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Understanding Financial Risk, Plus Tools to Control It

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

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What Is Financial Risk?

Financial risk is the possibility of losing money on an investment or business venture. Some more common and distinct financial risks include credit risk, liquidity risk, and operational risk.

Financial risk is a type of danger that can result in the loss of capital to interested parties. For governments, this can mean they are unable to control monetary policy and default on bonds or other debt issues. Corporations also face the possibility of default on debt they undertake but may also experience failure in an undertaking the causes a financial burden on the business.

Key Takeaways

• Financial risk generally relates to the odds of losing money.
• The financial risk most commonly referred to is the possibility that a company's cash flow will prove inadequate to meet its obligations.
• Financial risk can also apply to a government that defaults on its bonds.
• Credit risk, liquidity risk, asset-backed risk, foreign investment risk, equity risk, and currency risk are all common forms of financial risk.
• Investors can use a number of financial risk ratios to assess a company's prospects.

Understanding Financial Risks for Businesses

Financial markets face financial risk due to various macroeconomic forces, changes to the market interest rate, and the possibility of default by sectors or large corporations. Individuals face financial risk when they make decisions that may jeopardize their income or ability to pay a debt they have assumed.

Financial risks are everywhere and come in many shapes and sizes, affecting nearly everyone. You should be aware of the presence of financial risks. Knowing the dangers and how to protect yourself will not eliminate the risk, but it can mitigate their harm and reduce the chances of a negative outcome.

It is expensive to build a business from the ground up. At some point in any company's life the business may need to seek outside capital to grow. This need for funding creates a financial risk to both the business and to any investors or stakeholders invested in the company.

Credit risk —also known as default risk—is the danger associated with borrowing money. Should the borrower become unable to repay the loan, they will default. Investors affected by credit risk suffer from decreased income from loan repayments, as well as lost principal and interest. Creditors may also experience a rise in costs for the collection of debt.

When only one or a handful of companies are struggling it is known as a specific risk . This danger, related to a company or small group of companies, includes issues related to capital structure, financial transactions, and exposure to default. The term is typically used to reflect an investor's uncertainty about collecting returns and the accompanying potential for monetary loss.

Businesses can experience operational risk when they have poor management or flawed financial reasoning. Based on internal factors, this is the risk of failing to succeed in its undertakings.

Many analysis identify at least five types of financial risk: market risk, credit risk, liquidity risk, operational risk, and legal risk.

How Governments Offset Financial Risk

Financial risk also refers to the possibility of a government losing control of its monetary policy and being unable or unwilling to control inflation and defaulting on its bonds or other debt issues.

Governments issue debt in the form of bonds and notes to fund wars, build bridges and other infrastructure and pay for their general day-to-day operations. The U.S. government's debt—known as Treasury bonds—is considered one of the safest investments in the world.

The list of governments that have defaulted on debt they issued includes Russia, Argentina, Greece, and Venezuela. Sometimes these entities only delay debt payments or pay less than the agreed-upon amount; either way, it causes financial risk to investors and other stakeholders.

The Impact of Financial Risks on Markets

Several types of financial risk are tied to financial markets. As mentioned earlier, many circumstances can impact the financial market. As demonstrated during the 2007 to 2008 global financial crisis, when a critical sector of the market struggles it can impact the monetary wellbeing of the entire marketplace. During this time, businesses closed, investors lost fortunes, and governments were forced to rethink their monetary policy. However, many other events also impact the market.

Volatility brings uncertainty about the fair value of market assets. Seen as a statistical measure, volatility reflects the confidence of the stakeholders that market returns match the actual valuation of individual assets and the marketplace as a whole. Measured as implied volatility (IV) and represented by a percentage, this statistical value indicates the bullish or bearish—market on the rise versus the market in decline—view of investments. Volatility or equity risk can cause abrupt price swings in shares of stock. 

Default and changes in the market interest rate can also pose a financial risk. Defaults happen mainly in the debt or bond market as companies or other issuers fail to pay their debt obligations, harming investors. Changes in the market interest rate can push individual securities into being unprofitable for investors, forcing them into lower-paying debt securities or facing negative returns.

Asset-backed risk is the chance that asset-backed securities—pools of various types of loans—may become volatile if the underlying securities also change in value. Sub-categories of asset-backed risk involve the borrower paying off a debt early, thus ending the income stream from repayments and significant changes in interest rates.

In 2021, the U.S. high yield default rate finished at a record low 0.5%. 2022 and 2023 projections by Fitch Solutions anticipates continual lower than average default rates.

How Financial Risks Impact Individuals

Individuals can face financial risk when they make poor decisions. This hazard can have wide-ranging causes from taking an unnecessary day off of work to investing in highly speculative investments. Every undertaking has exposure to pure risk —dangers that cannot be controlled, but some are done without fully realizing the consequences.

Liquidity risk comes in two flavors for investors to fear. The first involves securities and assets that cannot be purchased or sold quickly enough to cut losses in a volatile market. Known as market liquidity risk this is a situation where there are few buyers but many sellers. The second risk is funding or cash flow liquidity risk. Funding liquidity risk is the possibility that a corporation will not have the capital to pay its debt, forcing it to default, and harming stakeholders.

Speculative risk is one where a profit or gain has an uncertain chance of success. Perhaps the investor did not conduct proper research before investing, reached too far for gains, or invested too large of a portion of their net worth into a single investment.

Investors holding foreign currencies are exposed to currency risk because different factors, such as interest rate changes and monetary policy changes, can alter the calculated worth or the value of their money. Meanwhile, changes in prices because of market differences, political changes, natural calamities, diplomatic changes, or economic conflicts may cause volatile foreign investment conditions that may expose businesses and individuals to foreign investment risk.

Pros and Cons of Financial Risk

Financial risk, in itself, is not inherently good or bad but only exists to different degrees. Of course, "risk" by its very nature has a negative connotation, and financial risk is no exception. A risk can spread from one business to affect an entire sector, market, or even the world. Risk can stem from uncontrollable outside sources or forces, and it is often difficult to overcome.

While it isn't exactly a positive attribute, understanding the possibility of financial risk can lead to better, more informed business or investment decisions. Assessing the degree of financial risk associated with a security or asset helps determine or set that investment's value. Risk is the flip side of the reward.

One could argue that no progress or growth can occur, be it in a business or a portfolio, without assuming some risk. Finally, while financial risk usually cannot be controlled, exposure to it can be limited or managed.

Financial Risk

Encourages more informed decisions

Helps assess value (risk-reward ratio)

Can be identified using analysis tools

Can arise from uncontrollable or unpredictable outside forces

Risks can be difficult to overcome

Ability to spread and affect entire sectors or markets

Tools to Control Financial Risk

Luckily there are many tools available to individuals, businesses, and governments that allow them to calculate the amount of financial risk they are taking on.

The most common methods that investment professionals use to analyze risks associated with long-term investments—or the stock market as a whole—include:

• Fundamental analysis , the process of measuring a security's intrinsic value by evaluating all aspects of the underlying business including the firm's assets and its earnings.
• Technical analysis , the process of evaluating securities through statistics and looking at historical returns, trade volume, share prices, and other performance data.
• Quantitative analysis , the evaluation of the historical performance of a company using specific financial ratio calculations.

For example, when evaluating businesses, the debt-to-capital ratio measures the proportion of debt used given the total capital structure of the company. A high proportion of debt indicates a risky investment. Another ratio, the capital expenditure ratio, divides cash flow from operations by capital expenditures to see how much money a company will have left to keep the business running after it services its debt.

In terms of action, professional money managers, traders, individual investors, and corporate investment officers use hedging techniques to reduce their exposure to various risks. Hedging against investment risk means strategically using instruments—such as options contracts—to offset the chance of any adverse price movements. In other words, you hedge one investment by making another.

Statistical and numerical analysis are great tools for identifying potential risk, but prior financial history is not indicative of a company's future performance. Make sure to analyze trends over a long period of time to better understand whether fluctuations (or lack thereof) are progress towards a financial goal or inconsistent operating activity.

Real-World Example of Financial Risk

Bloomberg and other financial commentators point to the June 2018 closure of retailer Toys "R" Us as proof of the immense financial risk associated with debt-heavy buyouts and capital structures, which inherently heighten the risk for creditors and investors.

In September 2017, Toys "R'" Us announced it had voluntarily filed for Chapter 11 bankruptcy. In a statement released alongside the announcement, the company's chair and CEO said the company was working with debtholders and other creditors to restructure the $5 billion of long-term debt on its balance sheet.

As reported in an article by CNN Money , much of this financial risk reportedly stemmed from a 2005 US $6.6 billion leveraged buyout (LBO) of Toys "R" Us by mammoth investment firms Bain Capital, KKR & Co., and Vornado Realty Trust. The purchase, which took the company private, left it with $5.3 billion in debt secured by its assets and it never really recovered, saddled as it was by $400 million worth of interest payments annually.

The Morgan-led syndicate commitment didn't work. In March 2018, after a disappointing holiday season, Toys "R" Us announced that it would be liquidating all of its 735 U.S. locations to offset the strain of dwindling revenue and cash amid looming financial obligations. Reports at the time also noted that Toys "R" Us was having difficulty selling many of the properties, an example of the liquidity risk that can be associated with real estate.

