The Essentials Of Risk Management Within Co-operation

Managing risks in operation

The risk factor in many organizations globally has led to the establishment of risk management skills to curb the problem at hand. Just like it is very hard to predict the future and know what will happen the next minute, all of us are left with one choice of trying to put up something to stand in the gap of anything that might happen. However, the financial risks that come as a result this uncertainty can be managed when apparently looked at and well solved. Therefore, managing the risks involves the following; the ability to identify the risk, measure it, to appreciate its consequences and then finally the power to take action accordingly which may include transferring or sometimes mitigating the risk. In addition to this, the ability to ensure that the price risk is apparently looked at and is rewarded (Bessis, 2011).

Operation considerations

Most of the organizations globally must operate to ensure that the programs go well. For example in the case of a bank, the operations involved hiring the employees, doing marketing and promotions to improve sales, take and give loans to the customers and sometimes to other banks. These transactions may incur risks, and when we investigate we find out among the massive losses incurred in an organization, some are traced to be operational risks. Human factor risk is a particular form of the operational risk that is related to human or the employees’ error. This may be as a result of a mistake created by may be when one employee presses a wrong button on the computer and making a wrong transaction that cannot be traced and thereby leading to a loss of money (Bessis,2011). Perhaps, all the firms should think about this risk and make an initiative to manage such risks.

The Washington Mutual Bank

This is one of the banking institutions located in the United States of America. Some years back the bank faced a lot of challenges, and this led to its closure after being issued a receivership. Probably when we trace about its closure, we realize that it is related to money (McNeil, 2015). The bank failed to apply the technique of risk management such as the identifying the risks in the market, appreciate the risk, using the solutions to the risks identified, take action to the risk identified. Preparing adequately for the risk is essential for any company to ignore.

The solutions to avoid the problem

The bank would have looked at the different risks present since this will enable it to solve any risk problem that can find its way into the bank. First, the bank should have looked at the operational risks which involve any risk incurred during working hours. These risks may be due to human errors leading to many addition to this; it may include the breakdown of machines or even hacking that will eventually affect the cash flow of the bank (McNeil, 2015). Second, we have the legal and the regulatory risk. This risk comes due to various reasons, and it is closely related to operational risk. For example, the bank might have lacked the legal and regulatory authority to engage in a risky transaction that rendered the bank bankrupt. Therefore, the bank should have placed a constitutional power to stand in in case of the loss.

Third, is the liquidity risk which comprises of both the funding risk and the trading liquidity. Funding risk relates to the firm’s ability to raise the necessary cash so as to be able to pay off its debts. This medium involves the company’s ability to meet up the cash margins and collateral requirements of the other parties and to satisfy capital withdrawals. This risk can be managed through holding cash and the cash equivalents, setting credit lines in place, and then monitoring the buying power of the organization. Perhaps the mutual bank could have taken this into consideration (Bessis, 2011).

The fourth risk that the bank could have checked is the credit risk. This risk comes as a result of the economic loss from the failure from the other party to fulfill its financial, contractual obligations. It can also occur when the borrower fails to make payments to the bank either regarding the periodic accumulation of the risk charges or due to the reimbursement of the principal of the loan contracted. This risk may make the firm to lose its market value since the bank cannot pay the transactions as recommended hence a closure. Therefore, the company should have looked at this problem and create a manager to handle all the credit transactions of the bank and making follow-ups on the borrowers who have defaulted. This medium will enable the bank to make a recovery (Bessis, 2011).

Lastly, the bank should have investigated on the strategic risk. This comes as result of the significant investment that the bank might have taken an interest in although they were uncertain about its profitability and success. In addition to this, it can also be related to a change in the strategy of a company compared to its competitors. The bank should make sure that in any investment, there should be a profit involved or ensure that there is some baking money put in place to replace any loss that the investment could have brought in. The conclusion the bank after understanding the risks involved, they should also learn to make decisions to propagate the risks (McNeil, 2015).

Work cited

Bessis, J. (2011). Risk management in banking. John Wiley & Sons.

McNeil, A. J., Frey, R., & Embrechts, P. (2015). Quantitative risk management: Concepts, techniques and tools. Princeton university press.