Business
Business Risks
Business risks refer to potential threats that can negatively impact a company's operations, financial performance, or reputation. These risks can arise from various sources such as economic downturns, competition, regulatory changes, or natural disasters. Managing business risks involves identifying, assessing, and implementing strategies to mitigate or minimize their impact on the organization.
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9 Key excerpts on "Business Risks"
eBook - PDFCorporate Financial risk management
A Practical Approach for Emerging Markets
- Scott Stanley(Author)
- 2019(Publication Date)
- Society Publishing(Publisher)
These risks or threats could originate from a broad range of sources, comprising financial uncertainty, legal liabilities, strategic management errors, accidents, and natural disasters. All the data related risks, IT security threats and the risk management strategies to lessen them, have become the main concern for digital companies. As a consequence, a risk management plan progressively comprises companies’ processes for identifying and controlling threats to its digital assets, including proprietary corporate data, a customer’s personally identifiable information, and intellectual property. 1.2. RISK: INTRODUCTION Risk suggests means uncertainty in future about deviation from projected income or projected result. Risk evaluates that an investor is ready to take to earn a profit from an investment. Risks are of various kinds and begin from various circumstances. Liquidity risk, insurance risk, business risk, sovereign risk, default risk, and so on. Different risks begin because of the uncertainty emerging out of different elements that impact an investment or a circumstance. The likelihood that a real return on an investment will be lower than the anticipated return (Figure 1.1). Financial risk is distinguished into the following classifications: • Basic risk; • Capital risk; • Country risk; • Default risk; • Delivery risk; • Economic risk; • Exchange rate risk; • Interest rate risk; The Evolution and Scope of Risk Management 3 • Liquidity risk; • Operations risk; • Payment framework risk; • Political risk; • Refinancing risk; • Reinvestment risk; • Settlement risk; • Sovereign risk; and • Underwriting risk. Figure 1.1: Different forms of financial risks. Source: https://wikifinancepedia.com/finance/financial-management/what-is-financial-risk-management-techniques-methods-types. 1.3. THE SCOPE OF RISK MANAGEMENT 1.3.1. Risk Appetite Most insurance agencies executing Enterprise Risk Management (ERM) programs have built up an ERM committee.
eBook - PDFManaging Risk in Organizations
A Guide for Managers
- J. Davidson Frame(Author)
- 2003(Publication Date)
- Jossey-Bass(Publisher)
People launch and 177 Q run businesses to make money. In general, if they enter into a safe business—for example, running an established convenience store— they are not likely to make great incomes, but neither are they likely to lose much. If they develop a technology breakthrough, they have a chance to make a fortune, as well as an opportunity to lose their life savings. All decisions that businesspeople make are risky to some extent. For example, each time you hire new employees, you are taking a risk. There are no guarantees that you have made a good choice. What if the employee does not work out? What if he can’t follow instructions and continually makes errors in doing his job? Hiring employees can be expensive. If ultimately they are fired after several unsatisfactory months, crucial work has not been done and you find yourself back at square one. As another example, advertising a new product in the newspaper can be expensive, and there are no guarantees that it will generate revenue. Will your $10,000 advertisement reach the cus- tomers you are targeting? What if the ad is buried in the back pages of the newspaper? What if it does not generate even one customer inquiry? Business risk can be visualized in different ways. The approach taken here is captured in Figure 10.1, which shows business risk as 178 MANAGING RISK IN ORGANIZATIONS Operational risk Market risk Financial risk Regulatory risk Project risk Business risk Figure 10.1. Principal Components of Business Risk. comprising five components: market risk, financial risk, operational risk, project risk and regulatory risk. Market Risk All businesses that sell goods and services are concerned with market risk. Market risk is captured in the following basic question: When we put a product into the marketplace, will it sell? Clearly, this issue is of utmost concern to companies that introduce new products. The prob- lem with new products is that they have no track record.
eBook - PDF- Aparna Gupta(Author)
- 2016(Publication Date)
- CRC Press(Publisher)
Chapter 10 Strategic, Business, and Operational Risk Management The specific risk types we have studied thus far most prominently figure in financial markets and institutions. In this chapter, we turn our attention to risks that appear more broadly and are relevant for a broader variety of firms. Firms engaged in producing a variety of products and services must evaluate forward-looking prospects at different timescales, and assess the impact of different risk exposures on the firm’s financial health and profitability. Based on the extent of forward view the firm adopts for this risk assessment, we label the risk management effort as strategic, business, and operational. Figure 10.1 summarizes the relative temporal scope of strategic, business, and operational risk management. In this chapter, we address several issues of strategic, business, and oper-ational risk management from the broader corporate risk management per-spective. The risk management objectives are developed on specific themes for these risk types in order to provide an overview of an otherwise rather vast topic. For non-financial firms, a framework developed for integrally, com-prehensively and consistently managing all relevant risks of the firm is called enterprise risk management. We also utilize the temporal range of strategic, business, and operational risks as a context to present asset-liability manage-ment objectives of financial services firms in this chapter. 10.1 Strategic Risk Management Even if risk management may not be an explicitly stated activity in a non-financial corporation, management of risks happens in various garbs. In gen-eral, non-financial firms tend to focus more on risk mitigation, as opposed to a financial institution’s approach of risk optimization, i.e., constructing optimal risk-return trade-off. Focusing on its core business, a typical non-financial firm has greatest incentives to conduct its business with the least negative impact of risks.
