Risk Assessment in Financial Management
Introduction
It is natural in every organization to protect all their finances and other resources. Part of the internal work of the organizational leaders is to formulate the appropriate strategy or technique that is fit for their managerial skills and knowledge. Due to different constraints came from the economic and financial crises, certain protocol or standard is needed to ensure that all their efforts will not be wasted. The call for a management of the financial resources is indeed became part of the organization’s traditional setting for the internal management.
Background and Problem Statement
The financial industry’s business and regulatory environment is dramatically changing, leading to the creation of new challenges and risks (NERA, 2009). This is an observation based on business analysts which pertains to the connection of changes and the formulation of the challenges and risks. Because of the growing interest of various industries on globalization, the revolution for changes appears. Alongside is the growth of the challenges that should be addressed by the organization. The involvement of the financial industry considers the idea regarding its management. Organizations should determine the capacity of their financial status to support the ongoing operation. Therefore, the formulation of the risk assessment within the organization sounds promising to endure the changes, but how effective is the risk assessment in managing the finances?
Research Objectives
The first objective of the study is to provide the comprehensive answer on the effectiveness of the risk assessment in its application to the financial management. The second objective, which is also related to the first, is to deliver the benefits and drawbacks in using the risk assessment. Together, the two objectives can help the organizations to provide specific solution on to the problems that they can encounter most especially in financing.
Research Questions
The study understands the importance of financial management. And to meet the objectives, the creation of several questions can help to address the various faces of risk assessment.
1. What is the purpose of risk assessment?
2. What are the approaches of the organization in the application of the risk assessment in the financial management?
3. What are the strategies brought by the risk assessment to minimize the loss of the organization?
Literature Review
Various organizations are attempting to enhance their financial stability through the variation of the measurement and managing the risks. The business leaders seeks the best practices wherein they can implement in the entire system is the major problem that they can encounter. Seconded to this fact is the challenge to carry all the changes that may appear within or outside the organization. For sure, those challenges can create an impact in the performance of the organization as well as their financial strengths. There is only one thing that the business leaders should understand, every industry is different to the other and the application of the strategies depends on the nature of their industry. However, the organizations tapped the idea of market risk, credit risk, liquidity risk, and operational risk assessments. The exposure of an organization in the changes drives to the processes in effective risk management. As an ongoing procedure, the organizations are advised by the shareholders or the business analyst to take precautions before spending on a venture wherein there is no clear future. In this case, the review on the financial status and current reports should be implemented to address the capability of the organization in continuing the foreseen projects. Risk assessment is applied in the organizations to avoid the most common drastic situation which is the bankruptcy. The help of an investment is a strong alternative strategy. But the organization should also look on their capacity to return the capital if it was came from the financial sources. And in this is the crucial world of credit risk which another type of assessment of various risk in financial management.
Methodology
The applied method of the study is through the use of the comparative case studies. Through the application of the proposed method, the literature gaps can be identified as well as re-discovering the effective way of risk assessment. In addition, the various supplements of ideas came from the case studies can contribute to the study to create its own technique on how to measure the efficacy of the risk assessment when applied to the financial management. Through the use of the comparative case study, the current study can also generate its own analysis from comparing and linking the ideas of the previous authors.
Sources:
Focus Group, 2007. Credit Risk Management Industry Best Practices. [Online] Available at: http://www.bangladesh-bank.org/mediaroom/corerisks/creditrisks.pdf [Accessed 12 March 2010].
NERA, 2009. Financial Risk Management, National Economic Research Associates, Inc. [Online] Available at: http://www.nera.com/image/BRO_Financial_Risk_Management_0909.pdf [Accessed 12 March 2010].
Pratt, T., 2007. S&P Completes Initial “PIM” Risk Management Review For Selected U.S. Energy Firms. Standard & Poor’s Ratings Direct. [Online] Available at: http://www2.standardandpoors.com/spf/pdf/events/InitailPIM.pdf [Accessed 12 March 2010].
Rao, A., & Marie, A., 2007. Current Practices of Enterprise Risk Management in Dubai, Management Accounting Quarterly, Vol. 8, No. 3
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