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 goal;

- 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 reduce it.

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 important.

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.

Figure 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 research topic.

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 acceptable level.

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).

Enterprise risk 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 effective.

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 subsystems:

- 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 alternatives;

- 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;

Figure 2. The relationship of major groups of tasks of risk management

- 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 capital;

- 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 against risks).

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.


1. Irwin D. Financial 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

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