eBook - PDF- Paul Sweeting(Author)
- 2017(Publication Date)
- Cambridge University Press(Publisher)
7 Definitions of Risk 7.1 Introduction When managing risks, it is important to be aware of the range of risks that an institution might face. The particular risks faced will differ from firm to firm, and new risks will develop over time. This means that no list of risks can be exhaustive. It is possible to describe the main categories of risk, and the ways in which these risks affect different types of organisation. However, even this is not without risks. Risks can be categorised in any number of different ways, and the definitions given below are not the only ‘right’ ones. It is more important that the taxonomy used in any institution is itself internally consistent, and that this taxonomy is widely understood and agreed within the institution. 7.2 Market and Economic Risk Market risk is the risk inherent from exposure to capital markets. This can relate directly to the financial instruments held on the assets side (equities, bonds and so on) and also to the effect of these changes to the valuation of liabilities (long-term interest rates and their effect on life insurance and pensions liabilities being an obvious example). Closely related to market risks are economic risks, such as price and salary inflation. Whilst these risks often affect different aspects of financial institutions – market risk tends to affect the assets and financial risk the liabilities – there is some overlap and both can be modelled in a similar way. Banks face market risk in particular in two main areas. The first is in relation to the marketable securities held by a bank, where a relatively straightforward asset model will suffice; however, this risk must be assessed in conjunction with market risk relating to positions in various complex instruments to which many banks are counter-parties. It is important both to include all of the positions but also to ensure
eBook - PDFSimplifying Risk Management
An Evidence-Based Approach to Creating Value for Stakeholders
- Patrick Roberts(Author)
- 2022(Publication Date)
- Productivity Press(Publisher)
1 Chapter 1 What Do We Mean by Risk? This is categorically not an academic text, and this chapter is not a discussion of semantics. But, in order to have a produc-tive discussion of why and how we try to manage risk within organisations (and indeed how we measure the effectiveness of our attempts to do so) in subsequent chapters, some clarity is needed on what is meant by the word. This chapter begins by looking at some fundamental issues around how risk may be defined. This leads naturally into a discussion of the risk perspectives of different stakeholder groups, focusing particularly on owners, senior managers and lenders. This is followed by a brief discussion of how the ten-sions that inevitably arise between these different stakeholder groups may be managed. The chapter concludes by briefly reviewing some common risk measures and categorisations of risk that will be of utility in later chapters. DOI: 10.4324/9781003225157-1 2 ◾ Simplifying Risk Management Upside and Downside Risk In everyday usage, the term “risk” generally has negative connotations - few people talk about the risk of a pay rise or promotion at work, or the risk of their team winning the FA Cup – and many academics and practitioners follow this con-vention. However, others argue that risk concerns both posi-tive and negative outcomes, e.g. “Risk is defined as uncertainty of outcome, whether positive opportunity or negative threat” (Chittenden (2006, p.9)). In particular, within the finance lit-erature, there is a long history of equating risk with variance in returns, an entirely symmetrical measure of variability in outcomes. As will be discussed in more detail below, in any given situation, different stakeholders may quite legitimately take different views on whether positive outcomes are relevant to their risk perspective.
