115 CFA
File: Portfolio Management - Reading 55 - 1. The Risk Management Process

1. The Risk Management Process

a. define risk management;

b. describe features of a risk management framework;

What is risk?
Risk is exposure to uncertainty. In investment, risk includes the possibility of losses.

What is risk exposure?
Risk exposure is the extent to which an entity's value may be affected through sensitivity to underlying risks.

What is risk management?
Risk management is a process that defines risk tolerance and measures, monitors, and modifies risks to put them in line with that tolerance.

What is a risk management framework?
A risk management framework is the infrastructure, processes, and analytics needed to support effective risk management.

What is risk governance?
Risk governance is the top-level foundation for risk management. It provides the overall context for an organization's risk management, which includes risk oversight and setting risk tolerance for the organization.

What is risk identification and measurement?
Risk identification and measurement is the quantitative and qualitative assessment of all potential sources of risk and risk exposures.

What is risk infrastructure?
Risk infrastructure comprises the resources and systems required to track and assess an organization's risk profile.

What are risk policies and processes?
Risk policies and processes are management's complement to risk governance at the operating level.

What is risk monitoring, mitigation and management?
Risk monitoring, mitigation and management is the active monitoring and adjusting of risk exposures, integrating all the other factors of the risk management framework.

What is strategic risk analysis and integration?
Strategic risk analysis and integration involves using these risk tools to rigorously sort out the factors that are and are not adding value as well as incorporating this analysis into the management decision-making process, with the intent of improving outcomes.

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