Principles of Business Introduction to Finance – seminar 8

Overview

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• Financial risk management

An introduction to risk

Examples of types of risk:

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• Business risk – The overall risk of something happening that would impact on the organisation’s overall objectives

• Financial risk – The risk of something happening that would impact on the organisation’s ability to present a true and fair view of it’s financial position

• Ethical risk – The risk of the organisation acting, or being seen to act, in an unethical manner.

• Reputational risk – The risk of something happening that could impact on the reputation of the organisation

Exercise 1

Examples of types of risk:

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• Using a company that you are familiar with (please use Pearson if you would like), analyse the risks that organisation faces into the following categories:

- Business - Financial - Ethical - Reputational

Understanding risk

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Overall risk for a board of directors

= IR x CR x DR

- If control risk is higher then detection risk should be lower (and vice versa)

Mitigating the risks that you have identified: internal controls

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Examples of preventative controls

• Authorisation• Physical controls• Segregation of duties

Mitigating the risks that you have identified: internal controls

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Examples of detection controls

• Reviews• Reporting• Audits (financial, internal, compliance, supplier)• Observation & Monitoring

Exercise 2

Control risk exercise:

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1. What are the key risks that Ryanair face? 2. Design appropriate controls for the risks that you have identified.

Mitigating the risks that you have identified: internal controls

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Ryanair

• a strong and independent Board which meets at least 4 times a year and has separate Chief Executive and Chairman roles;

• a clearly defined organisational structure along functional lines and a clear division of responsibility and authority

Mitigating the risks that you have identified: internal controls

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Ryanair

• a comprehensive system of internal financial reporting which includes preparation of detailed monthly management accounts, providing key performance indicators

• quarterly reporting of the financial performance with a management discussion and analysis of results;

Mitigating the risks that you have identified: internal controls

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Ryanair

• Weekly Management Committee meetings, comprising of heads of departments, to review the performance and activities of each department in the Company

• Detailed budgetary process which includes identifying risks and opportunities and which is ultimately approved at Board level;

Mitigating the risks that you have identified: internal controls

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Ryanair• Board approved capital expenditure and Audit

Committee approved treasury policies which clearly define authorisation limits and procedures

• a risk management programme in place throughout the Company whereby executive management reviews and monitors the controls in place, both financial and non financial, to manage the risks facing the business.