There are two main categories of RM standards. These are international RM standards and standards set by the management of the company. Standards are set based on compliance with laws and regulations of the country or state. Moreover, there are RM standards governing every profession that exists today. The International Organization for Standards has issued more than 19, 000 standards for risk management. These are implemented as best practices worldwide.

Importance of Risk Management Standards

Fixing standards for RM is very important because they compel businesses to provide the best quality. Compliance with RM standards protects the business from unforeseen losses. There are cases where failure to ensure compliance with RM has led to legal action. To prevent this from happening, business owners set their own standards. Other business owners implement standards established by the government.

No matter what profession or form of business it is, there are quality and service expectations that must be fulfilled. For instance, in banks there are specific business protocols that have to be met. These protocols or best practices are synchronized with those of other banks worldwide. As a result of this international banking has become feasible and convenient. When standards are not fulfilled, banks fail to satisfy the financial needs of their customers.

Similarly, in healthcare intuitions, there are healthcare standards that must be met. For example, if health care insurance is involved there are requirements (best practices) that must be fulfilled. These protect both the patient and the healthcare practitioners. If a patient is wrongly treated, it proves failure of compliance with RMS. The consequence is that health care facilities get sued and shut down.

Advantage of Risk Management Standards

The main advantage of developing or implementing RM Standards is that, managers and CEOs can plan their business strategies. These standards provide the option to limit the extent of risk to be taken in the first place.

There are risks attached with every form of business and investment. RM Standards help by avoiding occurrence of circumstances that can lead to unforeseen losses. They also outline the approach business owners have to take to mitigate the risk. This is why compliance is the basic tool required for the success of every business.

Definition of Risk Assessment

It is defined as an important process in business management, aimed at protecting the business and people related to it. Risk assessment is an important aspect of risk management.

Business managers and investors use risk assessment to measure the profit that will result from a particular investment. This helps in controlling financial losses to the business. In order to succeed with this, managers have to ensure compliance best practices with laws governing the business.

Importance of Risk Assessment

Risk assessment helps with implementing controls to ensure risk management. Once managers assess risk, they can foresee the negative impact of risk on assets and people related to the business. This allows them to implement necessary strategies (best practices) to mitigate and control risk.

Examples of Risk Assessment

When a lender receives a request from a creditor, there are certain protocols (best practices) that must be followed. The lender must make sure that the money lent returns on time. This means that the credit history of the person in question has to be assessed. This will tell the lender whether the applicant will return the money or not. Based on the assessment, the lender will then decide on how much interest to charge to ensure risk management. If the lender doesn’t think the creditor will pay off on time, he/she might as well decide not to give the loan at all.

Another example is risk assessment in a health care facility. Medical practitioners have to assess the risk associated with diseases. There are some diseases that are contagious and transmittable via aerosols. This means that people around the sufferer are at risk. To control this risk doctors must have a setup where people are safe and the spread of disease is controlled. This means medical practitioners have implement measures (best practices) to protect their employees and customers. This is compliance with risk management.

In simple terms, risk assessment means evaluating the extent of damage or threat imposed by failure to impose controls. Hazards must be identified to be able to decide on what measures will be appropriate.

How to Assess Risk?

Regardless of what form of business institution it is, there are five standard strategies that managers must use. These are:

1. Identify hazards/risks
2. Conclude where the impact of the hazard will be (e.g. employees, customers, assets)
3. Evaluate the impact of the risk and precautions or backups needed
4. Document the conclusion and implement control measures
5. Review the assessment based on the outcome and document updates if necessary

There are best practices to think about when risk assessment is being conducted. First of all, define the threat or hazard. This can be ANYTHING that harms the business, employees and customers. Secondly, understand that risk can never be eliminated, but mitigated and controlled.

Definition

It is defined as a process involving business practices that identify, evaluate and prioritize the various forms of risk.

