To reduce the share of risk, they are usually used. Analysis of risk reduction methods. Essence and types of financial risks
A high degree of project risk leads to the need to find ways to artificially reduce it. In the practice of project management, the following are used ways to reduce risk :
· Diversification;
· Distribution of risk between project participants (transfer of part of the risk to co-executors);
· Insurance;
· Hedging;
· Reservation of funds;
· Covering unforeseen expenses.
Under diversification means investing financial resources into more than one type of asset, i.e. it is the process of distributing the invested funds between various investment objects that are not directly related to each other.
The firm in its economic activities, anticipating a drop in demand or orders for the main type of work, prepares spare work fronts or reorients production to the release of other products.
The use of a diversified portfolio approach by the firm in the securities market (a combination of various securities) makes it possible to minimize the likelihood of loss of income as much as possible.
Diversification provides for two main ways of risk management - active and passive.
Active management is the preparation of a forecast of the amount of possible income from the main economic activity from the implementation of several investment projects.
The company's active tactics to promote products involves, on the one hand, close monitoring, study and implementation of the most effective investment projects, the capture of a significant market share with a specialization in homogeneous production, and on the other hand, the fastest possible reorientation of one type of work to another, including possible relocation to another territory, market.
Passive management provides for the creation of an unchanging market for goods with a certain level of risk and stable retention of its positions in the industry. Passive management is characterized by low turnover, a minimum level of concentration of work volumes.
Distribution of risk among project participants ... The practice of risk sharing is to make the project participant who is best positioned to calculate and control risks responsible for the risk. However, it often happens that this particular partner is not strong enough in financially to overcome the consequences of risk actions.
Risk allocation is implemented in the development of the financial plan and contract documents.
Like risk analysis, its distribution among project participants can be qualitative and quantitative.
Qualitative risk allocation implies that project participants make a series of decisions that either expand or narrow the range of potential investors. The greater the degree of risk the participants intend to impose on the investors, the more difficult it is for the project participants to attract experienced investors to finance the project.
Therefore, it is recommended that project participants, when negotiating, show maximum flexibility in the question of how much of the risk they agree to take on. The willingness to discuss the issue of taking on a greater share of the risk of the project participants can convince experienced investors to lower their requirements.
Risk insurance is essentially a transfer of certain risks to the insurance company.
Can be applied 2 main ways of insurance:
§ property insurance,
§ accident insurance.
Hedging is the process of insuring risk against possible losses by transferring the risk of price changes from one person to another.
Transactions, the subject of which is the delivery of an asset, are called forward transactions in the future. Transactions aimed at the immediate delivery of an asset are called syllabic (cash).
The first person is called a hedger, the second is a speculator. There is also a third participant in the derivatives market - the arbitrageur. An arbitrator is a person who makes a profit by simultaneously buying and selling the same asset in different markets, if they have different prices. The contract that serves to hedge against the risks of changes in rates (prices) is called a "hedge".
Hedging can protect the hedger from losses, but at the same time, it makes it impossible for him to take advantage of the favorable development of the conjuncture.
Hedging is carried out by means of a conclusion fixed-term contracts : forward, futures and options.
Forward contract is an agreement between two parties on the future delivery of the subject of the contract, which is concluded outside the exchange and is binding.
Futures contract is an agreement between two parties on the future delivery of the subject of the contract, which is concluded at the exchange, and its execution is guaranteed by the clearing house of the exchange.
Option contract- this is an agreement between two parties on the future delivery of the subject of the contract, which is concluded both on the exchange and outside the exchange and gives one of the parties the right to execute the contract or refuse to execute it.
The subject of the agreement can be various assets - currency, commodities, stocks, bonds, indices and more.
Reserve funds to cover unforeseen expenses . Building a contingency reserve is a risk management strategy that balances the potential risks affecting the cost of a project and the costs of dealing with disruption to the project..
When determining the amount of the contingency reserve, it is necessary to take into account the accuracy of the initial estimate of the cost of the project and its elements, depending on the stage of the project at which this estimate was carried out.
TOPIC: Business planning entrepreneurial activity
2. The main sections of the business plan.
General Provisions
Currently, it is necessary to use all available reserves in order for business entities to be able to conduct efficient production. Entrepreneurship and the subsequent development of a business plan should start from a new interesting idea, without which business becomes impossible. When searching for a new idea, the state of the market, advances in science and technology, unconscious and unmet demand, etc. are taken into account. After analyzing the potential and real value of the idea and assessing the risk, a business plan for the project is developed.
Development and implementation of an investment project - from the initial idea to the completion of the project can be represented as a cycle, consisting of of 4 stages :
Pre-investment,
Investment,
Operational,
· Liquidation.
Pre-investment stage includes the following activities: research of markets for finished products and their segments; study of possible suppliers of equipment, technologies, raw materials, materials; preparation of the initial data necessary for the implementation of financial and economic calculations of the project; determination of the project financing scheme and search for investors.
