Corporate Financial Risk Management

 Corporate Financial Risk Management

 

 

“Numerical information is capable of seriously misleading those who use it.”

-Funtowicz and Ravetz, 1990  From the above quotes it can be concluded that before forecasting any profit for a company, financial risks related to it should also be considered into account. Risks are uncertain events or conditions that if it occurs has a negative effect. The decision to take the risk is mostly an option based on one’s understanding of a beneficial result or the anticipated profit. Everyone in the company has a different opinion of financial risk and approach towards it. 

Corporate risk Management is very subjective, hence it is very important to identify all risks in time that could endanger the Company’s process and the success. Quantitative risk assessment is necessary to mitigate or transfer at least the top 5-10 major strategical financial risks of the Company. In practice it is difficult to access the potential loss and probability of occurrence of an event correctly because the Risk evaluation can be dependent on individual’s previous experience or point of view, hence the outcome of the risk evaluation process should be such that the Management team could agree on.

Corporate Financial Risk assessment should be done very thoroughly while decision making because the partial risk assessment leaves behind the threat of exposing the company to not calculated risks. The organization applies risk management to reduce the negative effect, use the opportunities and generate positive outcomes. Risk Management to be done during the planning phase.

 

Most common Financial risks are:  

1.  Market Risk  2. Credit Risk  3.  Liquidity Risk  4. Operational Risk

Financial Risk Management Cycle:

Example: Risk Management for an investment (PMI: PMBoK)

Risk Management Plan includes Methodology, roles and responsibilities, Budgeting, Timing, Risk probability and impact. Quality management wants to suppress the risks permanently and thus top risks should be identified correctly. Information gathering techniques for Risk Identification are Brainstorming, Financial Market analysis, Delphi Technique, Root Cause Identification and SWOT analysis. The company should regularly monitor the Risk assessment dashboard as it helps the company to manage risks associated with financial markets.

 

The Author: Shreya Dubey

 

                                           

About:

Shreya has more than 7 years of experience in management, Finance, banking and data analytics across diverse domains for market leaders such as Deutsche Bank Financial Services, HCOB, Delivery Hero SE, General Electric, Comcast and so on. During this experience she has played numerous roles such as Mentor, engineer, data analyst and team Leader. 

Aside from her experience in Finance and Software industry, she is involved in volunteering activities for companies which need Volunteer work, such as volunteering for Women in Tech, Mentorship program in Delivery Hero SE Berlin and teaching kids in an NGO, Raipur. Currently, she is working at EY (Ernst & Young GmbH) for financial services.