Risk Management

 

 

 

 

 

Risk Management

 

 

 

 

 

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Risk Management

Introduction

Bearing in mind that almost all business undertakings is a risky venture, companies and organizations have embraced risk management technics within the last ten years. This has been achieved by launching steps and processes to detect and evaluate risk. The purpose of undertaking risk management is solely to help develop value. Mostly, some of the risk managers attain the goal of risk management through organized insurance packages. On the other hand, other risk managers start safe projects with an aim to save and spare lives. Developing a system to manage risk is not only important but a prerequisite whenever determining risk. First, in order to have a realistic program or system, it is always recommendable to analyze and understand the organization target goals (Jüttner, Peck, & Christopher 2003). This will help in identifying a customary procedure of operation. Different risk specialists have different approaches on risk analysis and management. This discussion wills manger mainly on Dr. James Kallman and Michael Pryce, similarities and differences on their approaches.

Dr. Kallman Analysis

According to Dr. James Kallman the first step to risk managementis always to understand clearly the kind of the risk that is being measured (Kallman&Maric2004). He argues that, risks can be categorized as operational, strategic, or economic. Strategic risks can be defined as those risks or rather opportunities that are thought to depict outcome variations that are long term. Some examples of strategic risk includes, quality risk, reputation risk and brand risk. On the other hand, operational risk can be termed as all those risks a certain business manages yearly and always vary in expected outcome. This risk is experienced by almost all businesses and companies. Economic risk can be referred to as financial and political situations, developed by economic events that are either macro or micro. Examples of economic risk include risks such as, ransom risk, rate of exchange risk, risk resulting from interest and also the convertibility risk. As per Hoonakker et al (2005), categorizing and grouping risk in such categories helps in understanding and clearly identifying hazards and perils that are associated with any risk undertaken. Dr. James Kallman uses several different and distinct techniques to analyze and identify risk. However, all of them have different pros and cons and recommends that, risk and financial managers should strive to identity the best technic that suits their organization better and also guarantee due diligence.

The first technic as per Dr. Kallman is the statistical analysis. Undertaking a statistical analysis on the expected outcome is a reliable method that can be used in predicting how the standard values deviate and mean values (Kallman&Maric2004). This is a major technic that is used by actuaries to analyze and predict data loss, possible sales in the future, and expected financial outcomes. The main advantage of this approach is the fact that the results gained are simple and easy to be acknowledged by those making the decision. On the disadvantage side, statistical analysis technic constantly fails to have data that is reliable and enough to develop an inference that is statistically valid. The other technic of risk management is contract analysis. On daily bases, different people signs different contracts. Some of these contracts include sales orders, acquisitions, purchase orders, or even employment agreements. However, in few cases people analyze any of these contracts with a specialist in risk management. These results to an organization been exposed to a number of risks that are contract related. The strength of this approach is the fact that it compels organizations to carefully preview all its contracts. However, the undertaking is costly since it requires qualified personnel.

 

Michael Pryce Analysis

Pryce argues that, is beyond reasonable doubt that risk assessment and management is a complex task that affects almost all organization despite their size or the level of operational (Pryce 2014). However, unlike Dr. Kallman who uses the different approach to measure and identify risk, Michael bases the argument on the size of the institution or organization involved. He outlines that, the bigger the organization, the more complex it is to identify and predict risk since there are a lot of stakeholders involved and range of issues dealt with is too broad. On the other hand, the smaller the organization, the less the resources and required skills needed in assessing any risk that is associated to the business. Moreover, small business transactions are limited and therefore not exposed to a number of risks (Lo 2000). As Dr. Kallman who uses a variety of technics to analyze and predict risk, Michael Percy as uses a variety of approaches to analyze risk in any organization. First, he used current issues as a tool to analyze risk. For any successful business that is operational, its current transactions and undertakings expose it to different risks. For instance, a partnership deal can sound as a good business idea but may be bundled with different risks. This tends to agree with Dr. Kallman technique analysis methods. Both argue that contracts that are signed by different organization for instance partnership can expose a given business to risks. However, the contracts can be created in a way that reduces the effects of risks on the other organization due to failure of the partner. The other method used by Percy is the trend analysis technique. By studying the past business trend and how it has fair, one can be able to foretell future risks that may be associated to a certain venture. Therefore, all business should use selective method in order to know what suits them better to avoid future failures. Any action that is thought to be costly should be abandoned at the cost of the safe one.

 

References

Hoonakker, P., Loushine, T., Carayon, P., Kallman, J., Kapp, A., & Smith, M. J. (2005). The effect of safety initiatives on safety performance: a longitudinal study. Applied ergonomics, 36(4), 461-469.

Jüttner, U., Peck, H., & Christopher, M. (2003). Supply chain risk management: outlining an agenda for future research. International Journal of Logistics: Research and Applications, 6(4), 197-210.

Kallman, J. W., &Maric, R. V. (2004). A refined risk management paradigm. Risk Management, 57-68.

Lo, A. W. (2000). Nonparametric risk management and implied risk aversion. Journal of econometrics, 94(1-2), 9-51.

Pryce, Michael. (2014).An expert’s view of risk management for directors. CompanyDirector, 30(3), 44-45.

 

 

 

 

 

 

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