Investment stage includes civil engineering and technological design, construction, purchase of equipment and commissioning of the designed equipment.
Operational stage provides for the operation of the project facility, implementation of works on modernization, expansion, financial, economic and environmental rehabilitation of the facility, replacement of equipment.
On the liquidation stage liquidation or conservation of the object is carried out.
The business plan of the investment project (hereinafter the business plan) is developed to justify :
¨ current and prospective development of the enterprise, development (selection) of new types of activities;
¨ the possibility of obtaining investment and credit resources, as well as return borrowed money;
¨ proposals for the establishment of joint and foreign enterprises;
¨ the feasibility of providing government support measures.
The main sections of the business plan
Business plan should give a complete picture of all aspects of the project and consist of the following main chapters :
1. "Summary";
2. "Characteristics of the enterprise and its development strategy";
3. "Description of products (services)";
4. “Analysis of sales markets. Marketing strategy ";
5. "Production plan";
6. "Organizational plan";
7. "Project Implementation Plan";
eight. " Investment plan»;
9. "Forecasting financial and economic activities";
10. "Indicators of project effectiveness";
11. "Legal plan";
12. "Information about the developer of the business plan."
Estimated size of the business plan (no attachments):
About 40 pages - with a project cost less than 500,000 USD,
· Up to 80 pages - if the project cost is more than 500,000 USD.
Summary
This section of the business plan is one of the most important, as it can generate interest from a potential investor or lender.
Summary - a summary of the main provisions of the proposed plan, including the following key data:
· A brief description of the goals of the business;
· Features of the offered goods (works, services), a brief description of what makes the product (service) unique and (or) competitive in the market;
· Strategies and tactics for achieving the set goals;
· A description of the financial needs with an indication of the timing and amount of required funding;
· Forecast of demand, volumes of sales of goods (works, services);
· Planned production cost;
· Results of the project: projected income, payback period of the project, the beginning of the receipt of profit;
· The main factors of success - a description of the modes of action and activities.
This section is developed at the end of writing a business plan, when there is complete clarity on all other sections.
The organization of your business is always associated with certain risks. Any entrepreneur calculates such moments in advance. An enterprise risk assessment should be carried out in advance, even at the stage of drawing up a business plan. Such a document as a business plan does not exist by chance. It is he who allows you to visually represent everything possible problems that may come along the way. Enterprise risks cannot be clearly distinguished, as some of them have no boundaries.
For example, it is very difficult to separate investment risks from financial ones. However, when writing a business plan, a certain clear structure still emerges. It becomes noticeable that, for example, production risks have several manifestations. In the first place is, of course, the likelihood of disasters and various external negative factors. However, behind these categories, there is an intrinsic reason for the risk - a production shutdown. Such a stop can occur for various reasons. Enterprise risks associated with business interruption are also associated with financial risks. The company may stop producing products due to lack of funds. It can also happen due to suppliers. Such moments must be foreseen before the company starts its activities.
The entrepreneur takes over the management of the financial risks of the enterprise at the very beginning. A little later, he may already hire professionals. One of the most unpredictable items on the list is the risks associated with government action. It would seem that no crisis is foreseen in the country and the political system is unlikely to change. However, laws may be signed at any time restricting the company's work in a particular area. It is difficult to calculate such risks of an enterprise, therefore businessmen put the characteristic "minimum probability" next to this item.
Banking risks are associated with loans, debts, as well as with the abuse of banking structures. To minimize the likelihood of suffering from the activities of these organizations, it is necessary to calculate the loan debt and not take an excessive amount of funds.
In terms of structure, the risks of an enterprise can be simple and complex. Complex ones are those that consist of overlapping simple factors.
An estimate of the likelihood of any risk may not always be accurately established. For example, in the case of suppliers, it is best to always have a fallback in order to continue operations. You cannot rely on one organization, no matter how impeccable its reputation may be. There is always room for the human factor and force majeure. Some risks are not calculated at all. For example, starting your own business in a quiet area, you can ignore the likelihood of criminal situations. But after some time, the situation in the region may change.
Randomness is also a point of risk, but it is usually not taken into account. The minimum risk calculation consists of several points. First of all, it is necessary to check the remoteness of the enterprise from roads and sources of raw materials. This can be very important. The same applies not only to businesses, but also to stores, for which the wrong location can be deplorable. Attitude local authorities- another important point, the importance of which is understood by every experienced entrepreneur. You also need to find alternative sources of raw materials or suppliers of products, so as not to depend on one manufacturer. The proximity of engineering networks must certainly be taken into account. Remote communications will cause additional costs. A good help in risk management can be a SWOT analysis, which will identify possible threats to the enterprise.
