Question

Please describe in depth the four principles that risk managers must consider how to protect companies against risk while still allowing them to be profitable from core business, and the rationale behind each principle.

Answer 1

Four principles that risk managers must follow without affecting profit are-

1. Taking no unnecessary risk-risk manager should look that no unnecessary risk are being undertaken which can hamper the growth of the overall company in the long run because unnecessary risks can deviate the focus of overall company.

2.Making risky decisions at appropriate level-proper risk management should be done through appointment of eligible individuals at respective risk management positions and they should be behaving in a structured and coordinated way to mitigate the overall risk in order to support the vision and mission of the company of not taking unnecessary risk.

3 . Accepting the risk only when benefit out weights cost-Risk shall only be undertaken when the benefits which are associated with taking the risk are higher than cost which is associated with taking the risk because it will lead to the growth of the company and such high probability projects can magnify the profits to large extent.

4. Risk taking should be based upon best available information-the risk manager should have a proper information channel through which various information regarding risk exposure should be ascertained and then risk taking should be done based upon the best available information.