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In: Economics

Cash inflow and outflow factors, along with project life, were modeled as discrete and continuous random...

Cash inflow and outflow factors, along with project life, were modeled as discrete and continuous random variable. In your opinion, how do you think risk can best be managed or controlled? Is there a method we have not discussed that you find more effective/beneficial? Please explain.

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Expert Solution

There are 5 ways to manage risk--acceptance,avoidance,transference mitigation, exploitation.Accepting risk is a good strategyfor small risks . Accept risk and take no action for small risks Avoiding risk is a good strategy. when risk has a large impact on the business.As for eg arranging a training course in the month of january when the company does accounting is risky and so training should be arranged in February . Transferring the risk is another way of managing risk which is not used very often .The risk is transferred to someone else.For eg if there is a third party to manage soft ware code, the risk will be transferred to them and they will have to manage the risk through proper training.Mitigation is the most commonly used risk management technique.This means limiting the impact of the risk so that if it re -occurs , it becomes easy to solve it.For eg if a new machine is launched it is necessary to give training to the sales people because if the sale of the machine becomes less for lack of trained people, the company will earn less revenue.Exploiting the risk is beneficial when the risk has a positive impact. As for example if a machine becomes populr but there is lack of sales person to demonstrate . In such cases we would maximize the risk that it happens and not stop the risk from taking place.This increases the chance of making the machine even more popular.

A mixture of the techniques may be used to manage the risk and make it more beneficial..We need to choose the technique best suited for the business depending on the skill of the team members..


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