Risk value, relating even to the far future, depends mostly on today’s decisions. Hence, risk should be considered also by deviation of value creation. All economic activity should be burdened by cost of risk capital related to it. Lack of expressing of risk in the management control process and accounting of results leads to inefficient resources allocation inside organization and reduction of information utility supplied by responsibility accountancy. Moreover, lack of taking into consideration of risk in the process of transactions profitability leads to falsifying the picture of real profitability of customers and products and even real financial situation of the company. Therefore there is necessary to expand economic analysis by unrealized results and risk capital in order to generate proper management information.
Unrealized results means the future result of company activity, being the result of fair value changes of future transactions that are high probable on day of reporting. Risk capital describes this capital value that should be formed both to reduce the insolvency probability estimation and to finance deviations from planned economic results’ trends – forming CaR is closely connected with ensuring the capital adequacy of company.
Measure of capital adequacy is correlated with determining of capital value that secures not only the safety of company action continuity, but also recovery of potential losses by additional economic profits. Hence, the capital adequacy level is function of risk profile of company assets and capital that was formed in balance sheet or company secured the availability to. Risk capital should therefore play crucial role in the company activity both on the corporate level and particular responsibility centers, allowing to analyze accuracy of demand for financial resources by all management levels.
Risk Controlling should be an integral element of global management process, being responsible for control of financial risk and reporting to the company management and stakeholders its possible influence on future economic results. In this way risk controlling becomes naturally complementary area to financial controlling. Including risk controlling to the management control process makes the change of approach of decision takers – striving to maximize the financial results is replaced by aiming to maximize the economic profits and return on total capital engaged into company activity (including maximizing return on taken risk).
Risk controlling is overfunctional system of steering the stability of generation of expected economic results, exemplifying cybernetic system that can be applied to all kinds of economic activity. It should contribute to liquidation of frontiers in execution of planned targets and long-term development of company. There is necessary to manage the efficiency of risk taking, covering by this process all factors, contributing both to the losses and extra profits. This situation determines the final risk controlling structure that is created from following elements:
1) monitoring of the capital adequacy and CaR allocation to particular responsibility centers, what is finally reflected in the guidelines to the limit structure;
2) monitoring of the value of risk exposure and steering of risk level, that should be related to the guidelines of achieving required relation risk/profit;
3) monitoring of the total risk adjusted economic result (both realized and forecasted) and including its results in the in motivation system.
Steering with the stability of economic results should take place in the organization in the closed circuit - by implementation of feedbacks - being the part of this system – are created the influences on the managers actions in order to match their risk taking with limitation of negative deviation in comparison to planned values. Risk controlling task in this situation is the optimization of potential negative deviation diagnostic and hedging its impact by creation of sufficient correction mechanisms acting ex-ante.
Risk controlling contributes to creation of adaptation potential in the company by defining frames for risk exposures and allocating capital to the most efficient responsibility centers. Moreover as it was mentioned previously, there is necessary to ensuring the anticipation of negative events. That is why system created by risk controlling should have the anticipative and adaptation characteristics:
- anticipation - identification and risk analyses;
- adaptation – risk reaction and securing the capital necessary to efficient risk taking.
This system should be orientated to secure the safety of company existence, future results, information significance and potential disturbances of plans execution.
Unrealized results means the future result of company activity, being the result of fair value changes of future transactions that are high probable on day of reporting. Risk capital describes this capital value that should be formed both to reduce the insolvency probability estimation and to finance deviations from planned economic results’ trends – forming CaR is closely connected with ensuring the capital adequacy of company.
Measure of capital adequacy is correlated with determining of capital value that secures not only the safety of company action continuity, but also recovery of potential losses by additional economic profits. Hence, the capital adequacy level is function of risk profile of company assets and capital that was formed in balance sheet or company secured the availability to. Risk capital should therefore play crucial role in the company activity both on the corporate level and particular responsibility centers, allowing to analyze accuracy of demand for financial resources by all management levels.
Risk Controlling should be an integral element of global management process, being responsible for control of financial risk and reporting to the company management and stakeholders its possible influence on future economic results. In this way risk controlling becomes naturally complementary area to financial controlling. Including risk controlling to the management control process makes the change of approach of decision takers – striving to maximize the financial results is replaced by aiming to maximize the economic profits and return on total capital engaged into company activity (including maximizing return on taken risk).
Risk controlling is overfunctional system of steering the stability of generation of expected economic results, exemplifying cybernetic system that can be applied to all kinds of economic activity. It should contribute to liquidation of frontiers in execution of planned targets and long-term development of company. There is necessary to manage the efficiency of risk taking, covering by this process all factors, contributing both to the losses and extra profits. This situation determines the final risk controlling structure that is created from following elements:
1) monitoring of the capital adequacy and CaR allocation to particular responsibility centers, what is finally reflected in the guidelines to the limit structure;
2) monitoring of the value of risk exposure and steering of risk level, that should be related to the guidelines of achieving required relation risk/profit;
3) monitoring of the total risk adjusted economic result (both realized and forecasted) and including its results in the in motivation system.
Steering with the stability of economic results should take place in the organization in the closed circuit - by implementation of feedbacks - being the part of this system – are created the influences on the managers actions in order to match their risk taking with limitation of negative deviation in comparison to planned values. Risk controlling task in this situation is the optimization of potential negative deviation diagnostic and hedging its impact by creation of sufficient correction mechanisms acting ex-ante.
Risk controlling contributes to creation of adaptation potential in the company by defining frames for risk exposures and allocating capital to the most efficient responsibility centers. Moreover as it was mentioned previously, there is necessary to ensuring the anticipation of negative events. That is why system created by risk controlling should have the anticipative and adaptation characteristics:
- anticipation - identification and risk analyses;
- adaptation – risk reaction and securing the capital necessary to efficient risk taking.
This system should be orientated to secure the safety of company existence, future results, information significance and potential disturbances of plans execution.
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