Once managers identify risks, they can plan strategies to eliminate negative impact of risk on the business. Strategies vary according to the form of risk, which further differ depending on the type of business. In addition to this, managers have to keep standards for risk management in perspective. These standards are best practices developed by:

• The Institute of Project Management

• The National Institute of Science and Technology

• The ISO – International Organization of Standardization

• Other regulatory organizations

Forms of Risk

Risks include occurrence of unexpected and expected events and lapses in best practices. They can be physical in nature, such as fires, natural disasters and other forms of accident. Risks can also be legal issues involving sexual harassment, theft, fraud and racial discrimination. They can also be related to unpredictable financial markets, credit risks, failures in projects and problems with data management.

Objectives of RM

The objective of compliance with risk management is to guard the business. Businesses are always vulnerable. In order to ensure continuity of the business and to reduce financial risks, managers need to protect the business continuously. In addition to this goal, RM is meant to assist managers to protect their employees. Managers also have to make sure that customers and the general public are not compromised. This also provides best practices to preserve records, data and other physical assets of the company.

Identifying and Managing Risk

Risk can be identified and manages in five simple steps.

1. Define and identify risks
2. Assess the information related to the threat imposed towards assets
3. Predict consequences of the threat
4. Establish the measures to be takes to reduce the risk
5. Prioritize the management procedure to be followed stepwise to mitigate the risk

Strategies for Managing Risk

There are four categories of strategies for risk management:

• Accept the consequences and budget for the loss

• Transfer the risk to another aspect of the business

• Close down the high risk regions of the business

• Install back-up plans for foreseen risk scenarios

Every business must have plans to ensure risk management through compliance. This helps protect financial and physical assets.

According to the Organization for Economic Co-operation and Development (OECD) compliance and implementation of Basel III was mandatory in banks. The organization estimates that the GDP growth will be reduced by at least 0.05% to 0.15%. This meant that henceforth bank managers will be obliged to be informed about the liquidity condition in the market. There will be need to focus on major assets, so as to strengthen accountability. This will subsequently mitigate major losses through best practices.

Compliance with Basel III will impact European banks in a number of aspects.

-          There will be impacts on European banks

-          There will be responses by the banks

-          There will be challenges to ensure compliance with Basel III

Here is an overview of best practices European Banks are likely going to display.

Assessing Impact on European Banks

Due to new compliance regulations, banks will have to follow the Q2 20100 balance sheets. This implies that in future, by 2019 banks will need €1.1 trillion extra per capital in addition. Moreover, they will need €1.3 trillion for short term liquidity and €2.3 trillion for long term financing. Lastly, banks will be required to eliminate any acts that lead to mitigation.

The Basel III standards focus on capital and financial support. It sets latest capital target ratios that are marked out to as “7.0% of core Tier 1 requirements.” The minimum Tier 1 requirement for best practices is 4.5%, and a capital of minimum 2.5%.  The maximum limit for Tier 1 capital is 8.5%.

Furthermore, Basel III has set new standards and requirements for both short term and long term funding. Implementation of these changes will impact European banking gradually. The impacts of new compliance regulations will be seen by 2016.

New compliance regulations for European banks will subsequently affect U.S banking. There will be shortfall on the capital and funding by banks. The overall impact will also be seen on business segments in Europe and the US. Therefore, best practices in implementing Basel III have become the main focus of the new regulations for 2012.

The new regulations have been established to address some sensitive best practices that are often overlooked. These best practices include:

• Stress testing

• Early remediation requirements

• Liquidity

• Risk management

• Capital

• Credit exposure

These new regulations are somehow interconnected to those authorized by Dodd Frank Act.

Applicability of New Regulations

These new regulations are meant to be applied to:

• All banks in the United States holding companies that have assets worth $50 billon at least.

• All nonbank financial organizations designated as systematically important for companies. (The Financial Stability Oversight Council has the authority to deem companies as important or not).

Note: SLHCs (Savings and Loan Holding Companies) are not subject to compliance with these regulations, except with requirements for stress test.

In the near future, the Federal Reserve (FR) will issue regulations for foreign banking institutes and SLHCs as well. The expected regulations include:

• Leverage limits and Requirements for Risk Based Capital: Regulations governing these will be put into action in two phases. The first phase had started off in November 2011 after the capital plan rule was issued by the FR. Companies willing to ensure compliance with these regulations are expected to:

a. Produce a plan for annual capital

b. Carryout stress tests

c. Maintain sufficient capital

• Implement Surcharge on Capital: Based on the framework and methodology the surcharge on the capital must be developed. The Basel Community on Banking Supervision must be involved in supervision of best practices.