In November 2018, the hedge funds and Toys "R" Us' debt holders Solus Alternative Asset Management and Angelo Gordon took control of the bankrupt company and talked about reviving the chain. In February 2019, The Associated Press reported that a new company staffed with ex-Toys "R" Us execs, Tru Kids Brands, would relaunch the brand with new stores later in the year.

In late 2019, Tru Kids Brands opened two new stores—one in Paramus, New Jersey, and the other in Houston, Texas. Most recently, Macy's has partnered with WHP Global to bring back the Toys "R" Us brand. In 2022, Macy's plans to roll out approximately 400 physical toy store storefronts within existing Macy's locations.

How Do You Identify Financial Risks?

Identifying financial risks involves considering the risk factors a company faces. This entails reviewing corporate balance sheets and statements of financial positions, understanding weaknesses within the company's operating plan, and comparing metrics to other companies within the same industry. There are several statistical analysis techniques used to identify the risk areas of a company.

How Do You Handle Financial Risk?

Financial risk can often be mitigated, although it may be difficult or unnecessarily expensive for some to completely eliminate the risk. Financial risk can be neutralized by holding the right amount of insurance, diversifying your investments, holding sufficient funds for emergencies, and maintaining different income streams.

Why Is Financial Risk Important?

Understanding, measuring, and mitigating financial risk is critical for the long-term success of an organization. Financial risk may prevent a company from successfully accomplishing its finance-related objectives like paying loans on time, carrying a healthy amount of debt, or delivering goods on time. By understanding what causes financial risk and putting measures in place to prevent it, a company will likely experience stronger operating performance and yield better returns.

Is Financial Risk Systematic or Unsystematic?

Financial risk does impact every company. However, financial risk heavily depends on the operations and capital structure of an organization. Therefore, financial risk is an example of unsystematic risk because it is specific to each individual company.

Financial risk naturally occurs across businesses, markets, governments, and individual finance. These entities trade the opportunity to make profits and yield gains for the chance that they may lose money or face detrimental circumstances. These entities can use fundamental, technical, and quantitative analysis to not only forecast risk but make plans to reduce or mitigate it.

Fitch Solutions. " 2021 U.S. High-Yield Default Rate Ends at a Record 0.5% Low ."

Bloomberg. " Lessons Learned From the Downfall of Toys "R" Us ."

Barrons. " Toys ‘R’ Us Files for Bankruptcy ."

CNN Business. " How Toys 'R' Us Went From Big Kid on the Block to Bust ."

CNN Business. " Amazon Didn't Kill Toys 'R' Us. Here's What Did ."

CNN Money. " Toys 'R' Us Will Close or Sell All US Stores ."

Associated Press. " Toys R Us Plans Second Act By Holiday Season ."

CBS News. " Toys R Us Comeback Begins with Baby Steps: 2 New Stores to Open ."

Macy's. " Macy's & Toys "R" Us ."

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Table of Contents

What is financial risk, types of risks, types of financial risks, financial risks for businesses, financial risks for the market, financial risks for governments, financial risks for individuals, pros and cons of financial risk, tools to monitor financial risk, how to identify financial risks, how to handle financial risk, why is financial risk important, is financial risk systematic or unsystematic, real-world example of financial risk, what is financial risk and its types everything you need to know.

Financial Risk is one of the major concerns of every business across fields and geographies. This is the reason behind the Financial Risk Manager FRM Exam gaining huge recognition among financial experts across the globe. FRM is the top most credential offered to risk management professionals worldwide. Financial Risk again is the base concept of FRM Level 1 exam. Before understanding the techniques to control risk and perform risk management , it is very important to realize what risk is and what the types of risks are. Let's discuss different types of risk in this post.

Financial risk refers to the likelihood of losing money on a business or investment decision. Risks associated with finances can result in capital losses for individuals and businesses. There are several financial risks, such as credit, liquidity, and operational risks.

In other words, financial risk is a danger that can translate into the loss of capital. It relates to the odds of money loss. 

In case of a financial risk, there is a possibility that a company’s cash flow might prove insufficient to satisfy its obligations. Some common financial risks are credit, operational, foreign investment, legal, equity, and liquidity risks. 

In government sectors, financial risk implies the inability to control monetary policy and or other debt issues. Learn more about how financial risk is associated with different sectors, be it business, government, market, or individuals. 

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Risk can be referred to like the chances of having an unexpected or negative outcome. Any action or activity that leads to loss of any type can be termed as risk. There are different types of risks that a firm might face and needs to overcome . Widely, risks can be classified into three types: Business Risk, Non-Business Risk, and Financial Risk.

Business Risk

These types of risks are taken by business enterprises themselves in order to maximize shareholder value and profits. As for example, companies undertake high-cost risks in marketing to launch a new product in order to gain higher sales.

Non- Business Risk

These types of risks are not under the control of firms. Risks that arise out of political and economic imbalances can be termed as non-business risk.

Financial Risk

Financial Risk as the term suggests is the risk that involves financial loss to firms. Financial risk generally arises due to instability and losses in the financial market caused by movements in stock prices, currencies, interest rates and more.

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Risk Types: The different types of risks are categorized in several different ways. Risks are classified into some categories, including market risk, credit risk, operational risk, strategic risk, liquidity risk, and event risk.

Financial risk is one of the high-priority risk types for every business. Financial risk is caused due to market movements and market movements can include a host of factors. Based on this, financial risk can be classified into various types such as Market Risk, Credit Risk, Liquidity Risk, Operational Risk, and Legal Risk.

Market Risk:

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Liquidity Risk:

Operational risk:, legal risk:.

Why do businesses face financial risks? Financial risk may be due to several macroeconomic forces, fluctuating market interest rates, and the possibility of default by large organizations or sectors. When individuals run businesses, they face financial risk in making decisions that jeopardize their ability to pay debts or income. Building a business from the ground up is expensive. Often companies need to seek capital from outside sources for their steady growth. This funding requirement creates a financial risk for the company/ business seeking an amount and the investor/ stakeholder investing in the company’s business.

The danger associated with borrowing money is called credit risk or default risk. If the borrower cannot repay the loan (it becomes default), the investors suffer from reduced income from loan repayments, interests, and principal. Creditors often experience an increment in costs for debt collection. 

Another term—specific risk, is used when only one or some companies struggle with financial situations. This type of danger that relates to a company or group of companies concerns capital structure, exposure to default, and financial transactions. Thus, specific risk reflects investors’ uncertainty about collecting returns and potential monetary loss.

Furthermore, businesses also experience operational risk. This type of risk is posed when businesses have flawed financial reasoning or poor management, i.e., they fail to succeed in their undertakings based on internal factors. 

Financial risks affect businesses in different shapes and sizes. Financial risk awareness is a must. However, knowing the dangers and strategies to protect oneself does not eliminate the risk; it mitigates the harm and reduces the chances of negative outcomes. 

Often financial markets are a hub of financial risks as several circumstances can impact them. When a critical market sector struggles with a financial crisis, it affects the monetary status of the entire marketplace. The 2007 -2008 global financial crisis bears testimony to marketplace risk. As the businesses closed, the investors lost fortunes, and the government was forced to reconsider its monetary policy. 

Additionally, other events impact the market, too, such as volatility. It brings uncertainty regarding the fair value of market assets. Volatility is measured as implied volatility. This statistical value is represented as a percentage that reflects the stakeholders’ confidence that market returns match the marketplace’s valuation as a whole. It gives insights into the market on the rise vs the market in decline. So, volatility risk can lead to steep price swings in stock market shares.  

Market interest rate changes and defaults can pose financial risks. Defaults occur mainly in the debt or bond market when issuers or companies fail to pay their debt obligations. Defaults harm investors severely. At the same time, changes in the market interest rate tend to push individual securities into unprofitability for investors. They are forced into lower-paying debt securities or negative returns.

Asset-backed risks arise when asset-backed securities become volatile when the value of the underlying securities also changes. A common category of asset-backed can be understood by the following example. A borrower who took money for a certain period pays off the debt early. This early payment ends the income stream from repayments. It also gets rid of the possible income from significant changes in interest rates.

Financial risk for a government arises in the following situations:

• government losing control of its monetary policy
• its inability or unwillingness to control inflation
• government defaulting on its bonds 
• other debt issues

A government issues debt in the following form:

• Funding wars
• Building bridges
• Building infrastructure
• Paying for general day-to-day operations

For instance, the US government issues debts that are called treasury bonds. Several governments have defaulted on debt, including Venezuela, Russia, Argentina, and Greece. Some governments only delay debt payments, while some pay less than the agreed-upon amount. In both cases, it leads to financial risk for investors/stakeholders.

You, too, can fall prey to financial risks if you make poor decisions. A common cause of financial risk can be taking an unnecessary day off from work. Other causes include highly speculative investments. Individuals must understand that every undertaking has a potential risk attached. There are dangers beyond one’s control. Therefore, it is vital to fully realize the consequences. 

Liquidity risk has the following two situations for investors:

• Market liquidity risk: Involves assets and securities that cannot be sold or purchased at a rate that compensates for the losses in a volatile market. It arises when there are many sellers but few buyers. 
• Funding/ Cash flow liquidity risk: The possibility that a company might not have the necessary capital to pay its debt. Thereby it gets forced to default and harms stakeholders.

