash flow.