Risk management is a powerful tool for analysis and management of financial risks in enterprises
Table of contents: The Kazakh-American Free University Academic Journal №8 - 2016
Mazayeva Anastassiya, Kazakh-American Free University, Kazakhstan
Bordiyanu Ilona, Kazakh-American Free University, Kazakhstan
"If we fail to manage risks, they will
manage us" [1, p. 12].
The trend of recent years involves the
increasing interest of the broad range of specialists, especially entrepreneurs
and managers of different levels to management of financial risks. Risk is a
complex and multidimensional category. There are dozens of types of financial
risk in the scientific literature which highlights its diversity.
Risk in respect of financial assets, as
well as on company activities and management of investment projects are of special
interest of financial managers. Thus, the risk can be described as a level of
some financial loss, expressed in:
- the possibility of non- reaching the
- uncertainty of the predictable result;
- subjectivity of the predictable result.
Financial activities of organization in all
its forms are associated with numerous risks, which extent of influence on the
results of these activities increases substantially with the critical state of
the economy. The growing influence of financial risks on the financial
performance of the organization is associated with the rapid variability of the
economic situation and financial market conjuncture, expansion of financial
relations sphere and its "liberation", emergence of new financial
technologies and instruments for business practices.
The certain features, i.e. attributive characteristics
that reflect the essential part of this phenomenon, are inherent to the risk:
- scenario uncertainty. Uncertainty is
inherent to many social and legal events, so risk is always calculated
ambiguity, with alternatives of development of situation of risk.
- a probability of negative results of acts
(their own or others' actions or omissions) or events.
- regularity. Risk is an inherent property
of every activity resulting from one or another factors, herewith regular
pattern of risk is not linear, but probable.
- dual subject-object nature [2, p. 43].
The uncertainty of surrounding environment
involves the totality of factors that create the appearance of a risky situation
because the organization does not have full information on all subjects / objects, with which it is forced to contact with in order to perform
its statutory activities. On the other hand, financial risks have subjective
nature, as they are implemented through human activity. It is an entrepreneur
that makes a wide range of alternatives, assessing the risk situation. Personal
qualities and professionalism of businessman play not the last role in the
evaluation of financial risks and the subsequent outcome of the case. The summarized
factors of financial risk occurrence are presented below in Figure 1.
Of course, it is no longer necessary to
prove that the success of any entrepreneur, businessman or manager depends
largely on his attitude to risk, because, at the decision-making stage,
enterprise is faced with the choice of an acceptable level of risk, and ways to
Financial risk is one of the most difficult
categories, related to the implementation of economic activity. That is why the
policy that will be chosen by the head for managing these risks is very
Therefore, one of the main reasons for the
financial difficulties and bankruptcy of enterprises and organizations is the
poor quality of financial risk management as a category of a prosperous existence
of the organization. A firm can avoid a risk, but this often means the refusal
to receive possible income. Rare manager will agree to run to this step.
Therefore, the extent and size of risk can be influenced through effective
financial tools that combine strategy and techniques which form original risk
management mechanism, i.e. the system of risk management.
Insufficiently skilled approach to this
issue from the side of the enterprise manifests itself in the absence of a
well-planned management strategy, weak development of procedural questions to reduce
the risk, inability to analyze and assess the degree of risk in relation to the
activities of the organization. This inevitably leads to the fact that a large
proportion of own and attracted funds are placed in high-risk investments,
usually with a low probability of generating an income. Unreasonably high and
poorly supervised financial risk gradually becomes crucial for the further
activities of the organization.
1. Factors of occurrence of financial risk
Improvement of financial risks management
should contribute to elimination of significant shortcomings in the activities
of many businesses. The ultimate goal of risk management - the target function
of organization - getting the maximum profit with optimal and acceptable ratio
of profit and risk should be achieved. This explains the relevance of the
Influence of financial risks can affect all
aspects of the enterprise work, which may impair its financial position,
production capabilities, the ability to meet its obligations and other aspects
[3, p. 15].
An international conference on risk
management was held in February 2016 in Almaty, at which ex-head of the
National Bank of Kazakhstan, A. Saidenov addressed with following: "The
stability of the financial system, not least of all is determined by the level
of development of risk management and regulation of the financial markets, it
applies not only in Kazakhstan but also other countries, both developed and
developing. It must be acknowledged that the impact of risk management in Kazakhstan in making business decisions is provided only by the requirements of the Agency
for Financial Supervision. Risk management plays a passive role in adopting the
decision in the structure of corporate management of financial organizations.
In this regard, the need for the development of risk management should be
originated not only from the side of regulator, but also from shareholders and
board of management of financial organizations. Independent and active role of
risk management in the structure of financial management of the company should
contribute to the stability of activities of the financial organizations”.
Therefore, in the new economic conditions, according to the opinion of A.
Saydenov, enterprises must transit to the new business models (including the
risk management systems) of financial management, which will be adequate to the
existing risks, as the company's financial activities should become more
efficient to save their competitiveness [3, p. 40].
