Risk is the probability of undesirable outcome. It is part of all businesses which can have two results, either success or failure. Success ends up in profit and failure might result in loss. Financing Risk is, a company’s ability to compensate the loss in most efficient way. Here efficiency means least costly method. A business during its planning level itself form a committee for risk analysis and financing. Some business like share marketing, mining, agriculture etc. are of high risk, thus a proper risk analysis is very important for their success. This is a systematic approach in the modern commerce.
- First step is to analyzing the risk and estimate the loss that risk can cost.
- Second steps involves the financing part. Here the best methods to cover-up the loss are estimated and kept aside as backup.
- Final step up includes monitoring the risk on a regular basis to make sure that it doesn’t cross boundaries.
Financing Risk Strategies
Lot of strategies are available on the business planet to finance the risk. Since risk is a part of business it couldn’t be avoided. Let us look at some effective methods for financing risk
- External Risk Transfer – Here the risk financing is done with the help of insurance, hedging etc.
- Self-Insured program – Backing up a portion of capital or production to compensate risk
- Risk mitigation programs – Planning and regulatory methods.
