Perceived Risk, Market Risk, and Accounting Determined Risk Measures

Businesses exist and are run in a constantly changing environment whether it is external or internal and the change needs to be monitored and assessed in order to provide a timely response. In order to be proactive in today’s competitive business scenario, the proper management of risks associated with business and projects undertaken becomes crucial for survival and success. Risk is therefore a threat to an organization’s ability to accomplish its missions and goals because it involves uncertainty about a future event. Risk management is an attempt to monitor & reduce the uncertainty with the help of strategies and techniques.

There are four basic steps universally used in risk management:

1. Risk Identification:

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There are controllable and uncontrollable events associated with a business or a project. All the possibilities that may affect the outcome of a project should be listed down. This is a crucial step and requires managers to be vigilant, observant and pragmatic because further steps cannot be applied if a risk is not identified properly.

2. Risk Quantification:

Risk once identified needs to be assessed both in terms of its probability and the impact it could have on the project or business. The simple way of assessing the risk will be to rate its probability and impact on a scale of let’s say 1-5 and multiply both.

Risk assessment = probability x impact

Let’s suppose if the probability of an uncertain event is rated 4 and its impact is rated 5 then the risk can be considered critical to the success of a business project. Similarly based on the ratings given and the product of the two values obtained, a risk can be considered critical, high, medium or low.

3. Risk Response:

Now that the risk has been assessed, management must immediately act to put a strategy in place in its response. There are three basic strategies managers adopt that is avoidance, mitigation or acceptance. Management may adopt the strategy of avoiding a risk completely if its considered critical to a projects success for example a distribution channel might not work out for a product and so manger might think of adopting an alternative channel for distribution.

Another strategy that management can pursue is of mitigation for example manager may make a decision to have two or more distributors for their product. Lastly, if the risk is too low or normal with a project of your stature manager may accept its presence with the project. Strategy formulation is not enough until actions necessary to implement a strategy are not identified and so decision in this regard should also be taken in this step.

4. Risk Response Control:

The last step is of monitoring the risks identified and assessed as the project goes on till its completion. If any deviations are found in the process then corrective actions should be taken to redress the issues. An adaptive approach can help in this step because managers may need to bring about some or complete change in the strategy if the possible impact of a risk differs from one previously assessed.

If the above-mentioned plan is followed and risk manger carries out proper analysis followed by action then success of a project and the business becomes more likely.

The two major types of testing:

Developmental Test and Evaluation
Operational Test and Evaluation
Live Fire Test and Evaluation is a third type used in certain cases
Implementation of Testing and evaluation is a promising step to revolutionize strategic goals in business achievements. Implementing test and evaluation management is to develop new assumptions for the positive approach and then re-considering it and implementing it to attain new goals that were never accomplished before (Shan, 1996). This is done to improve quality, production, reduce cost, thorough assessment and improve service. This would produce impressive work output with increased production in short time, to fulfill demands of the market, enhance customer response and to decrease labor force.

Implementing test and evaluation is done by increasing number of organizations and institutes to enhance their business performance. Different sectors of business community that are engaging Implementing are telecommunication services, hospitals, healthcare institutes, accounting services, financial institutes, order inventory and registration, automation of manufacturing, and food industries.

Logistic support problems are culturally based. They focus on the culture and the environment of an organization. Every business should be customer focus. Entrepreneurs are selling to customers, so it is a basic fact that products should be made according to customer’s need.  Hence, for developing business relations with any country an entrepreneurs must study, research and travel to that area to know more about people, their customs, their likes and dislikes. The more the entrepreneur will be familiar with the culture and the people, it is more likely that their business will blossom in that country.

All companies and organizations agree that excellent customer service is the key role in to assess trends in fluctuating market. It may also need to redesign completely the organizational structure that would reach customer, understand and identifying their needs. By using different assessment procedures customer relationship has to be improved with focus on customer requirements.

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