Fundamentals of Risk Management

Risk culture
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Without more advanced RMIS technology, risk managers are limited to recording the 
exposure data and loss experience of the company relevant to the ERM initiative, using 
techniques like modelling and scenario simulations.
It is possible that the cost of developing a robust, ERM-supportive RMIS will exceed
the benefits. The costs are immediate and tangible; the benefit is difficult to estimate or 
demonstrate. Risk managers already struggle to explain the value of a loss that is prevented 
or financed. Even if the risk reduction is significant, it is a potential future benefit, not an 
assured, immediate expense reduction.
Whether the risk assessments from RMIS are likely to lead to enough marginal benefits
to offset the cost of data tracking and analysis depends on the risk profile of the company. 
Large firms stand to gain the most from RMIS, but as the costs of the computing tools needed 
to collect data and perform the sophisticated modelling continue to decrease, the benefits 
grow for all organizations.
Ultimately, RMIS may pay for itself by enabling an organization to avoid or effectively 
finance that one catastrophic loss that would otherwise slash the financial results of
the company.
risk management information system (rMIs)
It is generally accepted that the application of a RMIS software tool to an enterprise 
risk management (ERM) initiative can be very helpful. However, the disadvantage that 
is often encountered is that entering a substantial amount of risk data onto a com-
puter database can be very time-consuming. Nevertheless, the benefits of having the 
data available for detailed analysis can make the effort worthwhile.
Risk information needs to be shared throughout an organization to enhance risk 
awareness and ensure improved risk performance. It is almost always the case that 
individuals within an organization will have the best understanding of the risks, as 
well as detailed practical knowledge of the actions that should be taken to mitigate 
risk events. Communication is also important to share information about incidents 
that have occurred, including lessons that were learnt and the actions that were 
taken to ensure that the event is not repeated.
An analysis of the advantages and disadvantages of RMIS is set out in the box 
below. In general, an RMIS becomes more valuable when the risks are complex or 
the amount of data that needs to be recorded is substantial.

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