Running head: RISK AND RISK MANAGEMENT
Risk and Risk Management
Name
Institution
RISK AND RISK MANAGEMENT
Risk and Risk Management
Risk Management defines the specific activities and measures taken by a firm to
eliminate and minimize any risk associated with its normal operations. The measures are aimed
at reducing risk severity, risk materializing, risk consequences and overall exposure of the
business to risk. Four main types of risk exist for any business: property, market, employee and
customer (Miller, 2005).
When investing in any property, a successful business needs to be aware of the possibility
of risk with such a commitment. To safe guard its interest, the business can take on several
mitigating risk management processes. The first measure is to compare the price of any property
with similar properties in the market; a minimum of 6 similar properties is suggested. This
comparison helps the business understand the market rate to avoid overpaying. The second
measure is to hire property experts to analyze and inspect the property before purchase. The
experts will be able to advice on the permanency and stability of the structure and suggest
potential renovations to the property (Adair & Hutchison, 2005). The experts will also do an
independent appraisal to ensure the business gets its money worth. Using these reports, the
business can request for repairs or bargains on the property price. It will also minimize on risk in
case of poorly constructed buildings. To further shield the business from risk, it is recommended
to invest in property insurance. Insurance can give the business support in case of any damages
occur to the property.
Markets are often affected by many factors, such as commodity prices, inflation, forex
exchange, competition and interest rates, thus they are hardly stable. To mitigate market risk, the
business should continuously identify, measure, manage, control and monitor any exposure of
the business to market risk. To successfully mitigate market risk, diverse strategies have to be
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employed. Several models are available to calculate market risk. Using these models a business
can understand the markets better. To minimize commodity price fluctuation, negotiate with
suppliers and customers for a fixed price for the raw materials or services rendered to the
business. The business should select one currency to trade in as well as make purchases with
supplies. This is aimed at reducing risk associated with foreign exchange. The business should
find a banking institution that offers good interest rates. The business should invest in long term
investments to minimize effects on inflation (Stone & Grnhaug, 1993).
Four special strategies for minimizing marketing risk are hedge, speculation, arbitrage
and swaps. Hedge is making an early investment to protect against escalation of prices, example
of hedge a practice is brokering of future contracts today; the aim of hedging is to avoid loss of
money. Speculation is making investments today with the hope that the investment will gain
value in the future, the aim of this strategy is to make money. Arbitrage is the process of buying
assets at a low price and selling it immediately at a profit, due to the slight difference in price.
Swaps are exchange of security for another (Glendon, Clarke, & McKenna, 2009).
Employees are great assets for any business. Unfortunately in some cases they can be a
source of business risk. Employees can cause the business to be at risk when they seek
compensation from the business due to claims of harassment or unsafety. Due to their negligent
or intentionally, they can cause external members of the society to sue the business for
compensatory claims. In worse scenarios, employees can be fraudulent or share company secrets
with competitors. All these factors put the business at employee risk. One of the measures to
mitigate employee risk is to do a comprehensive screening and background check of new
employees. This will eliminate employees with poor past records of fraud, disloyalty and other
crimes. Secondly, it is by training employees on required business ethics and passing on the
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responsibility and liability of employee negligent to them individually. This can be through
signed documents, which can be used to protect the company from compensation claims due to
employee negligence. The business should ensure all the basic legal need of employees are met.
These are safe working environment free from harassment.
Customers can cause risk to the business as well. Negligence can occur when serving the
customer by one of the employees causing the customer to state a claim against the business.
Secondly, customers can get injured within a business premises, for example, due to a slippery
floor. Thirdly and the most common, is when a companys product or services causes a harmful
effect on the customer causing them to sue for compensations. Pharmaceuticals, alcohol and
cigarette manufacturers have often fell prey to this risk. To control this risk, employee risk
control measures mentioned above should be clearly implemented. A business premises should
be clearly labelled to protect customers from any accidents. Business products or services should
be clearly labelled, to advice on correct usage and any harmful effects that may be fall the users.
Once these labels are in place, liability shifts from the business to the consumers of the products,
in effect neutralizing the customer risk.
RISK AND RISK MANAGEMENT
References
Adair, A., & Hutchison, N. (2005). The reporting of risk in real estate appraisal property risk
scoring. Journal of Property Investment & Finance, 254 - 268.
Glendon, A. I., Clarke, S., & McKenna, E. (2009). Human Safety and Risk Management, Second
Edition. New York: CRC Press.
Miller, K. D. (2005). A Framework for Integrated Risk Management in International Business.
Journal of International Business Studies, pages 311 -331 .
Stone, R. N., & Grnhaug, K. (1993). Perceived Risk: Further Considerations for the Marketing
Discipline. European Journal of Marketing, 39 - 50.