eBook - PDFUnderstanding Risk
The Theory and Practice of Financial Risk Management
- David Murphy(Author)
- 2008(Publication Date)
- Chapman and Hall/CRC(Publisher)
Certainly, this withdrawal highlights the need to balance proprietary trading opportunities against perceptions from clients that one might act in a hostile manner towards them. One could see this as a challenge in reputational risk management. Exercise . A trader in a financial institution buys a corporate bond. The trader pays USD for the bond, holds it for a week and then sells it, again in USD, to a client. The bank accounts and funds in EUR. Outline all the operational and reputational risks you can think of in the transaction. 1.3.2 The Aims of Risk Management We have seen that extreme market movements happen with some regularity and that financial risk can be taken in many ways, some of them rather complex. There is a long and inglorious history of financial losses resulting from failing to manage these financial risks. Sharehold-ers, regulators and other stakeholders have very little tolerance for bad news. At its broadest, then, risk management is a process to ensure that undesirable events do not occur. Good risk management requires: An understanding of the risks being taken; A comprehensive definition of the firm’s risk appetite; Allowing opportunities to be exploited within the risk appetite; But ensuring that risks outside it are not taken. So specifically there are three components: Risk Measurement : discovering what risks the organisation is running; Action , if required; Culture to ensure that the process works. Often institutions suffer risk management problems when only the first of these receives suffi cient attention. 1.3.2.1 Risk information For many markets, risks positions are valued every day: they are marked to market . In this context, it is important to understand: What factors actually drive the daily P/L? What could cause a large negative P/L? • • • • • • • • • •
eBook - PDF- Joao Heitor De Avila Santos(Author)
- 2019(Publication Date)
- Society Publishing(Publisher)
Social Risks and Business Management 5 CONTENTS 5.1. What Is Social Risk Management? ................................................... 116 5.2. Identifying Social Risks ................................................................... 119 5.3. Top Social Risks For Businesses ....................................................... 122 5.4. Importance of Social Risk Analysis .................................................. 125 5.5. The Factors Influencing The Translation of Social And Environmental Risks To Business Costs ........................ 127 5.6. Factors Influencing The Translation of Risks to Costs to Changes In Company Behavior .................................................... 128 5.7. Managing The Social Risks In Businesses ........................................ 131 5.8. The Impacts of Social Risk ............................................................... 135 5.9. Transforming Social Risk And Social Responsibility ......................... 137 References ............................................................................................. 140 Business and Society 116 Businesses are an important part of the society as they bring a lot of development and finances to it. They aid in improving the economy and the outlook of a country and hence bring prosperity to the surrounding areas. Though, with all the prosperity, development, advancement, and wealth, come the risk associated with running these businesses. The risks may even be fatal, as has happened in some unfortunate past times. These risks must be planned for in priority and managed in the best ways possible. This chapter focuses on some of the social risks and their mitigation and management, for the businesses to run smoothly.
eBook - PDFEnterprise Risk Management
From Incentives to Controls
- James Lam(Author)
- 2014(Publication Date)
- Wiley(Publisher)
Enterprises operating in today’s volatile environment require a much more integrated approach to managing their portfolio of risks. This has not always been recognized. Traditionally, companies managed risk in organizational silos. Market, credit, and operational risks were treated separately and often dealt with by different individuals or functions within an institution. For example, credit experts evaluated the risk of default, mortgage specialists analyzed prepayment risk, traders were responsible for market risks, and actuaries handled liability, mortality, and other insurance-related risks. Corporate functions such as finance and au- dit handled other operational risks, and senior line managers addressed Business Risks. However, it has become increasingly apparent that such a fragmented approach simply doesn’t work, because risks are highly interdependent and cannot be segmented and managed by entirely independent units. The risks associated with most businesses are not one-to-one matches for the primary risks (market, credit, operational, and insurance) implied by most traditional organizational structures. Attempting to manage them as if they are is likely to prove inefficient and potentially dangerous. Risks can fall through the cracks, risk inter-dependencies and portfolio effects may not be captured, and organizational gaps and redundancies can result in sub- optimal performance. For example, imagine that a company is about to launch a new product or business in a foreign country. Such an initiative would require: 52 ENTERPRISE RISK MANAGEMENT ■ The business unit to establish the right pricing and market-entry strategies; ■ The treasury function to provide funding and protection against interest rate and foreign-exchange (FX) risks; ■ The Information Technology (IT) and operations function to support the business; and ■ The legal and insurance functions to address regulatory and liability issues.
eBook - PDFThe Practice and Theory of Project Management
Creating Value through Change
- Richard Newton(Author)
- 2019(Publication Date)
- Red Globe Press(Publisher)
A more realistic example is the impact of a possible economic recession on the success of a new product to be launched by a business. Although the threat of recession may be a real problem for the business and for the project’s business case, a project manager or project team has no ability to influence such an occurrence. Whilst it is a risk for the project, it may be decided that it is outside the scope of a project manager’s role to do anything about this. The impact and probability of a risk occurring Awareness of the many sources of risk may be interesting, but is of limited concern in itself. The reason for identifying the sources of risk is to be able to mitigate the negative impact of the risk on a project or a business. Understanding the sources of risk enables potential threats to be avoided. But, whilst trying to understand the possible hazards a project is exposed to, it quickly becomes apparent that any one project is open to a huge number of potential threats. A project manager can only manage a limited number of activities to avoid risk. The question for the project manager, therefore, is which risks are worth tak-ing action to avoid? The answer lies in understanding what the impact of a risk will be if it occurs and what the probability of it occurring is. The focus of management attention is then given to the highest-impact and highest-probability risks. This sub-section introduces these two: risk impact and risk probability. The occurrence of a risk on a project can have an impact at four levels: ) On a project ) Across a portfolio of projects ) Upon a business or organization ) External to a business If risk occurs, it may stop a project achieving what it set out to do. Risk may stop one or more of deliverables being created, changes being implemented or ben-efits being realized. In some situations, a project may still finish with the planned outcome though a risk occurs, but it means the project does not conform to the expected constraints.
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