Fin 415 Paper - Risk Management Overview

Risk Management Overview

University of Phoenix

April 4, 2011

FIN/415

When considering the word risk, one may think of the "danger" that may occur in a given situation. When relating to an organization or a business the word risk refers to a loss- in particular the uncertainty that may come along with that loss. Risks cause problems for a business, but also can cause an "economic burden for society by raising the cost of certain goods and services and eliminating the provision of others" (Trieschmann,Hoyt,Sommer, 2005).

An organizational risk is a large spectrum of possible small risks that can add up and affect the overall downfall of one larger organization. Whereas a business risk, relates to a smaller portion of a larger organization. A business risk occurs when there is occurrences in which will impact the operation of a company.

There are several ways that risk can be categorized. The following are different ways that a business can be at risk:

Pure risk exists when there is uncertainty as to whether loss will occur. Speculative risk exists when there is uncertainty about an event that could produce either a profit or a loss. Static risks are present in an unchanging, stable society. Dynamic risks are produced by changes in society. Subjective risk refers to the mental state of an individual. Objective risk, which is measurable, is the probable variation of actual from expected experience. (Trieschmann,Hoyt,Sommer, 2005).

A business can definitely face all these kinds of risks. Although most people think of risk as the pure risk that occurs in a situation there are more ways a business can be at risk. When there is uncertainty if the product will sell, this itself is a risk to a company that is either starting off or well established, which is known as speculative risk. This is the type of risk that most people will think of when talking about selling a product. Unfortunately, there are many more risks that can affect a company that one might not consider. It was probably not something many business owners wanted to think about, but had to face in the last several years-economic changes that affected businesses. These Dynamic risks have caused the society to change the way that a business is being run. From the employees that needed to be laid off of work to the slowing of business and slowing down of profit that is being made. It was something that I have seen first hand and experienced personally. It was not something that anyone had control over. In fact, that caused other people to experience subjective risk since there were changes in the company and more work required with less people in each department. This was not the only way that this affected those