Risk Investment and Risk Management in Business Industry

 

 

Keywords: risk, investment, business, management, information

 

Smart investing includes risk management. For each stock, bond, mutual fund or other investment you purchase, there are three distinct risks you must guard against; they are business risk, valuation risk, and force of sale risk. In this article, we are going to examine each type and discover ways you can protect yourself from financial disaster. There are by now three kinds of investment risk: Business Risk, the potential for loss of value through competition, mismanagement, and financial insolvency; Valuation Risk and Force of Sale Risk. There is always some degree present in every investment you purchase. At the same time, by avoiding or minimizing specific types of risk, you can keep temporary hiccups in the economy or financial markets from destroying your wealth.

 

There is a tremendous amount of literature and advice on benchmarking.  When benchmarking across organizations, an independent third party often provides confidence in data gathering and comparisons as well as some anonymity for sensitive data.  Many trade associations, institutes, publications and consultancies provide a valuable role helping their clients to determine what to benchmark, when to benchmark, how to plan the process, how to manage the process and how to interpret the results wisely and sensibly. Many semi-permanent benchmarking clubs or information exchanges exist already for a wide variety of activities, e.g.  treasury transaction costs, manufacturing set-up times, facilities management standards, financial processing cycles, property investment returns, information technology performance or banking charges.

 

To date, most risk management process studies have been qualitative. A number of studies have been conducted. These industry leaders in risk management, despite the obvious differences in their business areas, attempted to compare their principles and procedures, briefing and communication, risk transfer and financing. Although the study was entirely qualitative, the final result was an illuminating document. Some organizations were risk-exposure driven, some functionally risk-focused, some site driven. The rate of business change seemed to affect the type of risk management approach chosen, yet certain communication processes seemed common. All six organizations gained new perspectives in risk management. Risk management benchmarking studies have been conducted in shipping, property, health, oil and other sectors.

 

Despite the recent introduction of risk management benchmarking, some common themes are already emerging from the initial studies. Clive Moffatt of Moffatt Associates notes: “Competitive pressures and compliance are forcing major companies to integrate their approaches to managing business risks. Our research has revealed that the key obstacles to progress are internal conflicts over the scope and ownership of risk management and the lack of a common communications platform.  

 

 

 

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