The global pandemic has left no business short on challenges. To survive the odds, organizations must carefully navigate through the volatile situation. Steering clear of apparent risks are vital to conquering the crises. In this article at AnalystPrep, James Forjon shares the basics of risk management. Learn about a range of corporate risks to strategize ways to prevent them.
Typology of Risks
Though deeply involved in risk management, many people are unaware of its type. Threats vary from business to business. Each risk needs a unique strategy and skill to cope. Let us learn about the most common risks:
- Market Risk: It is a risk that the entire market suffers, like the ongoing COVID-19 economic crisis. It occurs due to fluctuations in business interest rates.
- Credit Risk: It is associated with contractual obligations like a credit loan. Both the parties involved bear a particular risk.
- Liquidity Risk: It is the organization’s inefficiency to transform security into a liquid asset without any capital loss.
- Operational Risk: This risk occurs due to operational vulnerabilities, and often happens because of human errors. For instance, inefficient management strategies or inadequate handling of funds.
- Business Risk: A frequent phenomenon due to ill-managed policies, business risk is a vital part of daily transactions. A range of factors like product price, sales volume, competition, and governance regulations influences business risk.
- Strategic Risk: This is a significant risk that impacts the time and money invested in building a project or business value. The evident strategic change in business policies makes an organization competitive in the market.
- Reputation Risk: It involves transparency and faith to drive business. Without your positive market reputation, no one would buy your stocks.
Risk Manager’s Role
You can address some risks by averting, insuring, or transferring them to a third party, but you cannot overlook them. Given the rise in market volatility due to the coronavirus epidemic, a sharp surge in Value-at-Risk (VaR) happened. To deal with such instability, business line and risk managers must develop a clear understanding of the crucial routine tasks. Automation or extensive cloud management tools could help them isolate risks in small sub-sections. Thus, finding defense mechanisms to overcome loopholes in each risk management section becomes easy. Click on the following link to read the original article: https://analystprep.com/study-notes/frm/part-1/foundations-of-risk-management/building-blocks-of-risk-management/