Managing Risk and Uncertainties Essay

In this sample essay we shall be looking at the topic of “managing risk and uncertainties”. Moreover as we know managing risks and uncertainties are important activities in a business setting. Moreover, it helps with making better and more effective decisions. As such it is also an important topic to learn and understand for management students.

Moreover, we shall be discussing various aspects and concepts related to the topic of our sample essay. We shall be discussing the following topics: firstly we shall be discussing the definition of managing risks and uncertainties. Then we shall discuss the relationship between risk and uncertainties. Adding to this, we shall be discussing the importance of managing risks and uncertainties. Finally, we shall be looking at the various strategies used in managing risk and uncertainties.

What is meant by Managing risk and uncertainties?

As the name tells, managing risk and uncertainties refers to the process of using various methods and strategies in order to reduce or eradicate if possible the risk and uncertainty that arise and challenges the functioning of an organization or entity. Moreover, it may also include anticipating risk or uncertainties before they appear or grows large enough to cause a challenge.

As we known uncertain periods in economics during recent years have caused major effects on operations of the companies and organizations. Adding to this, companies that were previously performing well with tools like forecasting, projections, etc now do not make large business decisions irrationally. Moreover, organizations are now shifting their focus on managing risks.

The relation between risks and uncertainties

Risk and uncertainties are not exactly the different names for the same things yet it is easy to get confused between them. In fact, these two terms differ quite a lot from each other. To clarify things we will be looking at both of them in brief.

Managing risks and uncertainties closely follows the functioning of risk management. Talking of which, we recommend you to read our other sample essays which are closely related to this very topic. Namely; enterprise risk management and risk management in treasury. These two sample essays will help you learn more about this concept and some new things.

Importance of managing risks and uncertainties

In this section of the sample essay, we shall be looking at the importance of managing risk and uncertainties. Apart from the obvious importance, there are other certain reasons for which managing risks and uncertainties is important.

In any given organization or business setting the main cause of uncertainty is a risk. Thus, companies actively focus on the identification and management of risk well before they cause significantly affect the organization. Therefore we can say that managing risks and uncertainties is important as it helps companies or business make a better and more effective decision which in turn help overall growth.

Strategies of managing risks and uncertainties

The process of managing risks and uncertainties requires several methods and strategies. As with everything, different strategies are used in different situations as per the needs of the organization or situation. Nevertheless, we shall be looking at some of these strategies in this section of the paragraph. We shall be discussing the following strategies:

• Benchmark strategy
• Financial hedging strategy
• Flexible strategy
• Operational hedging strategy

The name of these strategies might have provided readers some ideas of their scope. Nevertheless, we shall be discussing these four strategies in brief below:

Benchmark Strategy

The benchmark strategy fits best to the situation where variable risks are closer to the expected values and shocks from uncertainty do not challenges the survival of an organization or company. Moreover, it is obvious that if a company has a larger and stable treasury they are more risk and uncertainty tolerant. Adding to this, an organization using benchmark strategy is seen to employ sensitivity tests yet do not let risk and uncertainty insight affect their fundamental decisions.

Financial Hedging Strategy

The financial hedging strategy is where the value of the organization is less sensitive to risk and uncertainty factors. Therefore, the reaction to the shock of uncertainty is similar to the benchmark strategy.  Adding to this, here we assume that there are costs and capital involved in developing the ability to use this strategy i.e. financial hedging strategy.

Flexible Strategy

As the name implies, a Flexible strategy is one that takes into consideration the ability of risk factors to hold different values as well as the possibility of shocks due to uncertainty. Moreover, an organization using this strategy plans operations and processes in such a way that it gains the ability to respond quickly and perform best in a given situation.

Operational Hedging Strategy

The final strategy we will be discussing in this section of the paragraph is namely “operational hedging strategy”. Moving on, it refers to those methods of optimizing operations as well as managing processes in order to make the profit of the firm less sensitive to changes in risk factors and shocks of uncertainty.

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