Role of Risk in Financial Decision Making - Dissertation Example

Risk is going to be the core factor of analysis in this study which will provide an idea of how risk assessment is important for an overall financial decision making process and its impact in the Small and Medium businesses. The literature will cover the post empirical studies to get to the subject adequately and effectively. This will provide the understanding of the subject in regards of risk management, risk analysis and its role in financial and business decision making process (Smit & Watkins, 2012).

The process of risk management can be defined as follows. “Risk management is concerned with the outcome of future events whose exact outcome is unknown and with how to deal with these uncertainties… In general, outcomes are categorized as favorable or unfavorable, and risk management is the art and science of planning, assessing (Identifying and analyzing), handling, and monitoring future events to ensure favorable outcomes” (Conrow, 2003, p. 2). In recent times SMEs (Small and Medium Enterprises) pay much attention to the risk management subject.

Such organizations always emphasize on major risks involved in their businesses, this is to reduce overall risk of liability, risk of investment or risk of assets which are involved with their respective small partnered business ownerships. All of these are constraints of finance, if one views them in an investment or capital perspective. All of the above reasons validate that risk assessment is necessary for companies especially which are present with small scale and are on the initial settings to expand their business (Smit & Watkins, 2012).

Organizations like retailer stores, utility shops, restaurants or hotels which are a central part of any developing economy apply risk components to analyze risk factors. This is to manage financial methods and business decision making process. In recent times this had been found in hotel management section which is one form of small enterprise business (SME) assess their risks to manage key financial elements like credentials, account receivables, account payables and financial assets like covenants or insurance (Luper, 2012).

In SMEs especially present in a competitive market arrangement, the magnitude of financial management is bigger and so as its margin of retrieving risk at the time of business decision making. This is why such organizations utilize key risk applications to derive their financial objectives and make them achieve at right time of a business operation. An idea floats among all the business professionals mindset that better risk assessment leads to better financial management, which is true because risk evolves challenges and a good strategist include those challenges in assessment, before they become problems at a later point of time.

Uncertainty takes the origin especially when risk is not overcome at the right time of an SME business and when it is assessed to a level which is adequate to meet financial goals or business objectives of the Enterprise (Luper, 2012). In today’s modern business system, risk assessment has found its place in financial business organizations like Variable Annuity Industries (Melnick & Everitt, 2008). Based on long term planning, VA providers consider risk as a significant factor for designing and improvising annuities.

To manage risk on the financial decisions, VA SMEs deploy risk management strategies to