Risk refer to unplanned events which cause harm to the organization and lead to disturbances and major unrest amongst the employees.
Risk gives rise to a feeling of fear and threat in the individuals who eventually lose interest and trust in the organization.
Gonzalez-Herrero and Pratt proposed a Risk Management Model which identified three different stages of Risk management.
According to Gonzalez-Herrero and Pratt, Risk management includes following three stages:
Diagnosis of Risk: The first stage involves detecting the early indicators of Risk. It is for the leaders and managers to sense the warning signals of a Risk and prepare the employees to face the same with courage and determination. Superiors must review the performance of their subordinates from time to time to know what they are up to.
The role of a manager is not just to sit in closed cabins and shout on his subordinates. He must know what is happening around him. Monitoring the performance of the employee regularly helps the managers to foresee Risk and warn the employees against the negative consequences of the same. One should not ignore the alarming signals of Risk but take necessary actions to prevent it. Take initiative on your own. Don’t wait for others.
Planning: Once a Risk is being detected, Risk management team must immediately jump into action. Ask the employees not to panic. Devise relevant strategies to avoid an emergency situation. Sit and discuss with the related members to come out with a solution which would work best at the times of Risk. It is essential to take quick decisions. One needs to be alert and most importantly patient. Make sure your facts and figures are correct. Don’t rely on mere guess works and assumptions. It will cost you later.
Adjusting to Changes: Employees must adjust well to new situations and changes for the effective functioning of an organization in near future. It is important to analyze the causes which led to a Risk at the workplace. Mistakes should not be repeated and new plans and processes must be incorporated into the system.
Simple Risk Management Model Chat:
Structural Functions Systems Theory:
According to structural functions systems theory, communication plays a pivotal role in Risk management. The correct flow of information across all hierarchies is essential. Transparency must be maintained at all levels. Management must effectively communicate with employees and provide them the necessary information at the times of Risk. Ignoring people does not help, instead, makes situations worse. Superiors must be in regular touch with subordinates. Leaders must take charge and ask the employees to give their best.
Diffusion of innovation Theory:
Diffusion of innovation theory proposed by Everett Rogers supports the sharing of information during emergency situations. As the name suggests during Risk each employee should think out of the box and come out with something innovative to overcome tough times. One should be ready with an alternate plan. Once an employee comes up with an innovative idea, he must not keep things to himself. Spread the idea amongst all employees and departments. Effective communication is essential to pass on ideas and information in its desired form.
Unequal Human Capital Theory:
An unequal human capital theory was proposed by James. According to unequal human capital theory, inequality amongst employees leads to Risk at the workplace. Discrimination on the grounds of caste, job profile as well as salary lead to frustrated employees who eventually play with the brand name, spread baseless rumors and earn a bad name for the organization.
Risk Management: What is Risk? A sudden and unexpected event leading to major unrest amongst the individuals at the workplace is called organization Risk. In other words, Risk is defined as an emergency situation which disturbs the employees as well as leads to instability in the organization. Risk affects an individual, group, organization or society on the whole.
Know and Understand the Risk Management.
Definition of Risk management: The identification, analysis, assessment, control, and avoidance, minimization, or elimination of unacceptable risks. An organization may use risk assumption, risk avoidance, risk retention, risk transfer, or any other strategy (or a combination of strategies) in proper management of future events.
Characteristics of Risk:
The risk is a sequence of sudden disturbing events harming the organization.
Risk generally arises on short notice.
Risk triggers a feeling of fear and threat amongst individuals.
Risk can arise in an organization due to any of the following reasons:
Technological failure and Breakdown of machines lead to Risk. Problems in the internet, corruption in the software, errors in passwords all result in Risk.
Risk arises when employees do not agree with each other and fight amongst themselves. Risk arises as a result of the boycott, strikes for indefinite periods, disputes and so on.
Violence, thefts, and terrorism at the workplace result in organization Risk.
