In any business there is a risk factor. Regardless of whether we are talking about the production process, commodity-money relations, or other areas of economic activity. Economic processes influence the degree of stability; successful development is interconnected with an effective management apparatus capable of anticipating possible unfavorable situations.
History of risk management
The risks associated with losses arising in business activities have been known for a long time. Theories capable of studying and managing negative processes in the economy began to appear in the West back in the 19th century.
Even in established traditional economic systems, risks of losses may arise due to various reasons. The desire of any economic entity for stable activity and successful development contributes to the formation of the study of the theory and scientific justification of the risk management and management system.
Risk management of investment processes
Risk management is an important task even in stable economic conditions. The problem of analyzing possible risks under existing economic conditions comes to the fore in the process of economic activity. How is the effectiveness of risk management determined in modern business?
As a rule, a management process developed based on analysis and study of influencing factors is effective. When developing a management system, both internal sources of information related to the company and external ones are carefully studied.
An objective assessment of possible concepts for reducing risks in a company’s financial activities is hampered by insufficient investment, lack of financial literacy of personnel, and long implementation times business plans.
A scientific risk management system leads to effective economic management of each enterprise, minimizing losses associated with commercial or production activities.
Fundamentals and methods of risk management
High-quality control and management of risk management can only be ensured if there is a risk management program. The systems approach is most appropriate when developing management methods. The attitude to risk as possible losses as a result of economic activity allows us to be guided by the following types of activities:
- Loss prevention;
- Risk reduction;
- Compensation for damage incurred;
- Risk absorption.
The main task is to identify and detect the risk problem. This is possible by using analysis and modeling of various situations in which the potential for losses arises. After carrying out a number of measures, it is possible to eliminate the sources of development of unpleasant situations associated with expected losses.
Risk reduction is achieved by methods of effectively controlling the development of the situation and eliminating the source of development. Risk reduction methods include measures such as:
- Diversification, i.e. sharing risk between several activities;
- Limitation – setting limit values of investment investments;
- Financial engineering for risk management;
- Securitization or separation of sources of lending between different financial institutions.
European experts consider the introduction of new forms of transactions, such asletter of creditandfactoringto be the most important and promising forms of control and risk management. Non-fund insurance is promising; with this form of insurance, the costs of insurance itself are included in the price of the product or service.
Main goals and objectives of risk management
Risk management is a financial category. The impact on the size of possible losses is carried out using a financial mechanism. Financial relations that arise in the management process influence the strategy and tactics of directing the use of funds and achieving set goals.
The system consists of a control object and a control unit. Objects are possible emerging risks of financial losses as a result of economic relations. The goal and task of the management level is to carry out the effective functioning of the economic entity.
The effectiveness of risk management is determined by analyzing the economic efficiency of the company’s business activities. The justification for the conclusions is the study of the financial activities of competitors’ enterprises, partners, and internal processes. To carry out such an assessment, data that can be obtained from external sources and internal facts for assessing economic indicators are required.
