Activity 1 Risk management in action
Listen to the audio, Risk mapping and risk management, a discussion between:
- two treasurers of major companies – Paul Outridge of De La Rue and Neil Henfrey of Boots, now a brand for the international pharmacist Alliance Boots
- a banking risk management specialist – Hor Chan
- Head of the Department for Accounting and Finance at the Open University Business School – Martin Upton.
It examines the financial risks that organisations are exposed to and how they are addressed by management.
The audio contains some technical matters and terms that will probably be new to you. Do not worry about this, though. It is intended to give you a flavour of risk management in action and what risks organisations are concerned about.
You may be surprised, as I was to a degree, to see pension fund risk referred to in the audio as being a financial risk. Personally, I would see pension fund risk – the risk that organisational pension schemes fall into deficit – as arising from increasing longevity and the fall in returns on financial assets seen in recent decades. The former increases a pension fund’s liabilities due to the resultant need to pay out pensions for longer periods. The latter reduces a fund’s assets by reducing the returns on investments, which, in turn, may be re-invested.
However, increasing longevity is not a financial phenomenon and falling returns on assets are a result of adverse interest rate risk and equity price risk, both forms of market risk. So pension fund risk is really a form of market risk mixed with growing longevity. What do you think?
The audio was recorded in 2006, but its contents are still very relevant for our understanding of contemporary risk management issues.