Financial risk

Sgogo By Sgogo, 20th Aug 2017 | Follow this author | RSS Feed | Short URL http://nut.bz/34l6lil-/
Posted in Wikinut>Business>Accounting & Finance

Risk implies uncertainty of profits or danger of loss due to some unforeseen events in the future. An entrepreneur may encounter risks in every area or function of a business through proper preventive and corrective measures of risk management.

Introduction

The types of risk a business faces
Approaching risk in organization management requires setting objectives and activities that lead to goals, and simultaneously seeking to identify factors that may prevent it from achieving its objectives, to take timely necessary measures. Initially the focus was on risk assessment. At present, the approach is more complex and is called risk management; this expression defines the coordinated actions through which an organization plans and controls risks that could affect its ability to achieve its objectives. The dynamics of risk approach in organizatioins is related to the development of scientific instruments, methods and standards to address risk, that have sustained organizations in this approach .
Business risks are of a diverse nature and arise due to innumerable factors.

Natural risks

Natural risks (environmental risk)
The main shift in understanding environmental risk has been increased by the awareness of the potential consequences of climate change. Natural factors are the unforeseen natural calamities over which an entrepreneur has very little or no control. They result from events like earthquake, flood, famine, cyclone, lightening, tornado, etc. Such events may cause loss of life and property to the firm or they may spoil its goods. For example, Gujarat earthquake caused irreparable damage not only to the business enterprises but also adversely affected the whole economy of the United State.
The incident or catastrophe can be temporary or permanent in nature. It can occur incrementally or totally stop operations immediately. This risk category has to be recognized as a major exposure point for most organizations today. The unfortunate reality of the world today is that we must be prepared to deal with any and all undesirable circumstances. This includes, but is certainly not limited to, any type of business interruption and/or other type of catastrophic occurrence. Catastrophic events, such as fire, flood and major thefts, are rare, but it only takes one event to close down a business permanently if the proper coverage is not in place.
This has always been one of the most ignored areas of risk. It has always been the position of many corporate executives that ‘‘it will never happen here.’’ That position, of course, is no longer valid and as a result cannot be the answer when a discussion of this type of risk is brought to the table. Hopefully, the government, educational institutions, and all other major organizations have learned a lesson from the events of the past. The importance of this category of risk cannot be underestimated nor ignored. Anyone who makes that type of uninformed decision is seriously undermining his credibility as a leader or is simply ignoring his fiduciary responsibilities and reality .
Generally speaking, disaster risk analysis is an integration of hazard analysis and vulnerability analysis. When considering a problem of national scale, the scope of vulnerability evaluation should consider not only scientific and physical aspects but also the social and economic aspects of vulnerability that are recognized to contribute to the triggering of disastrous events.

Conclusion

Defining these categories of business risk is one of the most important exercises to be conducted when building a risk model. Everyone has his own version of risk categories and in many cases has developed them to coincide primarily with his line of business instead of being cognizant of a much broader base of risk.
Thus, business risk takes a variety of forms.

Tags

Finance, Financial Crisis, Financial Future, Financial Problems, Risk Management

Meet the author

author avatar Sgogo
Youssef naciri
I'm 24 years old
From morocco

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