Risk management is a set of practices used to assess, pinpoint, manage, and keep an eye on business activity hazards that could have an impact on financial performance. In addition to increasing firm value, risk management works to ensure an organization's survival in today's fiercely competitive global marketplace. By completing financial risk management courses that can effectively protect the organization's finances from unknowable external events, risk management experts are required to stay one step ahead of their peers in knowledge acquisition.
Types of Risk
- Pure Risk is the scenario where certain events can negatively affect the assets of the organization like a warehouse fire. Workplace risks involving accidents in company premises and legal risk that arise due to bad contract drafting and incorrect documentation.
- Speculative risk refers to the expectation of profit and loss. Market price volatility decreases the stock prices of the company’s core portfolio and results in deterioration of the balance sheet of the organization.
Role of Risk Management in Financial Organizations
1. Risk management aims at accepting, reducing, avoiding and transferring risk to secure the natural revenues of the business organizations. Risk management department focusses on the following categories of risk that an organization can be exposed to: -
- Operational, Credit and Market Risk
- Legal and Regulatory Practices
- Deterioration of inventory due to shortfalls in Quantitative discipline
An important role of Risk management in financial organizations is the deployment of financial derivatives to improve the net worth of the organization.
2. Risk management procedures are responsible for the transmission of monetary policy changes into the organization’s financial system and researching as to how to improve business outcomes by investigating the macro-economic indicators of the market in which they operate.
3. Risk Managers should be able to demonstrate the ability and knowledge to respond and provide effective solutions to top critical risk scenarios that can create havoc on the market capitalization of the company. Business managers should upgrade their skills on par with international standards by taking financial risk management courses.
Impact of Risk Management in Financial Organizations
- Effective risk management concentrates on assisting companies in the achievement of financial targets.
- Risk management techniques lead to the organizations enhanced earning stability which in turn motivate major stakeholders to increase investments.
- Focusing on the protection of immediate sources to finance the company’s profitable projects is a key risk management technique to make sure that assets are not diverted that could result in loss of potential future opportunities.
Summing Up
Risk Management practices are the key success factors for the stability and sustainability of earning and subsequent enhancement in overall business performance. Financial organizations should encourage their employees to pursue finance courses thereby increasing the investment in intellectual capital that will lead to positive financial outcomes companies even in uncertain market conditions.
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