Importance of Risk Management - 1157 Words

MGD426 Risk Management Overview A risk is, consequently, a hazard that can derail an organization from accomplishing a business process, project, or any activity that is vital to a company’s sustenance. There are different classifications of risks: financial, operational, infrastructure, human capital, and marketing risks. These risks embody subcategories of risks that can negatively affect the company. Leverage, receivables, and investments are risks can hinder the financial situations of a company. The decline of profits, increased losses, and negative impact on business processes are some of the costs in the failure to control risks. Similarly, operational risk includes many losses that are associated with â€Å"internal processes,†¦show more content†¦By terminating risks, you are, inherently, doing things in a different manner and, thus, removing the risk. Tolerate means that nothing can be done a reasonable cost to mitigate the risk or the likelihood and impact are at a reasonable level. Moreover, treating risks is taking certain actions to control a risk by, either, mitigating the likelihood of it emerging or limiting the effect it will have on the business process/project. Lastly, transfer of risks is primarily the underlying principle behind insurance transactions. Specifically, a risk, outline in the insurance or contract, can be passed from a party who does not want the risk to another party who will take it (either for free or a premium – insurance). Financial Risk Management Financial risk management is, primarily, concerned with the economic value of an organization and the effects to it. The management aspect deals with the exposure to risk, and the response to it. Two primary risks involved in financial sectors of firms are credit risks and market risks (while others include Forex (foreign exchange), volatility, liquidity, inflation, etc.). Since financial risk is a factor in all organizations, it is important to respond to any volatility that may occur – as it would affect the firm negatively. These risks primarily mean that a firm who is unable to appropriately manage their financial operations will be subjugated by losses.Show MoreRelatedThe Importance Of Risk Management2232 Words   |  9 Pagesthe importance of risk management. Then, the paper analyses the use of derivative instruments that American Airlines to manage its business risks. What is risk management? 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