Individuals are also exposed to speculative risks wherein a profit or gain has uncertain success. An investor’s improper research before investing leads to chances of speculative risks. It happens when they reach too far for gains or invest a significantly large portion of their net worth into a particular investment.

Do you have an inflow of foreign currencies? You can also be exposed to currency financial risks as the following factors affect your calculated finances:

• Interest rate changes 
• Monetary policy changes
• Changes in prices due to market differences
• Political changes
• Natural calamities
• Diplomatic changes
• Economic conflicts

Risk is the other side of the reward. Financial risk is a situation of uncertainty. It exists to different degrees. The term “risk” has a negative connotation, and financial risk has the ability to spread from one business to another or to an entire sector/ market/ world, making it all the more a serious issue. Therefore, understanding and assessing the degree of financial risk associated with an asset can lead to better and more informed business decisions. The pros and cons of knowledge of financial risks are as follows:

Several tools help individuals, governments, and businesses calculate the degree of financial risks they might encounter. Some commonly used methods to analyze financial risks associated with long-term investments are as follows: 

• Fundamental analysis: Measures a security’s intrinsic value. It evaluates all aspects of the underlying business, such as the firm’s earnings and assets. 
• Technical analysis: Evaluates securities via statistics. It considers historical returns, share prices, trade volumes, and other performance data.
• Quantitative analysis: Evaluates a company’s historical performance using specific financial ratio calculations.
• Statistical and numerical analysis: Identifies potential risks using statistical methods.  

If you monitor financial risk via any of the analysis techniques mentioned above, ensure that you analyze trends over a long time. This way, you will better grasp the trends of fluctuations and progress towards a better financial goal. It is important to understand that a risk history does not always imply a future risk too. 

The following practices help identify financial risks:

• Considering the risk factors a company might face is a prerequisite for identifying financial risks. 
• Reviewing corporate balance sheets
• Studying statements of financial positions
• Exploring weaknesses within the company’s operating plan
• Comparing metrics to other companies of the same industry. 
• Employing statistical analysis techniques to identify the company’s risk areas.

Completely eliminating financial risks can be difficult and expensive but mitigating the risks is easier and inexpensive. An individual or a company can neutralize financial risks by diversifying investments, holding the right amount of insurance or sufficient funds for emergencies. Different income streams are also a good option for tackling financial risks . 

Understanding, evaluating, and mitigating financial risk is crucial for an organization’s long-term success. Financial risk often comes as a major hurdle in the path of accomplishing finance-related objectives such as paying loans timely, carrying a healthy debt amount, and delivering products on time. So, completely comprehending the causes of financial risks and adopting the right measures to prevent it can help a company yield better returns. 

Financial risk is an unsystematic risk because it does not impact every company. It is specific to each company as it depends on an organization’s operations and capital structure. 

Several companies have experienced some huge financial blows. An unfortunate popular history points to the June 2018 closure of Toys “R” Us. In September 2017, the company announced its bankruptcy. The company’s CEO also released a statement that the company was working with creditors to restructure the $5 billion of long-term debt. As per reports, much of the company’s financial risk originated from a 2005 US $6.6 billion leveraged buyout by investment firms— KKR & Co., Bain Capital, and Vornado Realty Trust.

In March 2018, Toys “R” Us announced that it would liquidate its 735 US locations to pull off from the dwindling revenue strain amid looming financial obligations after a disappointing holiday season. It also faced difficulty selling its properties. This situation is an example of the liquidity risk associated with real estate.

In November 2018, the debt holders Angelo Gordon and Solus Alternative Asset Management took control of the bankrupt company and created plans to revive the chain. In February 2019, a new company staffed with ex-Toys “R” Us execs, Tru Kids Brands, reported that it would relaunch the brand and opened two new stores that year. Recently, Macy’s has partnered with WHP Global, and together they are working on bringing back the Toys “R” Us brand. 

If you have any questions regarding financial risks and types, drop them in the comment section below and we will get back to you. If you enjoy handling projects and evaluating risks, then you can become a project leader in this digital age with our Project Management Certification aligned with PMI-PMP® and IASSC-Lean Six Sigma. Attend live online interactive classes, masterclasses from UMass Amherst, Harvard Business Publishing case studies, and capstone projects.

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Laurent, Marie-Paule. "Essays in financial risk management." Doctoral thesis, Universite Libre de Bruxelles, 2003. http://hdl.handle.net/2013/ULB-DIPOT:oai:dipot.ulb.ac.be:2013/211221.

Zhang, Lequn. "Extreme Risk Forecast for Quantitative Financial Risk Management." Thesis, Curtin University, 2022. http://hdl.handle.net/20.500.11937/89362.

Gueye, Djibril. "Some contributions to financial risk management." Thesis, Strasbourg, 2021. http://www.theses.fr/2021STRAD027.

Wang, Mulong. "Financial derivatives in corporate risk management." Access restricted to users with UT Austin EID, 2001. http://wwwlib.umi.com/cr/utexas/fullcit?p3036610.

Schaumburg, Julia. "Quantile methods for financial risk management." Doctoral thesis, Humboldt-Universität zu Berlin, Wirtschaftswissenschaftliche Fakultät, 2013. http://dx.doi.org/10.18452/16675.

Genin, Adrien. "Asymptotic approaches in financial risk management." Thesis, Sorbonne Paris Cité, 2018. http://www.theses.fr/2018USPCC120/document.

Nikoci, Besjana <1989&gt. "Stress Testing for Financial Risk Management." Master's Degree Thesis, Università Ca' Foscari Venezia, 2015. http://hdl.handle.net/10579/6935.

Aas, Roar. "Risk management using derivatives." Thesis, Heriot-Watt University, 1993. http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.262000.

Eriksson, Kristofer. "Risk Measures and Dependence Modeling in Financial Risk Management." Thesis, Umeå universitet, Institutionen för fysik, 2014. http://urn.kb.se/resolve?urn=urn:nbn:se:umu:diva-85185.

Paltalidis, Nikolaos. "Essays on applied financial econometrics and financial networks : reflections on systemic risk, financial stability & tail risk management." Thesis, University of Portsmouth, 2015. https://researchportal.port.ac.uk/portal/en/theses/essays-on-applied-financial-econometrics-and-financial-networks(3534970d-eeba-4748-9812-d18430925664).html.

Černák, Peter. "Risk Management." Master's thesis, Vysoká škola ekonomická v Praze, 2009. http://www.nusl.cz/ntk/nusl-76579.

Zou, Lin. "Essays in financial economics and risk management." Thesis, [College Station, Tex. : Texas A&M University, 2007. http://hdl.handle.net/1969.1/ETD-TAMU-1476.

Graf, Mario. "Financial Risk Management State-of-the-Art /." St. Gallen, 2005. http://www.biblio.unisg.ch/org/biblio/edoc.nsf/wwwDisplayIdentifier/01665710001/$FILE/01665710001.pdf.

Ewers, Robin B. "Enterprise Risk Management in Responsible Financial Reporting." Thesis, Walden University, 2017. http://pqdtopen.proquest.com/#viewpdf?dispub=10637579.

Despite regulatory guidelines, unreliable financial reporting exists in organizations, creating undue financial risk-harm for their stakeholders. Normal accident theory (NAT) identifies factors in highly complex integrated systems that can have unexpected, undetected, and uncorrected system failures. High-reliability organization (HRO) theory constructs promote reliability in complex, integrated systems prone to NAT factors. Enterprise risk management (ERM) integrates NAT factors and HRO constructs under a holistic framework to achieve organizational goals and mitigate the potential for stakeholder risk-harm. Literature on how HRO constructs promote ERM in responsible integrated financial systems has been limited. The purpose of this qualitative, grounded theory study was to use HRO constructs to identify and define the psychological factors involved in the effective ERM of responsible organizational financial reporting. Standardized, open-ended interviews were used to collect inductive data from a purposeful sample of 13 reporting agents stratifying different positions in organizations that have maintained consistent operational success while attenuating stakeholder risk-harm. The data were interpreted via transcription, and subsequent iterative open, axial, and narrative coding. Results showed that elements of culture and leadership found in the HRO construct of disaster foresightedness and mitigation fostered an internal environment of successful enterprise reporting risk management to ethically achieve organizational goals and abate third-party stakeholder risk-harm. The findings will contribute to positive social change by suggesting an approach for organizations to optimize strategic objectives while minimizing stakeholders’ financial risk-harm.

Siyi, Zhou. "Essays on financial and insurance risk management." Thesis, Imperial College London, 2012. http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.586894.

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Ben, Hadj Saifeddine. "Essays on risk management and financial stability." Thesis, Paris 1, 2017. http://www.theses.fr/2017PA01E003/document.

Pillay, Levina. "Risk practitioner experiences of enterprise risk management in financial institutions." Diss., University of Pretoria, 2015. http://hdl.handle.net/2263/52296.

Shedden, Jason Patrick. "A qualitative approach to financial risk." Pretoria : [s.n.], 2006. http://upetd.up.ac.za/thesis/available/etd-05092007-152751.

Yao, Rui. "Patterns of financial risk tolerance 1983-2001 /." Columbus, Ohio : Ohio State University, 2003. http://rave.ohiolink.edu/etdc/view?acc%5Fnum=osu1060624755.

