Risk Management Part 2: How Risky is Your Business?

Continuing on from our previous blog about risk management, we will be looking at two other forms of main risks that can have high impact on your business and some ways they can be treated to ensure that your business is less prone to them.

Financial Risk
One of the most significant risks that a company faces are financial risks. These are particularly important to identify and manage correctly because they carry a high impact but are usually of low level occurrence, meaning that even though they do not occur too often, they can have a significant negative impact on a company. Some types of common financial risks are; increase in interest rates, changes in currency exchange rates which can cause significant losses if the company operates in different countries or accepts payment in different currencies. With the fluctuations in exchange rate which are unpredictable, this can cause many ups and downs in the financial aspect of the business. Another financial risk that can occur is change in commodity prices for example increases in the price of fuel will have a very high impact on an airline company. This sort of risk can be treated by the company by making a futures contract. This type of contract can be made in order to negotiate a fixed future price of a commodity that will have a significant negative impact on the organization in the case that it occurs.

Infrastructure Risk
Risk of loss because of the possibility that the infrastructure is not sufficient to carry out a necessary project by a company. Such type of risks have higher level of occurrence in developing countries or in rural areas but in major cities like Toronto such type of risk is of low frequency but still of high impact in most cases. One example of this can be outsourcing a project to India that involves a lot of traveling, this can be problematic if there are not proper highways or roads built in the area. The type of mitigation strategy that can be used in such type of infrastructure risk is to terminate it. The project can be outsourced to other countries like China that have a stronger infrastructure system to avoid any losses.

The thing that is key here is to identify any sort of risks that have or could take place regularly and devise appropriate strategies to mitigate them.

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