A Chocolate Company since inception in 1990 has been largely responsible for satisfying the country's demand for Chocolates and Sugar Confectionery. The plant has various lines producing a wide range of confectionery lik

Effective risk management plays a crucial role in any company's pursuit of financial stability and superior performance. The adoption of a risk management framework that embeds best practices into the firm's risk culture can be the cornerstone of an organization's financial future. There are at least five crucial components that must be considered when creating a risk management framework. They include risk identification; risk measurement and assessment; risk mitigation; risk reporting and monitoring; and risk governance. Risk Identification The first step in identifying the risks a company faces is to define the risk universe. The risk universe is simply a list of all possible risks. Examples include IT risk, operational risk, regulatory risk, legal risk, political risk, strategic risk, and credit risk. After listing all possible risks, the company can then select the risks to which it is exposed and categorize them into core and non-core risks. Core risks are those that the company must take in order to drive performance and long-term growth. Non-core risks are often not essential and can be minimized or eliminated completely. Risk Measurement Risk measurement provides information on the quantum of either a specific risk exposure or an aggregate risk exposure and the probability of a loss occurring due to those exposures. When measuring specific risk exposure, it is important to consider the effect of that risk on the overall risk profile of the organization. Some risks may provide diversification benefits while others may not. Another important consideration is the ability to measure an exposure. Some risks may be easier to measure than others. For example, market risk can be measured using observed market prices, but measuring operational risk is considered both an art and a science. Specific risk measures often give the profit and loss ('P/L') impact that can be expected if there is a small change in that risk. They may also provide information on how volatile the P/L can be. Common aggregate risk measures include value-at-risk (VaR), earnings-at-risk (EaR), and economic capital. Techniques such as scenario analysis and stress testing can be used to supplement these measures. Risk Mitigation Having categorized and measured its risks, a company can then decide on which risks to eliminate or minimize, and how many of its core risks to retain. Risk mitigation can be achieved through an outright sale of assets or liabilities, buying insurance, hedging with derivatives, or diversification. Risk Reporting and Monitoring It is important to report regularly on specific and aggregate risk measures in order to ensure that risk levels remain at an optimal level. Financial institutions that trade daily will produce daily risk reports. Other institutions may require less frequent reporting. Risk reports must be sent to risk personnel who have the authority to adjust (or instruct others to adjust) risk exposures. Risk Governance Risk governance is the process that ensures all company employees perform their duties in accordance with the risk management framework. Risk governance involves defining the roles of all employees, segregating duties, and assigning authority to individuals, committees, and the board for approval of core risks, risk limits, exceptions to limits, and risk reports, and also for general oversight.