Neglecting minor issues, in the beginning, can lead to major Risk and a situation of uncertainty at the workplace. The management must have complete control of its employees and should not adopt a casual attitude at work.
Illegal behaviors such as accepting bribes, frauds, data or information tampering all lead to organization Risk.
Risk arises when the organization fails to pay its creditors and declares itself a bankrupt organization.
The art of dealing with sudden and unexpected events which disturb the employees, an organization as well as external clients refer to Risk Management.
The process of handling unexpected and sudden changes in organizational culture is called Risk management.
Need for Risk Management:
Risk Management prepares individuals to face unexpected developments and adverse conditions in the organization with courage and determination.
Employees adjust well to the sudden changes in the organization.
Employees can understand and analyze the causes of Risk and cope with it in the best possible way.
Risk Management helps the managers to devise strategies to come out of uncertain conditions and also decide on the future course of action.
Risk Management helps the managers to feel the early signs of Risk, warn the employees against the aftermaths and take necessary precautions for the same.
What is Risk Management? #Pixabay.
Essential Featured of Risk Management:
Risk Management includes activities and processes which help the managers as well as employees to analyze and understand events which might lead to Risk and uncertainty in the organization.
Risk Management enables managers and employees to respond effectively to changes in the organizational culture.
It consists of effective coordination amongst the departments to overcome emergency situations.
Employees at the time of Risk must communicate effectively with each other and try their level best to overcome tough times. Points to keep in mind during Risk
Don’t panic or spread rumors around. Be patient.
At the time of Risk, the management should be in regular touch with the employees, external clients, stakeholders as well as media.
Avoid being too rigid. One should adapt well to changes and new situations.
Risk management is the identification, assessment, and prioritization of risks (defined in ISO 31000 as the effect of uncertainty on objectives) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities. Risk management’s objective is to assure uncertainty does not deflect the endeavor from the business goals.
Risks can come from various sources including uncertainty in financial markets, threats from project failures (at any phase in design, development, production, or sustainment life-cycles), legal liabilities, credit risk, accidents, natural causes and disasters, deliberate attack from an adversary, or events of uncertain or unpredictable root-cause. There are two types of events i.e. negative events can be classified as risks while positive events are classified as opportunities.
Several risk management standards have been developed including the Project Management Institute, the National Institute of Standards and Technology, actuarial societies, and ISO standards. Methods, definitions, and goals vary widely according to whether the risk management method is in the context of project management, security, engineering, industrial processes, financial portfolios, actuarial assessments, or public health and safety.
The process of Investment: An organized view of the investment process involves analyzing the basic nature of investment decisions and organizing the activities in the decision process. This process creates a strong yet flexible framework for our investment professionals to work together, sharing ideas and challenging each other’s views. It is constantly evolving and we continue to invest in the resources required to ensure it remains robust. Investment managers participate in our Investment process, from company visits and internal discussions to analyzing external broker research and assessing investment themes. The process informs their decisions but your requirements remain paramount. So, the question is – What is the Process of Investment? Explains.
The Concept is to Explain the Process of Investment.
The investment process governs by the two important facets of investment they are the risk and return. Therefore, we first consider these two basic parameters that are of critical importance to all investors and the trade-off that exists between expected return and risk.
Given the foundation for making investment decisions the trade-off between expected return and risk- we next consider the decision process in investments as it is typically practiced today. Although numerous separate decisions must be made, for organizational purposes, this decision process has traditionally been divided into a two-step process: security analysis and portfolio management. Security analysis involves the valuation of securities, whereas portfolio management involves the management of an investor’s investment selections as a portfolio (package of assets), with its unique characteristics.
Security Analysis:
Traditional investment analysis, when applied to securities, emphasizes the projection of prices and dividends. That is, the potential price of a firm’s common stock and the future dividend stream are forecasted, then discounted back to the present. This intrinsic value is then compared with the security’s current market price. If the current market price is below the intrinsic value, a purchase recommendation, and if vice versa is the case sale recommend.
