Join Your Exam WhatsApp group to get regular news, updates & study materials HOW TO JOIN

Risk return framework for financial decision making for Financial Management and Policy Mcom sem 2 Delhi University


Risk return framework for financial decision making for Financial Management and Policy Mcom sem 2 Delhi University

Risk return framework for financial decision making for Financial Management and Policy MCOM sem 2 Delhi University:- we will provide complete details of Risk return framework for financial decision making for Financial Management and Policy MCOM sem 2 Delhi University in this article.

Risk return framework for financial decision making for Financial Management and Policy Mcom sem 2 Delhi University:-INTRODUCTION 

Risk Management is one of those ideas, the sense that a logical, consistent and disciplined approach to the future’s uncertainties will allow us to live with them prudently and productively, avoiding unnecessary waste of resources. It goes beyond faith and luck, the twin pillars of managing the future before we began learning how to measure probability. As Peter Bernstein wrote, “If everything is a matter of luck, risk management is a meaningless exercise. Invoking luck obscures truth, because it separates an event from its cause.”

Thus now Risk Management as a subject had assumed its destined role of preparing us to take the future in our stride and excel in an environment where everything is in a state of flux. Indian financial organizations should not underestimate the potential impact of inadequate risk management practices.

Risk return framework for financial decision making for Financial Management and Policy Mcom sem 2 Delhi University:-MEANING AND STEPS IN RISK PROCESS 

Risk may be defined as the probability of incurring a loss or damage. In other words risk can be defined as the chance that the actual outcome from an activity will differ from the expected outcome. This means that, more variable the possible outcomes that can occur (i.e. broader the range of possible outcomes), the greater the risk.

Risk management means a course of action planned to reduce the risk of an event occurring, and minimizing or containing the consequential effects should that event occur. In order to achieve this, a risk management policy should be put in place. Such a policy will need to be approved by the senior management, and responsibilities acknowledged.

It is also important for the senior management to recognise that it is necessary to organise, manage and encourage everyone within the institution to assist in managing risk. Training at all levels is essential, and people need to be aware of the risks and of the steps which can be taken to prevent threats becoming a reality. It should also be recognised that risk management is not just an estate-related issue, but applies across the whole of the activities of an institution. In corporate and banking sectors most of the efforts till date concentrated on the aspect of risk measurement and control process, not risk management. The difference between the concept of risk management and measurement and control is that the latter is more concerned with the prevention of financial losses, while a true risk management uses the information of the risk and uses the same to understand the business and proactively manages the exposures of the organisation. Thus risk management is process of understanding the risk exposures of the organisation and re-turning it to as per the risk appetite of the organisation to limit the future losses. Thus risk management is one of the important areas, which requires the skills of a financial engineer.

Risk return framework for financial decision making for Financial Management and Policy Mcom sem 2 Delhi University:-Accordingly the process of risk management consists of the following steps :

  1. Identifying the risk to which the organisation is exposed to,
  2. Quantifying the risk exposures,
  3. Determination of the form of the outcome sought,
  4. Design or engineer a strategy to transform the risk exposures into the desired form.
  5. Monitoring risk levels and matching them to standards set.

Risk return framework for financial decision making for Financial Management and Policy Mcom sem 2 Delhi University:-Process of Risk Management

  • To manage risk—not to react to it. This may involve developing a risk strategy, or at the minimum a set of formal risk management procedures.
  • To make sure that risk management is embedded within the overall planning and management process, particularly procedures.
  • To ensure the Board of Directors and Senior Management are fully informed of risks associated with various projects or issues.
  • To provide appropriate training.

Many organisations worldwide try to avoid risk by focusing on supposedly low-risk areas. This is an unviable strategy. Risk is not limited to exotic products, instruments or markets but is inherent in the most mundane of them.

Risk return framework for financial decision making for Financial Management and Policy Mcom sem 2 Delhi University:-PRINCIPLES OF RISK MANAGEMENT 

In dealing with the key concepts of risk management and their application to estate management, the estate manager has to be able to identify the main classes of relevant risk and to apply models for determining the exposure of the institution to risk. In addition, the estate manager needs to identify the level of control that can realistically be exercised over particular risks.

Risk can have different meanings but a common understanding is that the event associated with the risk could actually happen, and the consequences of this risk might not be pleasant. Definitions of risk must always relate to the risk of something happening in a specific time period.

When preparing a plan for the future, the further that these predictions are projected, the greater the increase in associated risk and uncertainty. It is also important to be clear about the distinction between risk and uncertainty. An assessment of risk is an attempt to quantify events about which some knowledge exists. Uncertainty, on the other hand, is concerned with events that cannot be measured. Both risk and uncertainty may result in outcomes that are better or worse than expected.

The logical process of risk management may be defined as:

  • Identification of risk / uncertainties;
  • Analysis of the implications (both individually and collectively);
  • Response to minimize risk; and
  • Allocation of appropriate contingencies.

Risk management should be an essential part of the continuous and structured planning cycle within an institution. Furthermore, risk management needs to be seen as a process that:

  • Requires an acceptance that uncertainty exists;
  • Produces structured responses to risk in the form of alternative plans, solutions and contingencies;
  • Requires an imaginative and flexible thinking process; and
  • Can change attitude in project staff by preparing them for risk events.

Risk exists when a decision is expressed in terms of a range of possible outcomes and when known probabilities can be attached to the outcomes.

Uncertainly exists when there is more than one possible outcome of a course of action but the probability of each outcome is not known.

In terms of using risk management to develop a safe system of work, five key elements can be identified:

  • Plan or identify hazards;
  • Organise or assess the risks associated with the hazards;
  • Institute control measures;
  • Monitor the control measures; and
  • Review the system.

Risk return framework for financial decision making for Financial Management and Policy Mcom sem 2 Delhi University

CAKART provides India’s top M.COM faculty video classes – online Classes – at very cost effective rates. Get M.COM Video classes from CAKART.in to do a great preparation for your exam.

 Watch M.COM Economics sample video lectures 

Watch M.COM Accounting Sample video lecture after mcom which course is best

Watch M.COM Mathematics Sample video lecture what is m com course

For any questions chat with us by clicking on the chat button below or give a missed call at 9980100288

Leave a comment

Your email address will not be published. Required fields are marked *