Corprate risk managment - Essay Example

Risks can be beneficial if properly managed (Merkhofer, 1987). Fate favors the bold; those who dare to dream and take calculated risks. Without risks, there are no rewards. Every decision in an enterprise is based on risks. The decision to manufacture more goods in anticipation of a sales pitch is a risk, so is the decision to stock particular goods. There is no guarantee that there would-be customers or that the speculative effort will be rewarded, yet enterprises do take these risks and are rewarded for the same.

Risk management is an integral part of doing business in any organization. It can be implemented at both the strategic and operational levels of the business. This necessitates the cultivation of a risk culture. There is no universally accepted risk culture or practices; this may be because different industries face different risks (Focardi and Jonas, 1998). Even if the organizations are in the same industry each organization faces their own unique risks, which will need a unique way of managing.

However, the basic risk culture activities include scenario analysis; economic capital modeling and risk control self-assessments. Scenario analysis is the determination of the particular context within which the risk occurs; economic capital modeling involves making financial projections based on certain risk management decisions while risk control self-assessment involves the monitoring of the risks with the view of establishing whether the decision is still viable. The various types of risks include hazard risks, financial risks, operational risks and strategic risks.

The paper will examine the decisions that a management can make when faced with a risk (Bouham, 2008). a) Key Risk Management Decisions Risk management is a cost-benefit analysis strategy (Kropp and Schoffran, 2007). Most of the risks usually externally originate threats. According to the SWOT analysis model, any factors that are internal and positives are the strengths of that organization, if they are internal and negative, then they are the weaknesses of that organization, if the factors are external and positive, they are considered to be opportunities that the organization can explore to its benefit while if they are external and negative, they are the threats to the company, and these are the factors that pose as risks to the organization.

The costs of decisions to be made are juxtaposed against the benefits expected and the relevant actions can then be taken (Gabardi and Tichy, 2013). There are generally five key risk management decisions. These decisions depend on their impact and probability of happening. The first management decision may be to totally avoid taking the risks. This means that the organization drops the activity that has the probability of that risk arising; it infers total exit, for instance, if it is manufacturing company, then it stops manufacturing and winds up the business.

The second decision is risk reduction. This involves making strategic decisions that will reduce the likelihood and or magnitude of the risk. The third decision may be to take alternative action by considering other viable options that minimize the risk. The fourth decision is to share the risk by taking insurance cover. Most companies prefer this decision, but it does not work in certain situations. The last decision may be to accept the risk when it occurs and enjoys all its benefits and incur all its