The main threat to earn profits in the long run is the risk Essay

The main threat to earn profits in the long run is the risk - Essay Example The risk in this sense comprises of two major elements. The first one is the probability that the system or the entity will fail to achieve its objectives. And the second is the consequences and results of such failure. In any business organization, risk is inevitable. However, how better the organization cope with such risks depends upon the techniques used by the entity for such purpose. The practice and act of identifying, assessing, handling and controlling risk related situations and issues in an organization is known as enterprise risk management. The process of risk management includes identification and tracking of risk associated areas, development of plans for mitigating risk, performance of risk assessment procedures and handling and monitoring risks. Thus, it may be seen that risk management is a very broad term and includes a number of issues being addressed during the application of risk management techniques. Along with identification and assessment of risks, the prior itization of risks is also an important part of risk assessment procedure. Thus, the process of risk management mainly focus on the probability of occurrence of unforeseen events in future and the impact of these events on the capability of the organization to achieve its objectives. ... All these risks threaten the capability of an organization to achieve its objectives. Following are the risks that usually occur more frequently: 1. Systematic Risk: Systematic risk is a risk which cannot be predicted, mitigated or reduced in any way. This is due to the reason that this risk may occur at any time and is completely out of control. Changes in the government legislation or interest rates prevailing in the economy are examples of systematic risk. To mitigate the impact of such risks, it is advised that the organization should remain prepared for the occurrence of such risks at any time and should undertake proper plans to cope with such risk. 2. Non-systematic Risk: These are the risks which occur due to the features of assets. Changes occurring in the management decisions and employees’ strikes are the examples of this type of risk. These risks can be easily eliminated by using the diversification process. 3. Financial Risk: Financial risk rises when the organiza tions heavily rely on the debts and loans. This type of financing is called debt financing. This type of financing increases the liability of the organization as the organization is liable to pay such money back in future. Thus, it becomes necessary for the organization to keep enough reserves so that this money may be paid back in future. Thus, the degree of risk and uncertainty rises overall. 4. Operational Risk: Operational risk is the risk associated with the operational level of the organization. When this risk arises, organizations do not able to perform its operations properly. Thus, operational risk includes risks arising from business operations, information reporting and leadership and management style adopted by the