Risk Manager Uncertainities
Introduction
Most of the organizations are prone to several risks and uncertainities. These risks and uncertainties can occur in many forms say environmental risks, employee's risks, and shareholders risks among others. These risks are supposed to be managed when they occur so that the organization can properly run its activities. For this case, there are several ways in which one can manage risks but for this case, am going to talk about the role of organizational finance to any business. (Brawner, 1993, Vol 13).
How business understanding can be helpful to a risk manager
A risk manager can be defined as the person who deals with managing uncertainties. In this case, the risk manager is structured and this is meant to approach to managing risks and uncertainities. So in this case, you find that the risk manager is supposed to develop a management strategy, which will help him achieve his goals and strategies. For any business to succeed, it needs strategic planning so that it can realize its set goals and objectives. These are decisions, which are made by an organization on how to properly allocate its resources so that it can realize its set goals and objectives. When these policies are properly set, then you find that the organization can achieve its goals effectively. (Brawner, 1993, Vol 13).
Management of the organizational cash flow
In any organization, management of cash flow is very important since it is in this case that the organization can achieve its set goals and objectives. If the organization has good management of its cash flow, it means that incase of any risks, the risk manager will be in a position to manage them. Some of the strategies which the risk manager has to put in place include things like transferring of risks to another party, strategies which can be used to avoid these risks from reoccurring, some strategies which can also be applied to ensure that these risks can be reduced and lastly should establish strategies which will help the manager to accept the consequences of these risks. (Brawner, 1993, Vol 13).
Finance organization and skills
In any business, there are certain risks and uncertainties, which are associated with the day-to-day running of the business. As a result, the risk manager is supposed to keep a proper record on how to use the organizations funds. The risk manager is supposed to identify the risk, try to assess the risk so that he can be in a position to properly allocate resources for controlling this risk. A good understanding of the business finance will help the risk manager to properly plan for the business risks which might occur at any time. So in this case, the organization is supposed to finance for these risks so that the company can be in a position to control them when they occur. (Brawner, 1993, Vol 13).
Risk identification
Before any risk can be managed, the risk needs to be identified first. The risk manager needs to identify the diversity of this risk so that he can be in a position to properly finance these risks. This is because some of the risks are said to be more diversified while other are not that diversified. So in this case, the risk manager is supposed to correctly identify this risk. Also risk assessment may produce different results at different times in the business life cycle. So in this case, the method which is to be used to assess or even identify this risk should be standardized, repeatable and also integral to the corporate culture. So in this vase, the risk manager is supposed to identify the risk properly so that he can properly balance with the organizational finances. Proper understanding of the organizational finance in this case will help the risk manager to first identify the cause of the risk and where possible try to solve this problem. For example if it is the case with environmental hazards, the risk manager can try to control the factors which might lead to these destructions say soil erosion and other environmental factors. Proper financing will then help this organization to achieve its set goals and objectives. (Hordes, and McMann, 2000, Vol 25).
There are several methods which can be used by the organization to identify its risks. It's argued that any event that may endanger the organization from achieving its objectives can be termed as a risk. So in this case, the risk manager is supposed to analyze those obstacles which might hinder the organization from achieving its set goals and objectives. Then the risk manager is supposed to properly finance for these obstacles which hinder the organization from achieving its set goals and objectives. The scenario based methods which say that any event which triggers an undesired scenario alternatively can be identified as a risk. (Hordes, and McMann, 2000, Vol 25).
Risk assessment
Once the organizational risks have been identified, there is the need to assess these risks. They have to be assessed as to their potential severity of loss and to the probability of occurrence. The objective in this case is to determine those risks in that organization which have the highest likelihood of affecting the organizational performance. So in this case, the risk manager is supposed to identify those risks, try to evaluate on their likelihood of occurrence and assess those risks which might occur time and again. There are those risks which are not prone to occurring and when the risk manager has good knowledge of finance, then after assessing these risks, he can then try to allocate resources or even funds to help solve these resources. So in this case, the manager is supposed to allocate these finances according to the intensity of the risk. (Hordes, and McMann, 2000, Vol 25).
Risk mitigation
Risk mitigation is also another way which can be used by an organization to properly plan for the risks and uncertainties which might occur when running the business. Under risk mitigation, the risk manager is supposed to concentrate on the following things. First is whether to transfer the risk to another party. When the risk manager has identified that risk, then he might decide to transfer the risk to another party but only when the other party accepts this risk. In order to transfer this risk, the risk manager is supposed to incur several costs. So in this case, he is supposed to properly look at the benefits and costs which are associated with transferring the risk. Then with the knowledge of finance, the risk manager can use this knowledge to allocate the resources which will be required in order to transfer these risks. The risk manager can also decide to retain the risk. In this case, the risk manager is supposed to properly plan for the costs he will incur when he accepts to retain these risks. (Connors, 2000).
Managing organizational finances
In any organization, cash flow management is very much important since its through managing your cash flow that the risk manager will be in a position to realize its set goals and objectives. It is the blood of any business and when not well managed, then you find that it can lead to huge losses in return hence leading to the closure of the business. (Connors, 2000).
Some of the risks the risk manager has to consider
Most of the organizations usually deal with firms which are prone to so many risks and uncertaintities.So for this case the practice of creating economic value is by the use of the financial instruments which ensure that these risks can be managed. Some of these risks include market risks and credit risks. Most of the prices of the stock usually change and it is in this case that the manger is supposed to manage these risks properly by properly understanding organizational finance. These are the sources of money which the organization has and keeps the business going. So in this case, when the manger is establishing the stock prices, then it's good to understand that prices might change anytime either fall or increase. So when this happens, the organization should be in a position to adjust to the rising or falling of these prices. This can only be achieved by properly managing the organizational finance so that when the prices fall, the business can quickly adopt to these changes. Another risk which might be experienced by the risk manager is the credit risk. Credit risk happens when debtor fails to pay his payment say a loan or a certain product which was bought by this person. So in this case, you find that good understanding of organizational financing can be crucial at this time. (Lilien, 1992, pp 21).
Financial instruments/tools
Financial instruments can be defined as any form of funding medium. A good example in this case can be borrowing of funds from the money market and this can be seen in the case of bonds and bills of exchange. These financial instruments can either be cash flows or even derived instruments. In any organization, you find that financial planning is very much important since it's through financial planning that the organization can realize its set goals and objectives. For example for venture businesses you find that the preparation of financial projections is so much important but for already existing firms, budgeting is important in this case. One of the tools which can be used in this case is computer which can be used in financial projections. A computer is one of the effective tools which many organizations can use to ensure that its activities can be performed faster. The computer in this case can be used since it carries a huge amount of data instead of using a book to record all these transactions. The risk manager in this case can utilize a spreadsheet to build a model from first principles. (Lilien, 1992, pp21).
An organization is supposed to establish some goals and objectives which the risk manger should be in a position to achieve in a certain period of time. For example, the risk manager is supposed to manage the environmental risks which are associated with the organization. Many organizations are faced with so many environmental risks and when there is no proper management of the organizational funds, you find that this can lead to the closure of the business. Some of the environmental risks include things like calamities, earthquake among others. These are certain risks which are not caused by man and hence the risk manager is supposed to understand these risks, properly finance for their replacements when they occur. So when the manager is budgeting for the business activities, the risk manager is also supposed to put in to considerations these risks since they can occur at any time. For example the risk manager should ensure that the business is well ensured by setting aside some funds to cater for these damages. (Lilien, 1992, pp21).
Employees can be seen as the number one source of risk in any organization. Most of the employees act as threat to many organizations. For example during strikes, you find that the employees can lead to huge losses to the company since any strikes are associated with the destruction of the company's property. So in this case, a risk manager should take in to consideration how to manage this risk incase it happens. So for this case, you find that understanding of the company's finance can be of paramount importance. This is because the company has to set aside funds to cater for the risks when they occur. So the risk manager is supposed to strategically plan for the organizational finance by keeping proper records of the company's sources of finance. If the company has properly set strategies which define how the company can use its funds, then you find that incase these risks happen, the company can quickly cater for these risks. On the other hand, if the organization does not keep proper record of its finances, then this will automatically lead to losses since incase the damages happen, the company will not have enough funds to replace these losses. (Connors, 2000).
Balancing goals and risks
For any organization to achieve its objectives, it is supposed to balance its set goals and the risks which might occur when running the organization. So in this case, the risk manager is supposed to balance these goals together with the risks. Any business value can be maximized when the company's strategies and objectives strike a balance. This is when financial strategies to the organization are properly established to achieve the company's goals and objectives. When there are no financial strategies to this company, then you find there will be no proper management of the companies finances and incase any loss occurs to the company as a result of risks, this company will not be in a position to cater for this huge loss hence leading to the indefinite closure of this company. The risk manager is supposed to deploy resources in the pursuit of the organizational goals. (Connors, 2000).
On the other hand, understanding of business can be of great importance to a security manager who is also a risk manager. So in this case, the risk manager should try to manage these risks through proper understanding of organizational finance. The security manager in this case deals with matters that are concerned with security of the organization. For example in the information technology security manager, he is supposed to manage the company's risks to ensure that the company does not have losses. The security manager is supposed to have information on the risk management of the company's information. For example he is supposed to protect the organization from data loss, outages and lastly the adverse publicity which can go away beyond the traditional technical role of the information technology. There are also other risks which can be associated with the information technology and these are antivirus updates and firewall configurations. The security manager in this case should have enough knowledge on how to manage these risks when they occur. Most of these risks need to be funded and the security officer is supposed to identify the risk and tries to assess the cost which will go for managing the risk. (Drucker, 1990, pp22).
For example, with IT security, this information has to be protected from the loss of data and antivirus. Most of the information in this case can face so many risks and when these risks occur, there are certain costs which have to be incurred. The security officer then needs to identify the risk, assess and mitigate. It is in this process that he will be in a position to know the costs which will be incurred when solving these problems. But if the security manager does not have information on financing, incase these risks occur, you find that the manager will not be in a position to cater for the losses hence leading to the closure of the organization. (Drucker, 1990, pp22).
Conclusion
Risk management is very much important in any organization. Since most of the business is prone to these risks, they should be properly managed to avoid the organisatiuion from incurring losses. But for this case, the risk manager is supposed to have an understanding of the organizational finances so that he can be in a position to manage these risks.
Reference
Brawner, L 1993, Insurance and risk management for libraries, Public library quarterly, 13, issue1.
Drucker, P 1990, managing the non profit organization, practice and principles, Harper and Collins, New York.Pp 22
Hordes, M and McMann, D 2000, Alternative models for building wealth, the professional journal, Vol 25 Issue 2
Connors, T 2000, The Organizational handbook, McGraw-Hill, New York
Lilien, G 1992, Marketing Models, Prentice-Hall, New Jersey. Pp 21
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