Yang, Xi. "Applying stochastic programming models in financial risk management." Thesis, University of Edinburgh, 2010. http://hdl.handle.net/1842/4068.

MORAES, ALEX SANDRO MONTEIRO DE. "ESSAYS IN FINANCIAL RISK MANAGEMENT OF EMERGING COUNTRIES." PONTIFÍCIA UNIVERSIDADE CATÓLICA DO RIO DE JANEIRO, 2015. http://www.maxwell.vrac.puc-rio.br/Busca_etds.php?strSecao=resultado&nrSeq=26131@1.

Haar, Lawrence. "Business cycles and the management of financial risk." Thesis, University of Surrey, 2000. http://epubs.surrey.ac.uk/844543/.

Zabarankin, Michael Yurievich. "Optimization approaches in risk management and financial engineering." [Gainesville, Fla.] : University of Florida, 2003. http://purl.fcla.edu/fcla/etd/UFE0001048.

Hays, Douglas C. "Enterprise risk management solutions a case study /." Monterey, Calif. : Naval Postgraduate School, 2008. http://handle.dtic.mil/100.2/ADA483512.

Derrocks, Velda Charmaine. "Risk management." Thesis, Nelson Mandela Metropolitan University, 2010. http://hdl.handle.net/10948/1480.

Bedendo, Mascia. "Density forecasting in financial risk modelling." Thesis, University of Warwick, 2003. http://wrap.warwick.ac.uk/2661/.

HADJI, MISHEVA BRANKA. "Measuring Financial Risks: The Application of Network Theory in Fintech Risk Management." Doctoral thesis, Università degli studi di Pavia, 2020. http://hdl.handle.net/11571/1344336.

Chen, Hua. "Contingent Claim Pricing with Applications to Financial Risk Management." Digital Archive @ GSU, 2008. http://digitalarchive.gsu.edu/rmi_diss/22.

Baldwin, Sheena. "Extreme value theory : from a financial risk management perspective." Thesis, Stellenbosch : Stellenbosch University, 2004. http://hdl.handle.net/10019.1/53743.

Yamashita, Mamiko. "Three Essays on Financial Risk Management and Fat Tails." Thesis, Toulouse 1, 2020. http://www.theses.fr/2020TOU10056.

Simonson, Peter Douglas. "Limiting Financial Risk from Catastrophic Events in Project Management." Diss., North Dakota State University, 2020. https://hdl.handle.net/10365/31939.

Madaleno, Mara Teresa da Silva. "Essays on energy derivatives pricing and financial risk management." Doctoral thesis, Universidade de Aveiro, 2011. http://hdl.handle.net/10773/7302.

Yazid, Ahmad Shukri. "Perceptions and practices of financial risk management in Malaysia." Thesis, Glasgow Caledonian University, 2001. http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.364743.

Masie, Desné Rentia. "Mediating markets : financial news media and reputation risk management." Thesis, University of Edinburgh, 2014. http://hdl.handle.net/1842/14196.

Holifield, Suzanne Marie. "Risk management and hedge accounting decisions at financial institutions." Connect to resource, 1995. http://rave.ohiolink.edu/etdc/view.cgi?acc%5Fnum=osu1267632084.

Awiszus, Kerstin [Verfasser]. "Actuarial and financial risk management in networks / Kerstin Awiszus." Hannover : Gottfried Wilhelm Leibniz Universität Hannover, 2020. http://d-nb.info/1215427298/34.

Vuillemey, Guillaume. "Derivatives markets : from bank risk management to financial stability." Thesis, Paris, Institut d'études politiques, 2015. http://www.theses.fr/2015IEPP0007/document.

Anastasio, Edoardo <1996&gt. "The relationship between financial risk management and shareholders value." Master's Degree Thesis, Università Ca' Foscari Venezia, 2022. http://hdl.handle.net/10579/20812.

Kwok, Ying-kit Tony. "A study on treasury risk control in financial institutions in Hong Kong /." Hong Kong : University of Hong Kong, 1995. http://sunzi.lib.hku.hk/hkuto/record.jsp?B14038912.

Siu, Kin-bong Bonny. "Expected shortfall and value-at-risk under a model with market risk and credit risk." Click to view the E-thesis via HKUTO, 2006. http://sunzi.lib.hku.hk/hkuto/record/B37727473.

Ye, Kang. "Knowledge level modeling for systemic risk management in financial institutions /." access full-text access abstract and table of contents, 2009. http://libweb.cityu.edu.hk/cgi-bin/ezdb/thesis.pl?phd-is-b30082274f.pdf.

Neis, Eric. "Three essays in financial economics." Diss., Restricted to subscribing institutions, 2006. http://proquest.umi.com/pqdweb?did=1158520261&sid=1&Fmt=2&clientId=1564&RQT=309&VName=PQD.

Weiss, Susan F. "Implications of Executive Succession Upon Financial Risk and Performance." ScholarWorks, 2011. https://scholarworks.waldenu.edu/dissertations/958.

Wang, Letian. "Global supply chain risk management through operational and financial hedges." Thesis, McGill University, 2010. http://digitool.Library.McGill.CA:80/R/?func=dbin-jump-full&object_id=95041.

Seidel, Henry [Verfasser], and Alexander [Akademischer Betreuer] Szimayer. "Essays in Financial Risk Management / Henry Seidel ; Betreuer: Alexander Szimayer." Hamburg : Staats- und Universitätsbibliothek Hamburg, 2017. http://d-nb.info/1148650563/34.

Reddy, Harry 1963. "Financial supply chain dynamics : operational risk management and RFID technologies." Thesis, Massachusetts Institute of Technology, 2005. http://hdl.handle.net/1721.1/33729.

Zhu, Yanhui. "Nature and management of financial risk in global stock markets." Thesis, Cardiff University, 2008. http://orca.cf.ac.uk/55720/.

Yousefi, Sepehr. "Credit Risk Management in Absence of Financial and Market Data." Thesis, KTH, Matematisk statistik, 2016. http://urn.kb.se/resolve?urn=urn:nbn:se:kth:diva-188800.

Seidel, Henry Verfasser], and Alexander [Akademischer Betreuer] [Szimayer. "Essays in Financial Risk Management / Henry Seidel ; Betreuer: Alexander Szimayer." Hamburg : Staats- und Universitätsbibliothek Hamburg, 2017. http://d-nb.info/1148650563/34.

Financial Risk Measurement for Financial Risk Management

Current practice largely follows restrictive approaches to market risk measurement, such as historical simulation or RiskMetrics. In contrast, we propose flexible methods that exploit recent developments in financial econometrics and are likely to produce more accurate risk assessments, treating both portfolio-level and asset-level analysis. Asset-level analysis is particularly challenging because the demands of real-world risk management in financial institutions - in particular, real-time risk tracking in very high-dimensional situations - impose strict limits on model complexity. Hence we stress powerful yet parsimonious models that are easily estimated. In addition, we emphasize the need for deeper understanding of the links between market risk and macroeconomic fundamentals, focusing primarily on links among equity return volatilities, real growth, and real growth volatilities. Throughout, we strive not only to deepen our scientific understanding of market risk, but also cross-fertilize the academic and practitioner communities, promoting improved market risk measurement technologies that draw on the best of both.

Forthcoming in Handbook of the Economics of Finance, Volume 2, North Holland, an imprint of Elsevier. For helpful comments we thank Hal Cole and Dongho Song. For research support, Andersen, Bollerslev and Diebold thank the National Science Foundation (U.S.), and Christoffersen thanks the Social Sciences and Humanities Research Council (Canada). We appreciate support from CREATES funded by the Danish National Science Foundation. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.

MARC RIS BibTeΧ

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Essay 4 - FINANCIAL RISK MANAGEMENT - EBOA EDOUBE SERGE CLAUDE.docx

Essay - Financial Risk Management

In the academic research we have been involved, at the extent to be rewarded a PhD degree in Financial Engineering including Developmental Finance, Risk Assessments and Financial Analysis, we are to study Financial Risk Management. As a critical discipline in our study programme, we have performed research in the aim of understanding all the insightful points that surround this course. In this light, we have organized our work into a series of chapters full of sections marked by various relevant issues. This implies undestanding the basics of Financial Risk Management through defining key words such as risk, financial risk, Financial Risk Management process, identifying the various components of Financial risks. In this mood, we have extended our reflection to understanding insightful issues of factors influencing major financial risks such as market risk, liquidity risk, operational risk, credit risk as well as business risk. Internal and external challenges surrounding financial risks and Financial risk measurement have also been examined in the angle of seeking ways to improve Financial Risk Management process. As far as risk measurement is concernced, some assessment tools or mathematical methods of financial risk measurement in companies have been presented namely Value at Risk, Rate of growth of real Assets, Equity ratio, Gearing ratio, Debt Equity Ratio, Net Present Value, etc… for quantification and assessment matters. Furthermore, we have attempted to come out with the relationship between Financial Risk Management and the financial industry. From this link, we have examined the various components of risk management theory bearing Financial Risk Management, Financial Risk Management and financial markets performance, Financial Risk Management and the banking industry. Examining Financial Risk Management also requires to take into account the issue of financial crisis through the critical contribution of Financial Risk Management in a preventive way and providing an addressing response in case of financial crisis reality. Before wrappig up our essay, we have found it relevant to identify internal and external Financial Risk Management perspectives. It is at the view of financial institutions as well as providing recommendations related to an effective Financial Risk Management throughout the overall components of a country’s global financial system and investors’ behaviour regarding Financial Risk Management as well. As long as this written essay is concerned, we consider Financial Risk Management as a prominent discipline in the overall financial industry.

