May 21, 2019

Risk management

 Risk Management

Risk and return are regarded as important variables in value-creation process. Achievement of maximum return is possible at a certain level of risk. Risk is an integral and undeniable part of return. Risk is compound conditions of danger and opportunity. According to Wikipedia, risk management is defined as the documentation process of final decisions and identification and applying the criteria which may be used to lower the risk down to an acceptable level.

In a broader view, risk is made up of all factors which may affect an organization’s ability in achievement of its goals. Risk management includes aggregate operational, financial and strategic measures which may prove beneficial for achievement of organizational goals. The aim of risk management is to control the undesirable consequences of enduring risk and also to make sure of enjoying the benefits of accepting risk, leading to a proper ground for an optimal decision making and ultimately more effective decisions.

 Types of Risks

1) Based on Affecting Profitability

   -   Financial Risks: Financial risk directly affect companies’ profitability, for example: foreign exchange rate, interest rate (profit), default, liquidity, fluctuation of general level of prices (inflation) and reinvestment risks.

       Non-Financial Risks: Although non-financial risks do not directly affect a company’s financial section (like laws and regulations), it ultimately leads to changes in financial variables and turns into a financial risk, like management, political (state), industry, operational, regulatory, manpower, technology and geographical risks.

2) Classification of Total Market Risk

-  Systematic Risk: It is that part of a risk which is due to general developments in the market and economy and it is not attributable to a certain company, and it may affect many assets, like interest rate risk and foreign exchange risk.

-   Non-Systematic Risk:  This risk is exclusive to an asset, a company or an industry, and it may be eliminated by its diversification according to portfolio theories, like credit risk and management risk.

Enterprise-Wide Risk Management (ERM)

ERM is a structured approach which is based on the organization’s strategy and focuses on new methods of management and optimization of risks according to their importance for the managers. This approach helps the organization to administer all risks and business key opportunities, aiming to maximize the shareholders’ value for the organization as a totality; in other words, it takes into consideration of the portfolio general risk instead of each investment, activity or project risk.

Services:

Being supported by our knowledgeable and skilled specialists and by making use of ERM and by taking into consideration of all aspects, we provide complete aggregate services concerning risk management.