Financial risk management is a continuous and dynamic cyclic process. Its core is divided into three phases: risk identification, risk measurement, and risk control. In practice, flexible adjustments are required in response to changes in the environment.

I. Core Framework of Risk Management

Financial risk management follows the core process of "risk identification → risk measurement → risk control" and adheres to the principle of continuous dynamic adjustment. The "101 Risk Management Guidelines", jointly formulated by global risk management experts in 1983, have provided an important reference for enterprises worldwide.

II. Core Content of Each Phase

1. Risk Identification (Basic Phase)

The core is to qualitatively identify risks before the occurrence of risk incidents. It is necessary to collect information through effective means, summarize and classify risks, and monitor risk trends. Unidentified or misidentified risks may lead to unexpected losses, making this the foundation of risk management plans.

2. Risk Measurement (Core Phase)

On the basis of identification, various methods are used to quantify the magnitude of risks, which directly determines an enterprise's risk attitude and decision-making results. Risks can be divided into measurable risks and unmeasurable risks. Three common methods are used for measurable risks:

• Mathematical statistics method: Scientific and rigorous, but with high sample requirements and complex calculations;

• Leverage analysis method: Simple to calculate and easy to understand, but with weak logical relevance and potential deviations;

• Capital Asset Pricing Model (CAPM): Suitable for large enterprises with a good statistical foundation, but the calculation of the β coefficient is complex and requires high professional capabilities.

3. Risk Control (Implementation Phase)

Decisions need to be made on whether and how to implement risk control. Methods are divided into two categories:

• Institutional control: Belongs to the management category, including risk-related organizational setup, staffing, and system design;

• Technical control: Core methods include diversification, transfer, and avoidance.

III. Key Reminder

In theory, the risk management process is orderly, but in practice, continuous adjustments are needed and it cannot be limited to fixed procedures. This is because risks change with the development of the environment and events.

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