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Home — Essay Samples — Business — Risk — Financial Risk in Insurance Industry

Financial Risk in Insurance Industry

• Categories: Risk Risk Management

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Words: 1899 |

10 min read

Published: Aug 30, 2022

Words: 1899 | Pages: 4 | 10 min read

Table of contents

Problem statement, risks and its types.

• What can go wrong or right?
• What can be done to avoid making mistakes and enjoying the good?
• What will happen if an error occurs?
• Insurance Risk: It is underwriting, the risk associated with the uncertainty of business written in the future
• Market Risk:- It is the risk associated with movements in interest rates, forcing exchange rates or asset prices to lead to an adverse movement in asset values
• Credit Risk: If another party fails to perform them in time i.e. if the party fails to pay the credit. So, allowance should be made for the financial effect of non-payment of reinsurance and of the non-payment of premium debtors.
• Liquidity Risk: It is the risk that a firm has insufficient financial resources to meet its obligation as they fall due or can only secure the resources at excessive cost.
• Operational Risk: It in the risk of direct or indirect loss resulting from inadequate or failed internal processes, people, and systems or from External events. These types where adopted from the literature review.

Research Question

• What are the current risk management practices of Jordanian insurance companies?
• How can Jordanian insurance companies properly improve and institutionalize risk management processes?

Research Importance

• Provide practical evidence of the importance of compatibility between priorities competitive and insurance companies' risks with its reflection in Institutional performance.
• Identify insurance companies' risks that affect the performance of the companies in Jordan and study the impact of each of them.
• Most studies have been conducted on companies operating in Europe and the United States. So the importance of the study lies in what will add to the concepts and frameworks of science to fill a gap.

Research Objectives

• Research on current risk management practices of Palestinian insurance companies.
• Identify the main risks of Palestinian insurance companies.
• Recognize risk management and its importance.

Research Limitations

• There are lots of studies on the field but few of them are implemented in Jordan.
• Some of the risks under study are out of control and could not be forecasted easily; which makes a huge limitation and gap in this study.
• Time limitations.

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Financial Risk Essays

Analysis of financial risk in investment portfolios, the integration of esg in financial & reputational risk, bank of china report, risk management of international equity portfolios, popular essay topics.

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Assessing Financial Risk Amid Climate Risk

Brian connor.

Scholars urge banks and regulators to adapt financial risk models to respond to climate change.

Climate change presents many challenges across the economy, including increased payout risk for insurers, heightened borrowing costs for vulnerable communities, and massive agricultural losses from drought.

Banks can be exposed to these risks by lending to businesses and investing in assets across different industries and geographies. Stress tests are simulation exercises through which bank management and financial regulators assess how banks are likely to fare when faced with serious risks.

In a recent report , Viral V. Acharya , a professor at the New York University Stern School of Business , and several coauthors discuss how a stress test design that considers climate risk can help assess climate change’s impact on financial stability.

Under Federal Reserve System regulations and the Dodd-Frank Act , large banks must regularly conduct stress tests and report the results of such tests. The Federal Reserve uses this data to set the stress capital buffer requirement, which is designed to ensure that banks hold enough assets to cushion against a downturn.

Although the Federal Reserve has not yet signaled an intention to consider climate risk when developing stress test regulations, the European Central Bank has committed to consider climate change in its financial affairs.

Acharya and his coauthors explore how regulators can adapt the design and implementation of stress tests to incorporate climate risk.

Typically, regulators and bank managers design stress test scenarios by choosing a combination of economic and financial calamities that are known to challenge the resilience of individual banks and the broader financial system. For example, the Federal Reserve uses a “severely adverse scenario” featuring a large hike in unemployment accompanied by a collapse in residential and commercial real estate prices.

But climate change presents a different set of risks.

The Acharya team divides these risks into two types: physical risks and transition risks. Physical risks are related to the direct effects of climate change, such as floods and wildfires. Transition risks are associated with the technological and policy changes governments adopt to shift to a cleaner economy, such as electric vehicle adoption or carbon taxes.

These risks, which are still somewhat speculative and unknown, present difficulties in designing realistic stress test scenarios.

For instance, Acharya and his coauthors describe how aggressive policy changes aimed at preventing disasters will translate to an increase in short-term transition risks but might lead to a decline in long-run physical risks.

To balance short-term and long-run risks, the authors suggest that policymakers consider a variety of risk combinations across a portfolio of different scenarios. The De Nederlandsche Bank , for example, presents one scenario with a technological breakthrough paving the way for more renewable energy, another with a global increase in carbon emissions prices due to public policy measures, and a third with a combination of those scenarios.

Acharya and his coauthors suggest that banks use climate-informed stress test scenarios to model how different climate risks could impact them, and banks can better confront those risks by using stress tests that incorporate climate change.

Consider wildfires. The property damage from wildfires, Acharya and his coauthors explain , might imperil homeowners’ ability to pay their mortgages. A stress test model informed by climate risk would therefore show an increase in credit risk for the bank that holds these mortgages. Homes near the wildfires might also decline in value. This decline would hurt local property tax revenues, which could make it harder for cities and towns to pay off their debts, thus increasing the default risk of the municipal bonds that banks hold. A normal stress test might not be granular enough to identify these specific risks, but a climate-targeted stress test would be.

Climate change can also increase liquidity risk for banks. Depositors often withdraw funds to pay for immediate needs after a natural disaster. As natural disasters increase in frequency, a climate stress test could predict that the bank may struggle to meet its regulatory capital requirements . If a bank’s deposits are concentrated in a particular geographic area—which is often the case—the outcome of the stress test could be even more grave. Knowledge of these risks would encourage banks to geographically diversify.

Finally, if carbon taxes and other transition policies curb growth in carbon-heavy industries, climate-informed stress tests would warn banks with exposure to depositors in these industries that they should account for future liquidity difficulties.

Acharya and his coauthors suggest that U.S. regulators should contribute to research on the climate risks that banks face. Policymakers should invest in developing better ways of estimating the relationships between different risks, which will improve stress test scenarios, Acharya and his coauthors argue .

Some central banks outside of the United States have begun doing this. The Australian Prudential Regulation Authority and the Bank of Canada have adopted and modified scenarios and predictions from the Network for Greening the Financial System , a consortium of central banks and supervisors.

Climate change presents new risks to many individuals and businesses across the economy. Through deposits, loans, and investments, large banks could find themselves exposed to a combination of risks in the future. By incorporating climate risk into their stress test exercises, regulators and banks will be better equipped to understand emerging threats to financial stability, Acharya and his coauthors conclude .

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• Essay on Finance

Managing Financial Risk Essay

Type of paper: Essay

Topic: Finance , Investment , Company , Risk , Banking , Literature , Financial Risk , Value

Published: 02/23/2020

ORDER PAPER LIKE THIS

The chapter deals with discussion over ever increasing financial risk in today’s financial environment for the organizations. Author blames the end of Breton Woods System in 1972 that led to volatility of interest rates, exchange rates and commodity prices. However, post 1970 arena was a welcome for increasing financial risk as the CEO’s and CFO’s linked this volatility with higher profitability in response to large movements in interest rates and exchane rates and in recognition to this increased financial risk the top executives in an organization deals with following issues: - Extent to which their firm is exposed to interest rates, exchange rates or commodity prices. - Financial tools available as a solution for managing these risk exposures - How will the financial tools be helpful in managin these risks.

And the author deals with discussion over these issues only.

In terms of measuring the risk exposure, author cites the example of Saving and Loans which are negatively related to the interest rates. This is because Saving and Loans are used primarily for funding the long term lived assets with liabilitiesrepricing on frequent basis, thus when interest rates rises, value of Saving and Loans declines and with little affect on liabilties, it is the shareholder’s equity that falss substantially and vice-versa. Following graph depicts the relationship between Interest Rates and Saving and Loans:

Risk Profile

The graph depicts risk profile of Saving and Loans. As the actual interest rates rises above the expected rates, the value of Saving and Loans’s asset declines relative to the value of its liabilities and thus, the value of the firm declines. After discussing various aproaches of measuring the financial risk and available tools to counter these financial risks, author concludes the chapter by discussing as how the available tools will help in managing the financial risks, to which he states as: - Exposure can be managed in number of ways as individually using a financial instrument-for example by using interest rate swap to hedge against interest risk. - Using combinations of available tools to manage the financial risk-for example buying a call and selling a put to minimize the out of pocket costs to hedge.

Works Cited

Clifford Smith, C. S. Managing Financial Risk. In Risk Management (pp. 345-366).

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Financial Risk Management

Financial risk management - essay example.