Although modern security analysis is deeply rooted in the fundamental concepts just outlined, the emphasis has shifted. The more modern approach to common stock analysis emphasizes return and risk estimates rather than mere price and dividend estimates.
Portfolio Management:
Portfolios are combinations of assets. In this text, portfolios consist of collections of securities. Traditional portfolio planning emphasizes the character and the risk-bearing capacity of the investor. For example, a young, aggressive, single adult would advise buying stocks in newer, dynamic, rapidly growing firms. A retired widow would advise purchasing stocks and bonds in old-line, established, stable firms, such as utilities.
Modern portfolio theory suggests that the traditional approach to portfolio analysis, selection, and management may yield less than optimum results. Hence a more scientific approach needs, based on estimates of risk and return of the portfolio and the attitudes of the investor toward a risk-return trade-off stemming from the analysis of the individual securities.
Characteristics of Investment:
The characteristics of investment can understand in terms of as:-
Return,
Risk,
Safety,
Liquidity etc.
Now, explain;
Return:
All investments characterize by the expectation of a return. Investments are made with the primary objective of driving return. The expectation of a return may be from income (yield) as well as through capital appreciation. Capital appreciation is the difference between the sale price and the purchase price. The expectation of return from an investment depends on the nature of the investment, maturity period, market demand and so on.
Risk:
The risk is inherent in any investment, the risk may relate to the loss of capital, delay in repayment of capital, nonpayment of return or variability of returns. The risk of an investment is determined by the investments, maturity period, repayment capacity, nature of return commitment and so on.
Risk and expected return of investment are related. Theoretically, the higher the risk, the higher the expected return. The higher return is compensation expected by investors for their willingness to bear a higher risk.
Safety:
The safety of investment identifies with the certainty of the return of capital without loss of time or money. Safety is another feature that an investor desires from investments. Also, Every investor expects to get back the initial capital on maturity without loss and delay.
Liquidity:
An investment that is easily scalable without loss of money or time says to be liquid. A well-developed secondary market for security increases the liquidity of the investment. An investor tends to prefer maximization of expected return, minimization of risk, the safety of funds and liquidity of the investment.
Investment categories:
Investment generally involves a commitment of funds in two types of assets:
Real assets
Financial assets
Realassets:
Real assets are tangible material things like building, automobiles, land, gold, etc.
Financialassets:
Financial assets are a piece of paper representing an indirect claim to real assets held by someone else. These pieces of paper represent debt or equity commitment in the form of IOUs or stock certificates. Also, investments in financial assets consist of – Securities (i.e. security forms of) investment Non-securities investment.
The term ‘securities’ used in the broadest sense, consists of those papers which quote and are transferable.
Under section 2 (h) of the Securities Contract (Regulation) Act, 1956 (SCRA) ‘securities’ include:
Shares., scrip’s, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or another body corporate. Government securities. Such other instruments may declare by the central Government as securities, and, iv) Rights of interests in securities.
Therefore, in the above context, security forms of investments include Equity shares, preference shares, debentures, government bonds, Units of UTI and other Mutual Funds, and equity shares and bonds of Public Sector Undertakings (PSUs). Non-security forms of investments include all those investments, which are not quoted in any stock market and are not freely marketable. viz., bank deposits, corporate deposits, post office deposits, National Savings and other small savings certificates and schemes, provident funds, and insurance policies.
Another popular investment in physical assets such as Gold, Silver, Diamonds, Real estate, Antiques, etc. Indian investors have always considered the physical assets to be very attractive investments. Also, there are a large number of investment avenues for savers in India.
Some of them are marketable and liquid, while others are non-marketable, Some of them are highly risky while some others are almost risking less. The investor has to choose proper avenues from among them, depending on his specific need, risk preference, and return expectation. Learning is best things, How to Earn a Profit process of investment?
Investment avenues can be broadly categorized under the following heads:
