Risk Management Overview Paper

Risk Management Overview Paper - Risk Management Risk...

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Risk Management Risk Management Overview Paper CORPORATE RISK MANAGEMENT FIN/415 September 08, 2008 Introduction 1
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Risk Management In any business endeavor there is always risk. Risk is the chance that the results of a businesses’ operations will be different than expected. There will always be risk because there is no way for the management of a firm to control all the variables that effect the firm as well as it’s customers. Since it is know that there is risk inherent in business the only thing for managers to do in regard to it, is manage it so as to get the most promising results for the least amount of risk. In order to effectively accomplish this, a firm’s management must first understand the types of risks involved with business operations and how to manage them. Risk Considerations In order to effectively manage business risks management must first know what the basic dimensions of risk are. “The aim of risk management is therefore threefold. It must identify risk, undertake an objective analysis of risks specific to the organization, and respond to the risks in an appropriate and effective manner.” (Merna & Al-Thani, 2005). Risk is most commonly thought of with a negative connotation, however in the business environment this is not always the case. If a risk can be effectively managed it may end up benefiting the firm. “Management at all levels should be aware that risk can provide benefits and should not be considered purely on a negative basis.” (Merna & Al- Thani, 2005). Risk should be differentiated in a business sense from business uncertainty. Uncertainty is a situation where there is likely not enough information about a situation, whereas risk is measurable and includes the probability of an outcome. “Uncertainty is said to exist in situations where decision-makers lack complete knowledge, information 2
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