Requirements for Liquidity

Requirements will be implements by the FR in two phases:

1^st Phase

Compliance with Interagency liquidity risk management guidelines issued in 2010 must be implemented as best practices. This means that companies will be required to carry out internal liquidity stress tests and manage risks associated with liquidity.

2^nd Phase

Compliance with Basel III liquidity rules issued by the FR must be implemented for qualitative liquidity.

Stress Tests

The FR will conduct monitoring of stress tests using three scenarios in the economic and financial market. The results from these tests will be open to the public and will include information specific to the company. Supervisors at banks will need to follow some best practices to conduct successful stress tests.

These new compliance regulations for US banks are meant to improve the best practices associated with regulations.

Guide for Fiduciary: This involves banks, investment professionals, consultants and plan trustees that are interested in hedge funding. They must first evaluate how suitable and attractive the investment will be for their objectives and needs. Most investors make lot of profits without hedge funding; therefore investing into it must be a necessity. Compliance with the following guidelines is mandatory:

• Allocations and Investments of Hedge fund: Having a clear and proper understanding about Hedge funding is very important. There are authorities and traditions that must be followed to ensure best practices. Moreover, there is management fee that is about 1-2% of assets and is calculated annually.

• Policies on Hedge Fund: Fiduciaries must establish policies about hedge funding to define the objectives and key features of their investments. There are some issues that must be addressed before implementing business practices.

• Owner’s Dues and Diligence: Fiduciaries must ensure compliance with regulations related to tax, accounting and legal regulations.

Guide for Investors: There are some best practices that are essential guidelines and compliance is mandatory to achieve success. “Investors” in this case refers to people responsible for implementation and execution of the Hedge fund program. They can be internal or external personnel, with their roles and responsibilities elaborately defined. The practices recommended are classified into the following categories:

• Investor’s Dues and Diligence: Managers have to ensure compliance with personnel management, accounting and reconciliations.

• Risk Management: This is a highly sensitive management issue that requires constant with best practices. There must be constringency plans in place in case unpredictable disaster occurs.

• Legal and Regulatory Policies: Investors must educate themselves about terms and conditions involved in hedge funds. Ensuring compliance with these is a crucial best practice.

• Valuation: Evaluating an investment and what returns to expect is a difficult best practice. Investors must ensure thorough valuation the investment in hedge funding. Compliance with other business practices in valuation is also important for successful hedge funding.

• Tax Expenses: Managers and investors must take account of taxes involved. These usually include business taxable income and foreign tax withholding.

• Reporting: Maintaining transparency in the investment is important best practice. It preserves a trusting relationship between the investors of hedge funding and the managers.

Hedge funding is a sensitive investment and requires precision with best practices. This outline must be followed to ensure successful investment and great profits.

Those states that failed in best practices to close this gap came out as the worst state budgets. Five of the worst state budgets in 2011 include:

1. Governor Mark Dayton (Minnesota): His government failed to conclude the plans to tackle the $5 billion budget deficit. As a result, road constructions, state parks, rest shops on the highway, and zoo management had come to a halt. Moreover, social services and other state funded facilities like women’s shelters, and drug treatment centers are struggling to remain open. These failures in implementing best practices have delayed tax increases and cutbacks on spending. Rumors are that the legislature and Dayton are still $1.4 billion apart from one another on the agreement. There is still no visible closing to bridge the budget deficit.

2. Governor Dan Malloy (Connecticut): Governor Malloy along with the State Employee Unions could not come to a reasonable agreement. Public employee unions rejected the proposal implementing a wage freeze for two years. This proposal could have avoided employee layoffs, which could have served for best practices. At the end, both parties were disappointed. Malloy had announced his plan to lay off 5,500 workers and reduce state funding by 2% to ensure that municipalities succeed in closing a $1.6 billion gap. Instead, lawmakers didn’t only reject Malloy’s plan. They also forced the government to lay off 1000 more state employees.

