There are many risks that occur in organizations, such as financial risks, which the board of directors should assume ownership and find ways of solving them. The risk ownership at board level is important as the management can deal with the major risks and avoid losses in terms of revenue and profits. Through monitoring and evaluation, the board of directors can prevent some of the possible risks and reduce their impact on the business operations. When directors own the company’s risks, they ensure that proper mechanisms of risk control and management occurs at the top all the way to the bottom. The directors therefore, track and supervise the management of the risk at various levels through direct monitoring and evaluation. The principle, therefore, ensures that the burden of dealing with perils that affect their organization does not go to the junior managers or the stakeholder. The board of directors assume full responsibility and control of the organization’s activities including the risky ones. The principle of the risk ownership helps the organization to avoid losses occurring due to squandering of resources, especially when there is little or no follow ups of the risk managers by the directors. By owning the financial and other risks associated with the organization, the directors instill confidence to the shareholders and improve the image of their company. Good decisions by the board of directors on behalf of the stakeholders helps the organization to achieve the organizational goals through wise decisions. Risk ownership reduces the chances of a company’s failure since the possible risks resulting from the top management can address issues capable of making the company suffer losses. In the big business venture, Risk ownership by the directors is important, as it helps the management to engage in less risky activities and reap maximum benefits, such as free web access to their information. Through the act of risk ownership by the company directors, other means of business operations can form an important solution in risk avoidance by companies. The directors will concentrate on only the less risky methods of business operations, such as the use of proper documentation and use of security codes. Directors who own risks offer good advice to the company stakeholders on the best locations to set their ventures, such as areas free from terrorist attacks. Directors can offer advice to the company to leave certain projects that are too risky and venture in the ones that are less risky and profitable if they take ownership of the risks. There are more benefits when the directors manage the organization’s risks instead of leaving them to the junior employees, as they can track the progress of the risk management at all levels.

Financial risks management

A risk is the probability of the occurrence of a loss or liability in business ventures or organizations during their daily operations. If a risk results in a direct loss of finances or reduced profits, it is a financial risk. Financial risk management involves the economic means of controlling and managing the exposure of an organization to the perils, such as risks are the insurance companies, which compensate the organization in case of losses suffered after the risks occur. For big losses, organizations opt to transfer them to the insurance companies and pay premiums as per their agreement. Some of the financial risks, such as the destruction of the company’s property by fire, results in huge financial losses and companies take the chance of insuring them. Through the risk transfer, the company goes back to its original state before the risk occurred once the insurance company compensates it.

Another means of managing financial risks by organizations and companies is through reducing the chances of the risk occurring or reducing its impact on the company. Some financial risks occur due to currency fluctuations, and the company must find means of dealing with such kind of risks. One way is by purchasing the guarantee of the currency rate to minimize the effect. International companies are the main users of this strategy since they deal mostly with foreign currencies. Foreign currencies keep on fluctuating depending on the performance of the exchange rates. The companies may hire experts to review on projects that have fewer risks associated with currency fluctuations. High-risk projects need experts with good management skills to manage and monitor their progress to reduce the chances of the risk occurrence.

Risk sharing is another method of managing financial risks in which a company forms partnership with another one with the aim of sharing the risks in case they occur. The strategy is also common to international companies with projects in different countries. In this strategy, the company or organization enters into a partnership with a company in that country, in which they share the profits and ay risks, which may occur. The company entering the partnership should look for a company with a high experience in managing the risk that the other company lacks to enhance the performance of the business activities.

The other strategy in financial risk management is risk avoidance in which organizations or companies take an alternative means of running the project that has a higher chance of succeeding. The strategy taken may be more costly for the project, but the benefits outweigh the risks involved. Some of the strategies are using the already existing techniques, which can lead to the success of the company instead of venturing into new ones. The company can also avoid using new technology if the risks involved are higher than moving on with the former operation methods. When choosing suppliers and dealers, the company should go for the ones with a good reputation and avoid drug addicts and conmen. Selecting dealers that do not deal with drugs will also reduce the chances of a company from suffering financial losses.

The other strategy an organization may apply is the use of a contingency plan that involves having an alternative strategy of achieving a similailway for the same job. The management of the organizations has funds set aside, for alternative means of addressing the events that may occur during the business operations. The amount of funds depends on the size of the organization and the size of the risk.

Conclusion

There are many risks that occur in organizations, such as financial risks, which the board of directors should assume ownership and their solutions. Through the risks ownership, the directors take full responsibility of identifying and evaluating them. There are several measures, such as transferring of the risks to other parties within the organization instead of suffering the losses resulting from the risks. There are methods of managing risks through the qualitative and quantitative means through identifying and evaluating the impact the risk has to an organization.

References

Jamaludin, A. and Ahmad, F. (2012). Managing Financing Risks in Financial Institutions. AJFA, (5), 1.

Lowy, M. (2003). Corporate governance for public company directors. New York, N.Y.: Aspen.

Pm4id.org, (2015). 11.2 Risk Management Process. [online] Available at: http://pm4id.org/11/2/ [Accessed 31 Mar. 2015].