In previous articles, we have already considered possible topics that you can use when writing a thematic work. Today we would like to take a closer look at one of the topics and demonstrate the possibilities of its disclosure. We will talk about risk management.
Risk can be represented as a financial category. Therefore, the extent and magnitude of the risk can be influenced through a financial mechanism. Such impact is carried out with the help of financial techniques and a special strategy. In combination, strategy and techniques form a kind of mechanism, which we will talk about. So, the section studying risks refers to a large category of finances.
The purpose of the science that studies risks is the search and organization of work to reduce the degree of risk, the art of obtaining and increasing income (winnings, profits) in an uncertain economic situation.
The ultimate goal is to obtain the greatest profit with an optimal, acceptable ratio of profit and risk.
So, we can say that we are talking about a system specifically designed to regulate the financial relations that arise in the process of the activities of a particular enterprise.
What does this science consist of?
First of all, we will talk about strategy and tactics. Many identify these concepts, however, when you get down to it, each of them represents a separate information unit.
The strategy is the direction and method of using the facilities to achieve the goal. This method corresponds to a certain set of rules and restrictions for making a decision. The strategy allows us to concentrate our efforts on solutions that do not contradict the adopted strategy, rejecting all other options. After achieving the goal, strategy as a direction and means of achieving it ceases to exist. New goals set the task of developing a new strategy.
Tactics are specific methods and techniques for achieving the goal in specific conditions. The task of tactics is to select the optimal solution and management methods that are most acceptable in a given economic situation.
Object and Subject
The object is risk, risky capital investments and economic relations between business entities in the process of risk realization. These economic relations include the relationship between the insured and the insurer, the borrower and the lender, between entrepreneurs (partners, competitors), and so on.
The subject is a special group of people (financial manager, insurance specialist, actuary, underwriter, etc.), which carries out the purposeful operation of the object through the various methods.
Information support for the operation of risk management consists of various types of information: statistical, economic, commercial, financial, etc.
This information includes awareness of the probability of an insurance event, the availability and magnitude of the demand for goods, capital, financial stability and solvency of its customers, partners, competitors, prices, rates and tariffs, about Terms of insurance, dividends and interest, etc.
- You cannot risk more than your own capital can afford;
- One must think about the consequences of risk;
- You cannot risk many for the sake of small;
- A positive decision is taken only if there is no doubt;
- If there are doubts, negative decisions are made;
- One cannot think that there is always only one solution. Perhaps there are others.
The implementation of the first rule means that before making a decision about a risky investment of capital, it is necessary to:
- Determine the maximum possible volume of loss;
- Compare it with the amount of capital invested;
- Compare it with all financial resources and determine whether the loss of this capital will lead to the bankruptcy of this investor.
The volume of a loss from an investment of capital can be equal to the volume of this capital, a little less or more than it.
The implementation of the second rule requires that the financial manager, knowing the maximum possible amount of the loss, determine what it can lead to, what the probability of risk is, and decided to refuse it, take it on own responsibility or transfer it on responsibility of another person.
The implementation of the remaining rules means that if there is only one solution (positive or negative) for a certain situation, you must first try to find other solutions. Perhaps they exist. If the analysis shows that there are no other solutions, then it will be better to make a negative decision.
There are no ready-made recipes in the risk management. It teaches how, knowing the methods, ways of solving certain economic problems, to achieve tangible success in a particular situation, making it more or less certain.