• Subject: Finance & Accounting
• Type: Essay
• Level: Masters
• Pages: 11 (2750 words)
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The UK is trapped in a cycle of political, social and financial turmoil. But there is a way out…

The Conservatives’ pernicious reign, defined by a toxic belief in self-organising markets, has brought Britain to its knees. But we now have an opportunity to turn things around – by reimagining the UK as a ‘we’ society rather than an ‘I’ society

I f there is any consensus in our otherwise fractured, toxic national debate it is that we cannot go on like this. Our economy is in crisis, exemplified by an annual £100bn shortfall in public and private investment, which must be lifted decisively for Britain to break out of today’s triple whammy of stagnant growth, productivity and living standards. Society reels from alarming gaps in the provision of crucial public services and the yawning unfairness in the distribution of income, wealth and opportunity. Our democracy and state seem incapable of acknowledging the full extent of these deformities, let alone adequately responding to them. Our international standing has plummeted at a time of geopolitical peril. A transformative response is an imperative. My new book, This Time No Mistakes: How to Remake Britain, tries to address the origins of this interlinked crisis – and offer a feasible way out. Nothing is immutable. We are agents of our own destiny.

The heart of the problem is a misconception about how capitalism and society work. Capitalism must be managed and regulated to work for the common good, just as society has to be curated to provide fairness and opportunity for all. Crucially, the vitality of the two are interdependent. Capitalism must be organised so it provides economic ladders that every individual can climb while a social contract must offer a floor below which they cannot fall. Britain’s problem is that the Conservative party, in power for all but 13 of the last 45 years, does not accept these truths or interdependencies. Worse, even if it did, neither the dominant culture and practise of our capitalism, nor the structure of our democracy, state and media would have made it easy to fashion the necessary responses.

Conservative ideology has been in thrall to the contrary proposition that markets will self-organise to produce the best economic and social outcomes propelled by individual energy and ambition alone. The British state confers near-continual unfettered power to the Conservatives, and so in their view needs no reform. Yet the reality is that capitalism’s unchecked rollercoaster rhythms create instability, inequity and monopoly and so must be managed and counteracted. Nor can capitalism be relied upon to best organise how firms are governed and ownership responsibilities discharged; how workers are properly trained and paid; or to ensure that fair dealing is the norm between firms and their customers. Of necessity enter the state, much better designed than at present.

The UK has its back against the wall to a degree unparalleled in its peacetime history, facing economic problems more acute than the successive sterling crises of the 20th century or the trade union militancy that prompted the general strike of 1926 or winter of discontent in 1979. The level of our national debt has climbed alarmingly over the past quarter of a century, with no compensating increase in public assets, so that the net worth of the public sector – assets less liabilities – is more dangerously in the red than any other country bar Portugal. Similarly, more than 20 years of imports of goods and services exceeding exports has meant our international debts have climbed by £1.5tn, so that our balance sheet – positive for centuries as a result of empire and as pioneer of the Industrial Revolution – is now dangerously negative. Fifty companies that could have been in the FTSE 100 were sold abroad between 1997 and 2017; we are running out of assets to sell. At the same time almost every metric on the economic and social dashboard – whether social mobility or the number of new companies launching on the London stock market – is flashing amber or red.

Rightwing ideological maxims, initiated by Margaret Thatcher in 1979 and continued by her imitators, have led to a sequence of policy disasters – monetarism, wholesale financial deregulation, austerity and then Brexit. Far from launching a renaissance, Thatcher was the author of pernicious decline. The doctrine is that the private “I” is morally superior to anything public, that the state’s “coercive” proclivities must be reined in to promote a “free” market, that regulation and taxation stifle enterprise, that unless ferociously means-tested and minimalist, welfare creates a huge underclass of undeserving “shirkers”, and that good public services follow from a successful economy rather than being integral to it.

Little of the policy that flows from this jumble of ideology and prejudice has any evidence base. As the totality of the failure has unfolded, so the Conservative party’s unity has fragmented into the blind alleys of libertarianism and the debacle of the Truss government, ongoing phobia about all things European and the temptations of anti-immigrant, anti-foreigner, anti-woke populism. It has become an ungovernable federation of cults.

In the 1980s, monetarism did not contain inflation as billed, but rather prompted mass unemployment, hollowed out much of our productive economy – manufacturing employment nearly halved in a decade – and eviscerated public investment. The areas so scarred by the experience would, 30 years later, vote for Brexit. Financial deregulation led to the fastest rise in private indebtedness in our history, propelling illusory economic growth buoyed not by investment and innovation but a flood of credit. It could only end in tears. Writing The State We’re In in the mid-1990s, to warn of an impending tragedy without a change of course, I did not anticipate the great financial crisis of 2007/8, felt most acutely in Britain, although it was obvious the whole rickety structure could only fail in some way. Nor did I imagine that Britain would repeat the failures with the economically illiterate budgetary tightening of austerity and then torch the one successful economic policy asset it had remaining, EU membership, which had boosted GDP by 10%. Yet such was the grip of the right on the Tory party that their bad ideas, once unthinkable, became our lived reality.

A nd Britain’s liberal left cannot absolve itself of blame. If Conservatism has over-emphasised the “I”, the left has not yet found an electorally attractive way of making the case for “We” – or, better still, blending it with the “I” to create a political philosophy, and attractive policies that flow from it, that would appeal to the majority. My proposition is that the “We” should be built on fusing an ethic of socialism grounded in profound human attachment to fellowship, mutuality and co-operation with the ethic of progressive or new liberalism that emerged 150 years ago as a challenge to classic liberalism. Essentially, liberal thinkers such as Thomas Hill Green and Leonard Hobhouse (forerunners of progressive liberals Keynes and Beveridge) argued that individuals and society were in a constant iterative relationship. Individuals shape society, society shapes individuals, and each and everyone has an obligation to make the social whole as strong as possible, which they are obliged to recognise even while they pursue their own ambitions and interests. Green called this the politics of obligation, which not only the great reforming Liberal government would follow from 1906-14, but later the Keynesian economic revolution and Beveridge’s welfare state.

Green called this the politics of obligation, which not only the great reforming , but later the Keynesian economic revolution and Beveridge’s welfare state.

Labour, as Tony Crosland diagnosed in the 1950s in The Future of Socialism , was founded on being all things leftist to everyone to encourage as big a membership as possible. It was a coalition of Marxists to gradualist Fabians – so laying the foundation for more than 100 years of feuding. Only the ethic of socialism, which has deep roots in western philosophy, the great religions and the Enlightenment, stands the test of time. It was Aristotle who declared that those who deny the primacy of a healthy society to their individual wellbeing are either “a beast or a god”, while the father of British empiricism, Francis Bacon, would write “wealth is like muck. It is not much good but if it be spread.”

Progressive liberalism and an ethic of socialism are not incompatible value systems: they are complementary. Progressive liberalism leans into the individualism that propels capitalism while accepting social obligations; an ethic of socialism leans into the foundation of a social contract and infrastructure of justice that underpin the sinews of a good society. Ideological socialism’s hostility to capital and liberalism’s association with the upper class and upper middle class initially made a rapprochement between the two impossible. Today those obstacles have faded. It was Tony Blair who saw the opportunity that could be grasped, and perhaps his best contribution to progressive politics was his rewriting of Labour’s infamous high socialist clause IV to articulate the fusion. New Labour may have shrunk from the full implications; it will fall to successors to make it live.

The vision is of a “we society” – a high investment economy populated by companies that take their social responsibilities seriously, underpinned by a rejuvenated social contract in which health, housing, education, justice, welfare and the labour market all combine to offer every individual the chance fully to participate in work, social and civic life. No more lost Einsteins and Marie Curies.

T he starting point must be to raise public investment decisively and so “crowd in” private investment radically to lift productivity and real wages (wages adjusted for inflation). Three targets select themselves – the vital need to close the disgraceful gap in productivity, infrastructure and economic performance between London and the regions; the commitment to achieve net zero by 2050 given the alarming rise in global temperatures; and the need to lift research and development spending dramatically. To move the dial in all these areas will require public borrowing for such investment to rise by at least 1% of GDP, or between £25bn– £30bn, with fiscal rules organised around real-world, rather than accounting, goals. The financial markets will be reassured if they know that the investment they are supporting is strategic and thought through. Britain can break out of its low growth trap without financial mishap.

Shibboleths about taxation need to be put to one side. Taxation represents the “we”, and as long as the demands on all sections of society are reasonable – involving at present a greater contribution by the wealthy, whose assets in relation to GDP have doubled since 1980 – there is no evidence that tax receipts at today’s level or even marginally higher will damage growth. What matters is that Britain does what it must to lift its growth rate. A “growth commission” should establish rolling targets for public investment and be held to account to achieving them – the means to vitally needed change.

Importantly, the savings and investment system must be reshaped to drive credit and equity investment to support the financial needs of the companies big and small that we need to feed off the surge in public investment. Two young institutions – the UK Infrastructure Bank and British Business Bank – must be turbocharged so they can operate at the multibillion-pound scale necessary. Banks must be incentivised to supply business loans on much less onerous and flexible terms, and the pension system must be boosted and organised to invest in fast-growing companies based on frontier new technologies. A big multibillion private sector wealth fund – already mooted by some in the City – must work in concert with a public sector wealth fund to invest in what will be the great companies of tomorrow, ensuring they stay British-owned to anchor our economy.

