Types of Risks (Essay Sample)

Types of risks
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Risk management is a systematic process that identifies and assesses company’s risk and take the necessary actions to either curb it completely or reduce it. According to RICK, (2008), risk is defined as the possibility that a future occurrence may occur and may cause harm or losses. However, taking a business risk may bring gain to the risk taker. Therefore, businesses need to have risk management to analyze possible risks to balance the gains against potential losses to avoid mistakes that may lead to expensive management. Risks are divided into four categories namely; property, market, employees, and customers. Each risk has its own ways of management to ensure smooth and future running of the business.
Property risk management
Property management has become a significant priority for every organization to safeguard the company’s properties against any internal or external threats. There are a set of policies that ensure protection of the properties against risks that may either occur due to the ignorance or due to misunderstanding of the existing policies that are supposed to be followed when putting up a property. To ensure proper management of the property risks, it is important for a business owner to understand how the deficiencies in the area the property is located may affect other properties in another field. Proper documenting and updating of the company records may be used to reduce property risks. Some of the business owners fail to keep their records, reports, physical inventories and disposition properly leading to either destruction or termination of their assets leading to high losses or harm to the surroundings. Financial management techniques provide proper ways of managing various levels of the risks that may affect company’s properties. The level of the risks that many companies face for not properly keeping its records, reports and disposes of the owned assets increase significantly with the ratification of the risk management policies. By working properly with the knowledge of risk policies and how they interact with the business is the best instrument that can be used to manage property-related risks (RICK, 2008).
Before putting any asset in place, the company should adhere to all government policies that are related to the kind of the property intended. This is to prevent any future losses that may arise due to the failure of following the government policies. It is better to have a knowledge of the government acquisition regulations and other supplement regulations because massive consequences to the organization may occur due to the failure to follow the regulations and policies. In addition, it is important to understand the risks associated with functions of the management of the property. It is good to understand the life cycle of the assets, the function of the property and governing regulations to manage property sufficiently (RICK, 2008).
To reduce the risks that are related to the property, close working relationship with all functional bodies that are associated with the property is recommended. Some of the functional areas that are critical for property risk management are; finance, procurement, contract, receiving, IT personnel, maintenance department, stockrooms, shipping, and deposition. The property risks manager should identify and communicate any benefits such as costs and others associated with the above functional bodies. Another way of reducing the risks related to property is to ensure policies and procedures are appropriate for the company (RICK, 2008).
Getting support from the top management can also be used to reduce property risks. In most cases, companies depend heavily on non-property related staffs to help them with the property infrastructure. Without continued support from the top management, this is impossible. Lastly, to reduce property risks, a proper internal surveillance program should be implemented to ensure good operation of the property system in accordance with the companies’ policies and procedures. The office dealing with property management should identify any deficiency within the organization. In case of any occurrence of a risk, the root cause of the risk should be analyzed and put up preventive measures that will ensure the risk will not occur again (RICK, 2008).
Market risks management
Market risk is a loss that results from changes in the value of the assets and liability that includes off-balance sheet assets and liabilities. The losses occur due to the changes of the risk factors like interest rates, foreign exchange rates, stock prices and the risks that may occur due to the changes in earnings from assets and liabilities. There are three market risks that are common and affects the running of the organization negatively if they are not handled well (Tian, 2010).
* Interest rate risk: This is a risk of loss that results from the changes in interest rates. An organization may suffer a loss or decline in profit due to the mismatch of the interest rates of the assets and liabilities.
* Foreign exchange risk: This is a risk of loss that results from the difference between the assumed and actual foreign currency rates.
* Price Change Risk- the risk of loss arising from the decline in the value of assets due to the changes in the prices of securities.
It is imperative for the organization to establish a system for the market risk management to ensure soundness and appropriateness of the financial management. Therefore, it is the responsibility of the organization to come up with a good market risk management that will ensure continuous running of the organization throughout the year. The organization should review if the current market risk management system is appropriate to meet the organization’s financial objectives. However, the type and the level of the market risk measurement and methods depend on the organization’s strategic objectives, the diversity of the business and the level of the complex of the risks faced by the organization (Tian, 2010).
To ensure effective market management, the organization should develop a policy development that will outline the roles and the responsibilities of directors. These policies ensure that the directors in charge of the market risk management reviews the policies and specify measures that will develop and establish a good risk management system.
The organization should also develop internal rules and organization framework that clearly specify the arrangement that are related to market risk management. The frameworks should be in accordance with the Market ...