Monetary planning is a crucial aspect of the time a company starts functioning; nothing can be achieved without a suitable strategy in place. A blueprint in terms of the existing financial health and future challenges, helps the company to formulate a strategy that will help it to achieve its goals. Even the regulators expect and insist on a regular good risk assessment and want the companies to follow the suggestions given by the evaluators. Some steps in the risk assessment process are as follows:
- Identify the risks that may hamper the productivity and financial health of the company. These will also affect its survival and competition against other similar companies negatively.
- Understand the various categories of risks that may challenge the company from time to time. These groups may include one or more kinds of risks again. These comprise of risks associated with insurance, market-based or related to market and operational risks and finally the planning or strategy based risks.
- There are various departments in a company and they all have a department head. Similarly, there can be one person or department that owns the responsibility of a risk, either pertaining to the company or a particular process or department. They can assess the risk appetite of the company in that particular area and then help to find the solution and implement it as well.
- Every risk has to be mitigated and this solution needs to be controlled by a responsible person or department. This can also be delegated to the person responsible for the particular function or department.
- The risk has to be assessed by the company to know whether all the safeguards are in place. Then it can analyze if any risk is worth the returns that are going to accrue. The company needs to know the impact of financial decisions made by the management.
- The occurrence of a risk should be anticipated, and its impact and profit and loss should be estimated both quantitatively or qualitatively related to each one. This helps the company to make important decisions about investments.
- The evaluations need to be done repeatedly and regularly. The environmental conditions keep changing as do the other factors. The political changes or monetary fluctuations can change the way the business will face challenges and that is why a periodical assessment is important.
Regulatory authorities do insist upon regular risk assessments and it is in the interest of the companies to do it as well. Due diligence is the key to good management and sustainability in the corporate world.