The law needs to ensure that companies make their prime objective the achievement of great social purposes rather than short-term self-enrichment. This should especially apply to all our regulated utilities. The best in British business and our utilities have already begun to move in this direction, putting achievement of great purpose at their heart: it needs to become the general rule. Competition policy must be stepped up so that there is much less incentive and capacity to rig prices in monopoly or quasi monopoly positions. This is particularly important for those businesses and sectors whose business models depend on strength in “intangibles” – intellectual property, human skills, data and digital advantages, research – whose growth has been cramped by so many financial and regulatory biases that favour incumbents. British capitalism, in short, needs to be repurposed both to grow and to work for the common good.

N o less essential is to repair the threadbare social contract. The new risks and inequalities that every citizen will confront in an ever faster moving environment, along with new centres of prosperity, need to be mitigated and managed to ensure the new economic world is underwritten by great education, health and housing – and income support when for any reason people find it impossible to work. The workplace needs to be reconfigured so employees are conferred dignity and voice, with trade unions as active partners of purposeful companies. There must be a proper system of social care. We cannot have children going hungry in their millions, with schools, training institutions and further education colleges allowed to decay. And lastly, housing must be restored as a central pillar of the good society. Council tax, the mortgage market, social housing and the system of tenure all require a major overhaul. It would all be integral to a British-style New Deal.

The British state that perforce must catalyse and lead all this must be reformed and recast. It needs the capacity to act strategically, but with far stronger mechanisms for being held accountable for what it does. Parliament must recover its capacity to deliberate and scrutinise along with making law. The reduction of MPs to mere lobby-fodder ciphers to service the transient whims of an unprecedented churn of ministers is surely one reason why nearly 100 this parliament – a record – have been sanctioned for gross lapses in their behaviour. Our second chamber, the Lords, must be democratised. Ethical standards, from conduct in office to political donations, need to be respected and enforced. Boris Johnson’s abuses cannot be allowed again. The independence of the judiciary must be better entrenched. The tone and content of our national conversation, framed by a dominant and frequently hysterically biased rightwing media magnified by social media, needs to be hosed down – a revival in public service broadcasting and regulation of content is a necessity.

Britain has the potential to become an envied European economic and social model. Indeed to re-engage with the European Union is another indispensable part of recovery. The case is not only economic, recovering lost markets, increasing trade intensity, and stimulating falling inward investment that are costing a lost 5% of GDP every year (and growing) but geopolitical. Britain must be “in the room” where the great decisions on Ukraine, defence, security, energy, climate emergency, and the regulatory standards are taken that will configure our continent. Empire and Commonwealth have gone; the 21st century will be shaped by three great blocs – the US, China and the EU. To be alone to assert a meaningless “sovereignty” to assuage the fantasies of rightwing populists is madness.

The emerging rightwing nexus of libertarian tax-cutters and immigration-phobes, so ready to put achieving those aims above the rule of law and respect for human rights, is unfit to govern. At the next election Britain needs a government that will sure-footedly reshape our capitalism and society to promote growth, enfranchisement and a country at ease with itself – respecting rather than deifying its past better to build the future. We can act to shape our destiny. This time no mistakes.

This article is an edited extract from This Time No Mistakes by Will Hutton, published by Head of Zeus (£25). To support the Guardian and Observer order your copy at guardianbookshop.com . Delivery charges may apply

Will Hutton and Alastair Campbell on How to Remake Britain, Union Chapel, London N1, Monday 15 April 7pm

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Risk Management Essay

Introduction.

Internal and external environments pose a wide range of risks to an organization. Managers should establish strategies to manage dangers for the business’ long-term survival. This risk management essay tries to analyze how it can be achieved.

The culture of the organization enhances risk management strategies. This can be maintained by inculcating a culture of good values, beliefs, norms and attitudes.

Changes in the global markets today create a huge risk to organizations, and this creates the need to have mechanisms to solve corporate problems professionally. Thus, the importance of risk management is evident as it is a crucial aspect of a business. Proper strategies need to be established to ensure the safety and survival of organizations in the turbulent market environments (Jafari, Rezaeenour, Mazdeh, & Hooshmandi, 2011).

Therefore, risk management entails setting goals and objectives and ensuring that they are achieved in the most effective manner, managing change that is brought about by the introduction of new strategies, and managing cultural and technological diversity, among other tasks. Security measures cover a wide range of activities and aim at establishing better strategies for promoting the success of an organization. By finishing a risk management reflection, this essay will examine the subject in more detail.

Enterprise wide risk management (EWRM)

Enterprise wide risk management involves managing risks and seizing opportunities which help an organization to achieve its objectives. Managing risks as opportunities come is very important in maintaining the success of the organization. Creating value to the shareholders capital is the major bestowed upon the managers of an organization.

This can be achieved by identifying opportunities available in the business environment and seizing them actively to ensure the interest of shareholders is protected. Therefore, EWRM is defined as an approach used to manage enterprises by controlling risks (Gupta, 2011).

It is important to note that organizations are founded on goals and it is the achievement of these goals that differentiates successful organizations from others. There are various risks associated with achieving goals and the management requires to develop strategies to reduce the effect or evaluate the impact such risks have on the organization.

Organizations set goals to be achieved and these goals can only be achieved by proper planning of all resources. Risks are encountered in every situation in an organization and it is important to put clear strategies to deal with risks as they occur to avoid losses (Hepworth, Rooney & Rooney, 2009).

Therefore, it is evident that EWRM is an important aspect that determines how organization succeeds in turbulent market conditions. Managers use risk management as a benchmark to measure the achievement of an organization. An organization that is able to manage all the risk elements successfully acquires better position in the market.

Most successful organizations have ventured in risky businesses and this has created a lot of wealth to the shareholders. Operating in high risk activities requires establishing a strong risk management system to ensure that the organization can not make a lot of losses in case the event of risks occurring (Mbuya, n.d.).

GRC and its relationship with EWRM

Governance, risk and compliance are management tools that comprise of three aspects. First, governance which refers to the process by which the top management team apply to control, plan, organize and direct the resources of an organization to achieve the goals which have been set by the shareholders. It involves making decisions by the top management by using the appropriate information.

Secondly, risk management involves the identification, analysis and response to the risks affecting an organization. To manage risks an organization can control, avoid, accept, or transfer the risks to other parties. Lastly, compliance deals with conforming to all requirements stipulated by the concerned stakeholders (Mohapatra, n.d.).

According to Wilson and Dobson (2008) governance, risk and compliance is related to EWRM in that the management puts measures to regulate the activities of the organization to ensure that all rules and regulations are adhered to. By complying with the rules and regulations of the organization, the management ensures that it avoids the risks of penalties related to legal systems of a country.

The management evaluates the costs related to the implementation of various strategies and this helps solve some problems that may affect the smooth operation of an organization. Compliance enhances the control of risks associated with the implementation of decisions made by the management of an organization (Mather, Kumaraswamy & Latif, 2009).

Therefore, we find out that there is a close relationship between GRC and EWRM because the two interact with each other. However, there are few differences between GRC and EWRM in that GRC deals with how organizations are managed and how the organization benefits when all rules and regulations are adhered to by all stakeholders.

It also explains the relationship between the internal and external environmental elements and how they interact with each other. On the other hand, EWRM is based on risk management at the enterprise level and provides little interaction between the internal and external environments (Mather, Kumaraswamy & Latif, 2009).

Opinion about risk management today

Enterprise wide risk management (EWRM) as an assurance tool is increasingly being mandated; indeed it is embedded as a concept in ISO31000:2009. This statement is a fair comment on the state of play today. Many organizations have realized the importance of managing risks and this has been facilitated by the intensifying number of risks in the market environments today.

To establish better strategy for improving the competitiveness of an organization can only be made possible by managing all the risks that may be associated with the implementation of such strategies (Loras, 2010).

Threats and responses to be offered

There are various threats that managers encounter when maintaining values in an organization. In competitive environment organizations face threats which may hinder accomplishment of the stipulated values.

Some of these threats may be cause by changes in internal and external environmental factors such macro and micro economic variables, legal factors, technological changes, political environments among others (Champoux, 2010).

The response to these threats determines the success of an organization. The management responds by studying the changes in the market conditions as well as other factors that may affect the activities of the organization.

Some examples of the responses that can be offered to these threats are change management, making better decisions, establishing stronger strategies, collaborating with consultants and other measures (Klein, 2011).

Change management is an important aspect that managers need to learn when dealing with threats and responses. Moran and Brightman (2001, pg 111) have defined change management as “the process of continually renewing an organization’s direction, structure, and capabilities to serve the ever-changing needs of external and internal customers.”

Change is the opening through which people or organization focus the future by bringing new systems which create success. Change can be introduced by an individual person or organization or it can be happen by itself. Change brings opportunities for growth and improvement.

The management of an organization should become fast in introducing and implementing change since the world is changing at an alarming speed. Jennings and Haughton (2002) explain that the need for change has been caused by “revolutionary technologies, consolidation, well-funded new competition, unpredictable customers, and a quickening in the pace of change hurled unfamiliar conditions at management.” (P. 212).

Change management focuses on developing future structures of a business to improve the performance as well as introduce new technologies which improve the performance of the organization. The path towards establishing future structures should be well monitored to create a smooth transition for the organization to achieve the desired changes as well as manage risks.

Crisis within the organization create the need for organizational change and the management should be prepared to handle all changes that might be required by the organization. The internal and external business environments are changing at an alarming rate and change management is an essential tool for capturing new developments being introduced.