The success of the financial risk management
consists in ability to anticipate the risk event, and if it came - to keep the
level of losses that occur as a result of risky operations. Risk management
should be based on an integrated approach, whose main objective is to integrate
management in operational and strategic activities of the company.
In the context of the industrial enterprise
- risk management is based on the concept of acceptable risk that postulates
the possibility of rational influence on the risk level and bringing it to an
In addition, having studied the operation
of the enterprise in various departments, it was seen next major flaw:
functional specialists are involved only in local tasks of their department,
and the achievement of local goals does not always lead to the achievement of
goals of the enterprise. From all of the above, actuality and the need of
effective risk management system is seen for this enterprise.
Application of risk management in the
modern economic operations of enterprise includes three main positions:
- identification of the effects of the
activities of economic subjects at situation of risk;
- ability to react to the possible negative
consequences of these activities;
- development and implementation of the
measures by which the possible negative results of actions taken can be
neutralized or compensated.
The risk management in the enterprise
cannot be a set of moment actions, in any case, this is a whole process of directed
actions. Moreover, the process of risk management should be a part of the
overall business management to achieve results.
The risk management system is a system of
measures aimed at the rational combination of all the elements in a single
technology of risk management process (Figure 2).
management seeks to achieve the necessary balance between profit and loss
reductions of business activities and it is intended to be an integral part of
the Organization's management system, i.e. it should be integrated into the
general policy of the company, its business plans and activities. Only when
satisfying this condition the application of risk management system is
Management of financial risks should be
based on a long-term forecasting, strategic planning, development of
well-founded concepts and programs adapted to the uncertainty of the entrepreneurial
business system, which allows to avoid or reduce unfavorable effects on
production results and ultimately – to receive higher income [4, p. 75].
The risk management should include two
- Controlled subsystem (object of
management) - the risk, risk capital investments and financial relations
between the economic entities in the process of implementation of the risk;
- Controlling subsystem (subject of
management) - a special group of people, which is implementing a targeted operation
of the controlled object by the methods and techniques.
Consequently, the risk management system in
the enterprise includes the following main elements:
- identification of differences in risk
- development of plans that allow to
operate in situations of risk in optimal way;
- development of specific recommendations
aimed at eliminating or minimizing the possible negative consequences;
2. The relationship of major groups of tasks of risk
- recording and analysis of the psychological
perception of risky decisions and programs.
When choosing a specific risk management
instrument company should be based on the following principles:
1)cannot risk more than this can be allowed
by stockholder equity;
2) it is necessary to think about the
consequences of risk;
3) cannot risk with many for the purpose
of small [5, p. 16].
The implementation of the first principle
means that, before investing, it is required to:
- determine the maximum possible amount of
negative profit on this risk;
- compare it with the amount of invested
- compare it with all of their own financial
resources, and determine whether the loss of capital will lead to the bankruptcy
of the investor or not.
The implementation of the second principle
requires knowing the maximum possible loss, to determine the consequences of
risk probability, and take a decision on the refusal from risk (i.e., events),
the adoption of a risk on his own responsibility or risk transfer to the responsibility
of to another person.
The action of the third principle is
especially brightly shown during the financial risk transfer (e.g. insurance
Proceeding from the abovementioned, it
should be noted that risk management includes the process of developing risk
and risky capital investments, determination of probability of an event, the
identification of the extent and magnitude of risk, analysis of environmental
situation, the choice of risk management strategy, the choice of risk
management techniques and methods required by this strategy to reduce risks,
the implementation of targeting influence on risk. These processes together
constitute the stages of the organization risk management.
Risk management has multivariance, which
means a combination of standard and unique features of financial combinations,
flexibility and originality of one or another ways of acting in a particular economic
situation [5, p. 71].
Therefore any company implementing its
activities is faced with the need to control and selecting of risk management
methods. Some are beginning to assess risks after encountered serious losses,
while others deal with them constantly and systematically. However, this
question can not be ignored, if the company is planning to remain on the market
and expect to succeed.
Relying on the experience of large
corporations, which generally have a complete risk management system as well as
on theoretical basis, developed by domestic and foreign scientists, practically
any enterprise, should pay special attention to this issue and to take measures
to reduce them, for obtaining profit maximization. It is the use in practical
activities of enterprises techniques and methods of risk management will help
minimize, neutralize and optimize current and future financial risks by
ensuring the greatest possible awareness about each financial risk through a
comprehensive analysis of the enterprise.
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Management. Trans. from English. - M.: “Finance and Statistics”, 2014. - 270 p.
2. Fatkhutdinov R.A. Risk
management. - M., 2011. - 312 p.
3. Omarov A.M.
Entrepreneurship and risk. - A.: RAGS, 2016. - 182 p.
4. Risk management:
theory and practice. Edited by Stoyanova E.S. - M., 2012.
5. Stoyanova E.S., Stern
M.G. Financial Management for Practitioners: A short professional course. - M.:
“Perspectiva”, 2015. - 563 p.
Table of contents: The Kazakh-American Free University Academic Journal №8 - 2016