An introduction to financial risk management


Financial risk management is about protecting yourself from market exposures. A key step in doing this includes developing relevant processes and making sure that they are followed. 

If you are a business owner, it may mean that you limit the types of investments selected. 

Financial risk management means putting some form of controls in.  

Organisations must be able to spot risks, how they come about, how to measure them as well as how to address them.  Businesses should be able to anticipate risk too. 

Executives may be able to work out which risks may be less expensive to manage on behalf of shareholders. It’s essential for an organisation to have good risk management. Some risks can be managed. 

Market risk may lead to financial risk. Changing conditions in the marketplace should be anticipated. By having measures in place, the organisation will be able to mitigate risk, allowing it to avoid losing money. 

If a business provides credit to customers, there is a risk that some may not pay on time. This would likely affect the finances of the company because cash flow would be affected. 

Financial risk management means that managers should have a back-up plan. You also shouldn’t ignore reality if you see that some things aren’t going as they should. Become more flexible to changing conditions and you can manage financial risk better. You also need to be prudent about managing cash flow. 

Financial literacy is important, along with identifying key financial drivers. If you know what leads to your company making more money, then you can replicate this behaviour to remain consistent. 

Find ways to invest in networks and professionals who help you keep up with what’s happening around you. This can help you get ahead of any risks that you may not be aware of. 


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