live soft skills

Managing risk There are many techniques available to manage risk. Some look to manage overall risk, whilst others target specific risks. Avoiding risk Some risks can be totally avoided. If a business has identified that opening a subsidiary in Austria appears high risk, then not opening the subsidiary solves the problem! However, to totally avoid a business opportunity is often a rather extreme reaction – and if no risks are taken, the chance of returns being earned is small! Reducing risk Overall Risk Reduction Risk is the uncertainty caused by variable returns. One way to deal with uncertainty is to By operating in many different sectors, it is likely that when one sector is performing badly, another will be doing well, leading to a diversify . smoothing of profits. Advantages of Diversification ● Smoothing of profits, making forward planning easier ● May be economies of scale between some sectors, however diverse those sectors are. Disadvantages of Diversification ● Spreading r

 Risk types Financial Risk The risk that a company will not be able to survive as a going concern. This risk has a number of elements: Credit Risk The risk that customers fail to pay their bills on time (or at all!) Market Risk The risk of changes in the value of a company’s financial assets (e.g. shares, bonds) Liquidity Risk The risk of running out of cash because inflows are not arriving in time to pay outflows! Currency Risk The risk of changing foreign exchange rates in the future. This could lead to: ● ● ● Transaction Risk – change in the value of a future receivable or payable Translation Risk – change in the value of the company’s Balance Sheet if year-end exchange rates have changed Economic Risk – change in the competitiveness of the company due to longer term changes in exchange rates Interest Rate Risk The change in the value of investments and loans as a result of changing interest rates. This is the risk of breaching laws and regulations and being fined (or even cl

FAMILY DOMINATED COMPANIES In family companies, it is often the case that: ● family members have special voting rights ● family members have guaranteed seats on the board. This can lead to both positive and negative governance issues. Positive ● with the family name at stake, there is likely to be a greater feeling of "ownership" on the Board, which may reduce the risk of unethical behaviour ● to continue the family name, a longer term view of management may occur. Negative ● a less independent board ● the board may have a dominant person / group of family members ● with board members often coming from a single family, there may be a lack of variety in ideas, and an unwillingness to change previous decisions ● family problems may become business problems ● there may be unsuitable people on the board, who were elected purely because of their membership of the family.