Risk Management

Abstract

Risk can be viewed as either a threat or an opportunity. Value is not created without risk, and innovation without risk is a contradiction. Attempting to entirely eliminate risk is not a practical exercise because of the associated costs, and so there has to be a trade-off between any benefits from reducing risk and the costs of doing so. Business risks are those that an organization willingly assumes to create a competitive advantage and add value. The motivation for organizations to better understand and measure risk is being driven by:

• The increasing awareness that earnings volatility can significantly affect stock price valuation and shareholder value;

• The increasing size and types of interrelated risk exposures organizations are facing due to the globalization of markets and increased international trade;

• Organizational requirements for improved exposure and risk-related information to define management’s risk appetite and improve decision-making.