3. Governor Nikki Haley (South Carolina): Only eight out of 35 Haley’s budget vetoes were left standing after South Carolina’s Republican-controlled legislature dominated them. This came as a huge blow to Haley’s attempts to close the budget deficit for best practices. At the end, only $508,000 out of Haley’s proposed $212 million spending cuts were approved. Lawmakers rejected her cuts to spend less on public schools, economic development, job training, and state Arts Commission and conservation programs.

4. Vendors (Illinois State): 2011 ended with $8.3 billion unpaid bills. Almost half of this money is owed to state vendors, such as healthcare providers and food distributers. Moreover, corporate tax refunding of $850 million, interfund borrowing of about $750 million and employee health insurance for $1.2 billion were also included in the Reuter report. If the bill had passed, Illinois would have used $6.2 billion bonds to pay off with best practices. Now the budget deficit will get worse than before.

5. Governor Rick Scott: (Florida): Even though Scott successfully cut state spending by $4 billion, his measures made him less popular among voters. This was because his $69.7 billion tax increased along with the state spending cuts for best practices. He also cut spending on K-12 education by $1.35 billion and on Medicaid by $1 billion. The consequence of this budget was that 4,500 positions in the state government were eliminated. More than 6 Florida voters, out of 10 disapprove Scott’s job performance and his use of best practices.

The consequence of failed best practices is that the budget deficit is still high in these states.

1. Governor Scott Walker (Wisconsin): He conquered challenges like protests, nine campaigns to recall the state senator, a Supreme Court election recount, and bitter legal confrontations. This is what it took him before he could sign the spending bill close to the state budget he had proposed. In his first term as a republican, Scott Walker got the $66 billion budget, and did not increase taxes for best practices. He managed to balance the budget by cutting a number of activities. He reduced the K-12 education by $800 million, cut down on university spending by $250 million, and minimized state spending on Medicaid by $500 million.

2. Governor Andrew Cuomo (New York): He closed a budget deficit of $10 billion without implementing new taxes for best practices. Gov. Andrew Cuomo achieved this through state legislature support. He cut back on budgets assigned to hospitals and schools in New York. He succeeded in closing the budget gap, and his popularity rose to 73%.

3. Governor Jerry Brown (California): California’s spending plan worth $85.9 billion relied on economic improvement. There was need for major cutbacks before Governor Jerry Brown achieved a second on-time balanced budget in 10 years. His plan included best practices like reducing school expenditure by $3 billion, University quota by $1.3 billion, and state park closure in 70 states. All this helped in achieving success with closing the state budget to $25 billion.

4. Governor Chris Christie (New Jersey): Governor Christie vetoed $1.3 billion or more in order to achieve a state budget of $29.7 billion. He slashed spending largely on school aid and state municipal facilities for best practices. With this he made a major triumph and reduced government spending, thereby improving the conditions of New Jersey. The government increased employee pension and limited bargaining rights for the public sector unions in New Jersey.

5. Governor John Kasich (Ohio): Governor Kasich succeeded in achieving his legislative agenda. He accomplished a lot with his two year spending bill, amounting to $55.8 billion. It included privatization of numerous state prisons, revamping Medicaid, banned abortions in hospitals, and tied teacher salaries to the achievements of students. This eliminates estate taxes and cut down entitlements of local governments to state aid as part of essential best practices.

6. Governor and Lawmaker Tom Corbett (Pennsylvania): He finalized and signed the state spending budget for Pennsylvania. This happened for the first time in a decade. The plan for $27.15 billion came as a victory for Pennsylvania. After an almost impossible battle with best practices, republicans succeeded and got a bill that cut spending by $1 billion. It was a major achievement because it came without increasing taxes.

Winning the best state budget was not easy, and this is why only few people succeeded.

Any professional business person knows that a successful CRM is the backbone of business. It serves as the means of bringing together customers, sales, market trends, marketing strategies and responsiveness. In order to achieve these best practices, CEOs and managers have constantly been working towards a solution. People have been working hard to make the process of CRM better than it is for the past few years. As a result there have been researches on technology to make the entire process of CRM better without crumbling the structure of the company.