Competition in the global markets has increased and this is forcing managers to introduce innovation in the management of the systems within an organization in order to catch up with the changes (Luecke, 2003).

Many changes introduced within an organization fail due to poor preparedness as well as management of the entire process. The lack of appropriate frameworks to support the implementation and management of change within an organization are the main causes of failure by many changes introduced by the management (Burnes, 2004).

The nature of organizational change has been assumed for a long period of time by managers and contemporary studies have indicated that strict measures should be introduced to cater for the gap between the success and failure of the changes being introduced by an organization.

According to Edmonstone (1995) “many of the change processes over the last 25 years have been subject to fundamental flaws, preventing the successful management of change” (p. 16).

Contemporary studies have identified that the pace of change management has increase in the recent years and managers are becoming more responsive to the changes in the environment (Burnes, 2004). There is no organization or industry is immune from change since change is caused by many internal and external factors.

The introduction, implementation and monitoring of change requires the collaboration of all stakeholders to an organization. Change cannot be achieved by an individual department, or sector. The management should respond quickly to internal and external changes required by the organization. Delays in response can retard the achievement of appropriate change.

Since new technologies are being introduced in the global markets each day, delay in establishing change may result into the organization adopting old systems which are not beneficial. Adequate research should be done into the recent changes in the market. There are no universally acceptable processes of creating change in an organization. The management should apply the best structures relevant to the organization (Burnes, 2004).

Inculcating culture in EWRM and/ or GRC

According to Kotter and Heskett (1992) culture refers to the beliefs, attitudes, values and norms that a given people have. The organizational culture is defined by the stakeholders and this is reflected in the nature of activities the management sets. The culture of an organization is inculcated in the GRC by creating systems of compliance.

Culture establishes the norms to be observed by all stakeholders and this creates the basis of compliance. Culture explains the extent to which the management can take risks while managing the resources of an organization (Klein, 2011).

There are organizations which are risk-averse while others are encourage taking risks as the basis of operation. This differentiates the decisions to be made by the management during the operation and implementation of the strategies (Burnaby & Hass, 2009).

To achieve appropriate governance the management requires establishing better strategies of promoting the cultural morals of an organization. Cultural morals have become a major concern in the business world today because organizations are operating in multicultural environments.

Working with people from different cultures requires understanding the cultures of each person in the organization Global human resource management involves dealing with people from different cultures and different backgrounds. There are several advantages and disadvantages of operating global human resource management.

Some companies have failed while others have acquired great success after extending their operations across the borders. Proper strategies are required in the management of employees with diversified cultures.

The political, legal and social environments in the global labor markets are different and the management should be very accurate in establishing the appropriate strategies which match the particular needs of the different employees. With the increase in globalization many people are seeking employment across the borders of their domestic markets.

However, organizations dealing in the international scene face some challenges when relocating employees from one country to another. There are several barriers which hinder managers of multinational companies from relocating their employees from one country to another. These barriers relate to the physical conditions, legal aspects, economics, and cultural barriers (Golembiewski, 1995).

Complexity in the diverse cultures makes is difficult to operate in many countries. Several companies have failed in their strategies to operate in the global scene due to due to poor integration of the ingredients required in multinational human resources management. Global human resource management is a strategy that is gaining a lot of importance especially after the spirit of globalization started.

Several companies have improved their performance after establishing proper strategies to manage their employees while others have failed due to poor integration of the required aspects of global human resources management.

The need to understand the cultural differences, the diversity in economic, legal and political environments is very important when dealing with global human resources management (Burnaby & Hass, 2009).

The culture of an organization dictates the shape taken by the management goals and objectives. The success or failure of organizational change is determined to a great extent by the culture in the organization

Cultural change is required for the achievement of successful change management strategies. The globalization of many organizations has created a scenario where multinational organizations are operating in diverse cultures where many people are involved. The integration of each cultural aspect into the processes of the organizational change is essential for the success of the organization.

The global business requires applying the best strategies to achieve a competitive edge. Many global organizations have failed to venture into some countries due to poor analysis of cultural aspects of the people it is involved in. the management of change is a very important aspect in achieving success in accomplishing global goals.

The management of an organization must analyze the cultural needs of all consumer groups. This will enable the management to match the cultural needs of the various consumers into the products being manufactured by the organization.

In addition, the employees of the organization need to understand the cultural aspects of the organization in order to establish goals which are achievable and which will create success to the organization. Both the internal and external environmental factors should be well analyzed when integrating a culture that will create successful change management strategies (Schein, 1992).

Changing culture is a systematic process which requires proper strategies to ensure all stakeholders internalize the required changes. This process is affected by factors such as the complexity, ambiguity and powers the cultural aspects of the organization.

The main architects of an organizational culture are the top management individuals.The culture of an organization is developed by the people working there as well as all other internal and external stakeholders (Schein, 1992).

Is it simply too expensive for value?

It is not too expensive to maintain values in an organization because there are more benefits accrued from operating in an ethical manner. Values provide an organization with the guidelines to be applied in the implementation of strategies.

When an organization conducts business unethically there are many costs incurred and these can only be avoided by applying the best values possible. Maintaining values improves the public image of an organization and this makes an organization achieve a competitive edge (Thompson & Martin, 2005).

Organizations which fail to establish a good system of values they end up incurring many losses which could have been avoided. These costs may include loss of customer trust, legal action, bad corporate image and others.

The cost of failing to maintain values in an organization is too high not only in the short run but also in the long run. Organizations which focus on existing in the market for a longer period of time use strategies which promote a good image which will attract more customers, they maintain legal ethics and other activities which improve the position of the company in the market (Cunningham, 2001).

Conclusion of risk management analysis

Risk management is an important process that managers should maintain in an organization. It is inevitable to have risks and managers should have better strategies to deal with risks. The long-term survival of an organization depends on the ability to manage risks. The intensifying competition in the global markets has forced managers to focus on maintaining a strong risks management program by establishing values.

Complying with the values and cultural aspects of an organization is important in achieving the goals and objectives of an organization. The culture of an organization determines its success in the market environment. It is a reflection of the beliefs and attitudes that people have towards the organizational systems.

Culture is developed and shaped by the stakeholders of the organization. Change management is very important to an organization and managers should possess the required skills of carrying out this process. Therefore, risks management is an important activity for organization in the modern market environment and all managers should embrace it for the long-term survival of their businesses.

List of bibliography

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Burnes, B. (2004) Managing Change: A Strategic Approach to Organizational Dynamics , 4th Edn (Harlow: Prentice Hall)

Champoux, J. (2010). Organizational behavior: Integrating individuals, Groups, and organizations . New York: NY, Taylor & Francis.

Cunningham, B. J. (2001). Researching organizational values and beliefs: the Echo approach. New York: NY, Greenwood Publishing Group.

Edmonstone, J. (1995) ‘managing change: an emerging consensus’, Health Manpower Management, 21(1), pp. 16–19.

Golembiewski, R. T. (1995). Managing diversity in organizations . Alabama, University of Alabama Press.

Gupta, P. K. (2011). Risk management in Indian companies: EWRM concerns and issues. The Journal of Risk Finance , 12(2). P. 121-139.

Jafari, M., Rezaeenour, J., Mazdeh, M. and Hooshmandi, A. (2011). Development and evaluation of a knowledge risk management model for project-based organizations. Management decision , 49(3). P. 309-329.

Jennings, J. and L. Haughton. (April 16, 2002). It’s not the BIG and eats the SMALL… it’s the FAST that eats the SLOW. Harper Paperbacks; 1st edition. 288 pages. ISBN-10: 0066620546 ISBN-13: 978-0066620541

Klein, A. (2011). Corporate culture: its value as a resource for competitive advantage. Journal of Business Strategy , 32(2). p. 21-28.

Kotter, J. P. and Heskett, J. L. (1992). Corporate culture and performance. New York, Simon and Schuster.

Loras,J. (2010). Book Review : Strategic Risk Management Practice: How to Deal Effectively with Major Corporate Exposures. Management Decision, 49(1). p. 167-170.

Luecke, R. (2003) Managing Change and Transition (Boston, MA: Harvard Business School Press).

Mather, T., Kumaraswamy, S. & Latif, S. (2009). Cloud Security and Privacy: An Enterprise Perspective on Risks and Complianc e. New Jersey: NJ, O’Reilly Media, Inc.

Mbuya, J. C. (n.d.). Risk management strategy . South Africa, Dr John Chibaya Mbuya.

Mohapatra, (n.d.). Business Process Automation . New Delhi, PHI Learning Pvt Ltd.

Moran, J. W. and Brightman, B. K. (2001). ‘Leading organizational change’, Career Development International, 6(2), pp. 111–118.

Schein, Edgar. (1992). Organizational Culture and Leadership , Second Edition. San Francisco: Jossey-Bass

Thompson, J. L. and Martin, F. (2005). Strategic management: awareness and change. London, Cengage Learning EMEA.

Wilson, S. B. and Dobson, M. S. (2008). Goal setting: how to create an action plan and achieve your goals. New Jersey: NJ, AMACOM Div American Mgmt Assn.

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IvyPanda . 2022. "Risk Management Essay." June 19, 2022. https://ivypanda.com/essays/risk-management-essay/.

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IvyPanda . "Risk Management Essay." June 19, 2022. https://ivypanda.com/essays/risk-management-essay/.

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