It is generally argued that a company’s risk consciousness governs the underlying strategies that are employed by the enterprise. On the one hand, this is true, as risk management is the basic strategy that defines the frameworks of other business strategies. On the other hand, risk management depends on the business sphere, as well as the courage of business strategies applied by the company. Therefore, risk consciousness and strategies are mutually dependent. (Neale, 1994)
Apgar (2006) indicates that; there is a terrific uncertainty when risks are not taken into account. The old notion that risk is just uncertainty any should not be part of strategy in business endeavors is invalid. A company that takes care of all the potential risk strives to survive in different situations that it is exposed to in the course of its undertakings (p.89).
Risk in a business represents different combination of possibilities and credibilities of various events, which may be of business, economic, social, political and so on natures. A firm, at no possible time can be in a position to avoid risks. Risks that represent a potential loss to a firm, the firm need to establish their cause and possible mitigation. In the event of making decisions, the mitigation measures should be taken into consideration. The strategies to be established should be aimed at improving the income of the firm at a reduced effect of the risks. The consciousness of the risks forms the fundamental basis of designing strategies. The strategies for continuity of any firm are subjected to the risks it is facing. The firm needs to overcome the risks and increase expansion, income and maintain the competitive ability of the firm (Taleb,2008).
In De Wit and Meyer (1998), Risk consciousness is being aware of the risks that surrounding the firms investments. The first step of controlling risks is the recognition of the risk. When a firm is aware of the possible its risks, it lays down strategies to avoid the loopholes that may result into the firm making losses. In a bid to move into the right direction and survive in the business arena; firms have to identify the possible risk, be aware of how they can be controlled (Grant, 2004; Dickinson, 2001; Culp, 2001; Crouhy, Galai, and Mark, 2000).
In Australia, HIH Royal Commission (2003) Firms in different business are exposed to different kinds of risks. It is to the advantage of the firm to identify the risk, risk areas, and the control measures of such risks.
Hence, considering the example of Virgin Corporation, the company undertakes strategies that are aimed at maximizing its value. Barton, Shenkir, and Walker (2002) emphasize that this indulges a clear conscious of which risks might lower this expectation. Additionally, the company should know the risks properly; otherwise, all the strategies of the firm might not have a favorable result in the short or long run. Business strategies involve around moving the firm into success. Therefore, the company will have to react the risks by applying the risk management principles that are relevant for the particular business sphere and business strategies applied. Hence, in accordance with the principles of Virgin Corporation, the best way of challenging risks is to divide the common budget of the corporation, hence, every element of the corporation will be isolated from the others. (Bazerman and Watkins, 2008)
As for companies different from corporations, the risk management strategies should be based on the nature of the risks, as well as the particularities of the business sphere. Therefore, considering the instance of ITAR-TASS information agency, it should be stated that the risk management measures, taken by the company, involved implementation of reserve information storage devices, reserve communication channels with its reporters, as well as protection of these channels with reliable encoding system.
The business risk of the firm; the type of business that the firm is undertaking is subject to competition within the industry where there are other players. When the firm is to make its strategy of how to compete fairly in the industry; the management has to identify or be conscious of the risk of this type of business. When the firm is ignorant of this kind of risk, it may be involved in a stiff competition that at the end makes it loss out to partner in the same industry. The managers have to make a well strategy for competition from the information gathered from this type of risk. (Schwartz, 1997)
Beasley, Clune and Hermanson (2005) give a further explanation that; financial allocations for the control of such risks entirely depend on the estimations of their value. The estimation is carried out from already established risks. The firm will have to make an expansion strategy after identifying the risk in the market. Diversification strategy is geared towards saving the company from collapsing from the failure of one line of business in the market. This cannot take place if the risk is not identified by the company (pp.521-531).
In a study by Shiller (2003) in the cause of its business, the firm will have the credit risk. There are some debtors who will not pay. These debtors have to be identified, and a strategy on how to keep their number to the minimum possible number be made and the rule be followed. After the firm has identified the credit risk, it will be in a position to take relevant action on how to take insurance and other measures on this kind of risk. The firm has to identify this kind of risk; this will help in formulating the best strategy of dealing with it. If it is unaware of it, the company will be subjected to heavy losses without any write off from the insurance or debt collecting companies. These companies will help the firm to outsource their services hence saving it from any failure that might be associated with the credit risk (p.206).
Bernstein (1996) says that; there is also the firm’s operation risks, these come from both the malfunctions of machines to the infidelity from employees and human error as they execute their responsibly. Most of the firms crumble due to ignorance about the severity of such a risk. The firms has to identify the risk, make a strategy for control either through training, allocation for depreciation and or tight rules concerning pilferage in the company. The strategy to be carried out in an attempt to control this kind of risk is derived from the identification of the same. The firm through being aware of the risk will take an initiative of the way forward to combating all the effects of this risk (p.204).
The firm carries its business in an environment that has set legal procedures. In an event of falling short of such procedures, the firm will be subjected to fines or even closure of its operations. Before the business starts its operations it will be in the interest of the manager of the firm has to ascertain the risk associated with the kind of the business if it goes against the set laws of the country. The risks if identified earlier will help the firm to avoid any form of operations that are against the law of the land. Te strategies that the firm will take will be procedural and within the set regulations. This will help minimize the possible losses the firm might incur if it operates without following the rules of the country.
The environmental risk to the firm might result into enormous losses if it occurs to the firm when it is unaware of it in its preparations. The strategies on how to deal with natural disasters like floods, hurricanes, and drought in different parts of the world need a well laid down strategy to help control them. The sure way is to take insurance for these risks. Insurance can only be possible if the company is aware of the risk. Other strategies to minimize such risk are carried out just because the firm has established them and are aware of the risk. The future strategy of the firm will be based on how it can be unconditionally from such risk when trying to maximize the firm’s value in the market.
Bookstaber (2007) says that; the initiative of strategies the firm has to identify the threats that the firm is facing. This can only be possible if the firm is aware of the risks. The risk analysis for devising operation strategy revolves around these threats (p.102).
There threats from individual or organizations to the firm. This kind of threat is known as the human threat. The employees of an organization may resign, retire or die in the cause of the business operations. If the firm has not taken care or is unaware of such kind of threat and in an event of its occurrence it would derail the business operations. The human threat to business is one of the prime factors considered when strategies are laid down. There should be continuous training of new employees to avert any shortcomings in an event of such an occurrence.
Risk management principles and strategies strongly depend on the specific features of any business sphere. As a rule, risk consciousness is defined by the business activity and courage of a market player, while business strategies are applied within the frames of risk management principles, as a rule. Considering the fact, that companies often perform specific and individual actions for protecting from risk, it should be stated that business strategies define the risk measure, hence, they define risk management as well. It is hard to apply any theoretic principles for risk management, as risk is always measurable and requires practical actions. However, the key principles may be borrowed from the regarded companies, and these risk management patterns are quite reliable and effective. Though, their risk consciousness was defined risk management measures only, while business strategies stayed market oriented.
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