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
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.
Classification of Total
- 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.
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.