An Analysis Of How Financial Management Techniques Or Policies Can Be Used To Mitigate Each Of The Risks Essay Samples
Type of paper: Essay
Topic: Risk, Management, Business, Finance, Organization, Market, Risk Management, Workplace
Risk has been defined, in simple terms, as a hazard of injury or loss. Risk means to expect some unfavorable future events that may bring harm to an organization.
Risk management involves identifying and recognizing, analyzing and taking initiatives to minimize and abolish the hazards of loss by an individual or an organization. This practice uses techniques and tools, including financial management techniques and policies, to manage and diversify the risks of losses. It is obvious that every business will face different kinds of risks, some of which could be uncontrollable and some can be controllable. Small and some medium sized businesses are especially prone to risks, for example, flood, fire, theft, injury, legal liability and disability, may serve as a last blow to the business. In other case these risks can reduce the productivity and thus profitability of a business or cause financial difficulties .
Risk can broadly be classified into the below 4 categories:
The hazard of financial loss that can occur to a property owned by a business is property risk. This form of risk may come from legal issues, fraud, partnership problems, fire or a problem attached with purchasing
Market risk can also be named Systematic Risk. This is a hazard of loss due to the factors that can have adverse impacts on the performance of financial markets (Holmes).
In any organization, its employees are considered to be the most important assets and in the modern world where large amounts of data are can easily be transferred within a few seconds, it brings hazard of affected piracy, legal issues, injury, and unexpected turnover due to poor or ineffective financial management. Managing the employee risk can be very challenging in an organization .
Every time when an organization deals with its one of the customers it brings some kinds of risk. For example, a customer could be dissatisfied with the goods or services provided by the organization (Reuvid).
After the financial crisis of 2008, a number of new techniques have arisen in the industry. Risk mitigation means to take steps to minimize or stop the adverse impacts that can occur to a business. Four type of strategies can mitigate risk. That are Risk Acceptance, Risk Avoidance, Risk Limitation, and Risk Transference.
In the financial sector risk management is deemed to be a combination of credit risk, assets liability management, liquidity risk, market risk and operational risk.
In general every risk has a pre-determined plan that would deal with its potential consequences. Using the risk management techniques, a risk manage can estimate as following:
If cost linked with risks occurs it is determined by multiplying employee costs unit of time by the estimated time lost.
i.e Cost Impact, C where C = cost actual ratio*S
Methods and tools of financial management can be used to mitigate the risks related to property, market, employees and customer.
Managing market risks
According to Gallagher, following measures should be taken in this regard:
Analyzing the natural catastrophe exposure
Analyzing code compliance
Managing market risks
Holmes’ suggestions for managing market risks are:
Managing employee risks
Kennedy is for taking the following the following steps to manage employee risks.
For the top leadership of a business there can be three methods of effective risk management. These are:
Managing customer risk
Risk summaries for the organization
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