CRM provides an insight into the value, behavior and reaction of customers to various business best practices. This improves customer services and increases efficiency of employees by streamlining the marketing and sales processes. It thereby improves close rates, improves profiting, reduces costs, and increases shares of customers in the profits of the business.

Over the past four years, executives at Intellinet failed at providing new technology that would transform sales of software applications for Customer Relationship Management. The main reason for their failure was their weakness at best practices.

The new vice president of the company, Scott Ehmen had reassured his sales personnel that this time things were different. He made his point, and Customer Relationship Management is better than it has been over the years. The latest CRM system has a sales increase by 50% for the company. There had been failures and disappointments in the past when previous systems didn’t work as expected. They were supposed to help executives isolate patterns of sales, to help them plan their sale strategies better.

Furthermore, the purpose of using CRM software is to improve best practices. The new software application was designed to offer better range of price points, additional targeted solutions and increase accountability for its performance. Therefore, not having effective CRM software will be a serious disadvantage for companies in competition.

“Act!” is the latest CRM application recommended to obtain business best practices. It is not just the best solution to compliance issues; it is also the most affordable option in the market. “Act!” can go through years of data and recognize consumer patterns without delay. There are numerous companies and hospitals where “Act!” has been introduced. In all these business setups, profits increased with improved CRM. Through the use of accurate recording system, and track leads most companies have succeeded in increasing their conversion rate from 20 percent to 40 percent. Like all other software applications, as the number of user’s increases, the cost of the product increases.

Nonetheless, there are better chances of increased profits and success for businesses. This is through implementing best practices with CRM software application.

Why Businesses Allocate Indirect Cost

Financial analysis is only effective when one applies full knowledge about the full cost of the program. The full cost includes a major portion of the overall costs of activities of the business. Knowing the full cost helps in knowing services that are free. This allows business people to request for reimbursement from supportive funders.

Methods for Allocating Indirect Cost

There are many methods used for allocating indirect cost. However, the most common methods are:

1. Case-by-Case Allocation: This method involves determining the actual usage rate of each program. That is to say that keeping track of certain activities helps in charging the appropriate program to pay monthly bills. This is why most companies maintain a time log or time track of the programs or functions. For example, keeping time track on employees helps in paying them on hourly basis. There are other methods businesses employ for time tracking and keeping a log of activities. The only setback with case-by-case approach is that it takes a lot of time for record keeping.

2. Establishing an Indirect Cost Rate: Here overall costs are first separated into two categories, direct and indirect. Total indirect costs are combined as a pool and then allocated into different sets based on proportion or rate.

An Example to Guide You

Consider a specific company with a budget of $3,300 which is distributes as follows:

• $1000 on Program A (Direct Cost)

• $2000 on Program B (Direct Cost)

• $300 on indirect costs

Program A is 1/3^rd of the total cost and therefore indirect costs must also be 1/3^rd. Similarly, Program B is 2/3^rd of the total cost, and indirect costs shall be 2/3^rd of the total. The indirect cost rate will therefore be evaluated by dividing the total indirect cost by the total direct cost. Therefore,

Indirect cost rate for the company           =             Total Indirect Cost/ Total Direct Cost       x 100

=             $300/$3000         x 100      =             10%

The indirect cost associated with each program will therefore be calculated as:

Program A           =             $1000 x 10%        =             $100

Program B           =             $2000 x 10%        =             $200

Total Indirect Expenses                                   =             $300

After determining the rate of indirect costs associated with each program, the budget will be read as follows:

Budget = Direct Cost + Indirect Cost Rate

Program A = $1000 + $100 = $1,100

Program B = $ 2000 + $200= $2,200

Total Cost                                    $3,300

This is how indirect costing is allocated. Depending on what kind of organization it is, the guidelines vary. Some business organizations use the Federal Indirect Rate, and follow different guidelines. Similarly, non-profit organizations also have their own guidelines on allocating indirect cost.