Question

Why is it important to assess the competitive situation of a company and its business strategy before determining what risk management tools to use?

Please give a DETAILED RESPONSE no less than 8 sentences.

Answer 1

It is important to access the the situation of the company and the business strategy before determining the risk management tool to use because it would be helpful in determination of the specific risk management tool which are applicable to that particular company in particular economic situation so it is related to uncertainty in the market which can never be completely estimated in advance so there has to be a specific risk management proceedure which will combine various different risk management tool in order to access the competitive situation of the company in the market.

Selection of a specific risk management tool is also dependent upon the situation that various companies have different risk profile and they are exposed differently to various kinds of economic situations like those companies which has a very high amount of debt capital will always be having a risk related to insolvency in recession, whereas companies which have higher amount of equity capital can take advantage of recession and lower interest rate in order to maximize their overall competitive edge, so it can be said that it is about the specific nature of the company and the risk which is applicable to that company specifically so these micros positioning of the company and the micro performance of the industry are important and it is to be analysed before selection of the specific risk management tool so the risk management tool should be particularly specifically applicable to the company and Hence, due to the nature of the business and the risk profile of the business and the business reputation along with profitability and the strength and weakness of the books of accounts the overall risk management tools are decided for the company.