Risk Defined Risk is the actual exposure of something of human value to a

Risk defined risk is the actual exposure of something

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Risk Defined Risk: is the actual exposure of something of human value to a hazard and is often regarded as the product of probability and loss - Source: Smith K 2001; Environmental Hazards Assessing Risk and Reducing Disaster: London: Routledge: 6 -7. Risk Assessment: The evaluation of a risk to determine its significance, either quantitatively or qualitatively. Risk Management: Determines the levels at which risk acceptability is set and methods of risk reduction are evaluated and applied. Resilience: The ability at every relevant level to detect, prevent and, if necessary handle disruptive challenges. Source: CCS Resilience Business Continuity: A proactive process which identifies the key functions of an organisation and the likely threats to those functions; from this information plans and procedures which ensure that key functions can continue, whatever the circumstances, can be developed. CREDIT POLICIES : The first decision area is credit policies;- The credit policy of a firm provides the frame work to determine – 30
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a) whether or not to extend credit to a customer and b) How much credit to extend. The credit policy decision of firm has two broad dimensions are; 1) credit standards and CREDIT POLICY VARIABLES: In establishing an optimum credit policy. The financial manager must consider the important decisions variables which influence the level of receivables. The major controllable decision variable include the following – Credit standards Credit analysis Credit terms Collection policies and procedures CREDIT STANDARDS The term credit standards represent the basic criteria for the extension of credit to customers. The quantitative basic of establishing credit standards or factors such as credit rating, credit reference, average payment period and certain financial ratio’s since we are interested in illustrating the trade – off between benefit and cost to the firm as a whole. We do not consider here these individual components of credit standards. To illustrate the effect, We have divided the overall standards into – a) Tight or restrictive and b) Liberal or non- restrictive i.e., to say our aim is to show what happens to the trade-off 31
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when standards are relaxed or alternatively, tighten. The trade – off with reference to credit standards covers – i) The collection cost ii) The average collection period or investment in receivables iii) Levels of bad debts losses and iv) Level of sales. These factors should be considered while deciding whether to relax credit standards or not. If standards are relaxed, it means more credit will be extended while. If credit standards are tightened. Less credit will be extended. The implication of four factors are elaborated below – COLLECTION COST : The implication of relaxed credit standards are – i) more credit 32
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ii) A large credit department to service accounts receivables and related matters iii) Increase in collection cost The effect of tightening of credit standards will be exactly the opposite. These costs are likely to be semi-variable.
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