Entrepreneurial activity involves the possibility of various risks. This is due to the fact that the market reality is constantly changing, and its future is assessed as uncertain. Therefore, one cannot be one hundred percent sure that the expected results will be achieved. Every businessman, especially a beginner, must take into account the possible situations that may arise in the face of economic uncertainty. All this constitutes such a concept as entrepreneurial risk.
The market represents economic freedom. But the freedom of one entrepreneur is adjacent to the freedom of another, and one has to pay for it with something. In this case, the payback is the entrepreneurial risk. One businessman is free to buy or not to buy this or that product at the prices set by the seller, or at the price that he himself will impose during the bargaining. Each in economic relations strives exclusively for his own benefit, and in some cases, profit for one means a loss for another. As for the competitors, they are even interested in ousting each other from the market altogether.
These circumstances increase the likelihood of unforeseen events that, as a result, translate into entrepreneurial risk. Influence cannot be ruled out external environment... It implies social, economic and political characteristics and changes that cannot be ignored. The presence of risky situations does not mean at all that you need to leave the market. It is necessary to further develop and analyze possible methods of risk reduction, as well as to apply them successfully.
The history of the development of entrepreneurship in countries with market economies is rich in examples of rapid ups and downs, successes and failures. Therefore, in such harsh conditions, it is necessary to learn the rules of conduct in the market, taking into account the uncertainty and unforeseen situations. In the broadest sense of the word, risk is a hazard or potential threat of loss or damage.
Entrepreneurial risk is concretely applied to characterize economic activity and is defined as that which is possible in the production and sale of goods and services, accompanying commodity-money transactions, as well as investment projects. It can manifest itself in a partial or complete loss of either resources or money as investments or profits.
The manifestations of risk are varied. These can be fires, natural disasters, interethnic conflicts, wars, changes in the legislation of regions and countries, as well as crises and surges in inflation. Depending on the causes of occurrence, there are different kinds risk.
The study of risks and their manifestations makes it possible to develop measures to reduce them, which are aimed at reducing the likelihood of their occurrence, as well as reducing the volume of losses. The most common are the following: insurance, diversification, hedging.
Insurance allows you to compensate for the consequences. Risks differ depending on the field of business, therefore, different types of insurance are applied, including personal (if necessary) for employees of the organization. Insurance of banking or financial, as well as risks from foreign trade activities is considered separately.
Diversification involves the division of capital and its subsequent distribution among various objects that are not related to each other.
Hedging involves insurance by transferring from one person to another the risk associated with future price changes.
The existence, development and change of risks has led to the fact that their management has become a separate professional industry in which qualified insurance specialists and financial managers work. Therefore, we can note and positive side this phenomenon, which provides additional opportunities for the realization of a person in the labor sphere.
Any financial and economic activity of an enterprise is characterized by such a phenomenon as risk. Currently in conditions market economy uncertainty in entrepreneurial activity is becoming more and more significant, and there are more and more risky situations. Consequently, it is impossible to be sure of obtaining any specific result and one cannot but attach importance to the concept of risk. When drawing up a company's strategy, it is necessary to take into account its presence, since otherwise, it can significantly slow down the economic development of the enterprise. And also, in general, it is impossible to create an effective system for the functioning of the company, ignoring the existence of risk.
Risk - the threat that the entrepreneur will have unplanned expenses, or receive income, lower than those that he expected to receive. But risk cannot be viewed only from a negative position. Taking risks, the leader often makes good profits for it.
Risk has different functions. One of the features is innovative. It consists in the fact that risk forces entrepreneurs to approach problems in a non-traditional way, thereby motivating them to creative solutions.
The regulatory function is ambiguous. On the one hand, risk helps to overcome factors that impede innovation. On the other hand, without proper attention to it, it can become a manifestation of subjectivity.
The protective function lies in the fact that the entrepreneur should have an adequate attitude to failures, since the risk is inherent in any economic activity.
The analytical function assumes that the manager chooses the least risky and most profitable decision as a result of weighing all existing options.
The risk has an ambiguous effect on the activities of the subject. It can cause significant losses, but it can also generate income. Therefore, it is especially important to choose the right solution. For example, when you can take a risk, and when it is better to avoid it and choose a solution that will bring, perhaps, less profit, but will be less associated with risk.
Reducing risk requires a risk analysis to support its control and management. However, effective risk management requires continuous risk analysis, that is, it should begin with identifying the problem and end only when the result of the application of measures to solve the problem is known. And so it is necessary to move from one vulnerability to another, or conduct risk analysis in parallel.
Risk management methods
Risk management is a decision-making process, the main goal of which is to select effective methods of dealing with each of the identified risks. Further, in decreasing order of preference, the main methods of working with the identified risks are listed.
In cases of occurrence of various kinds of risk factors, for a more effective reduction of the degree of risks, generally accepted methods are used everywhere that affect certain types of enterprise activities.
Basically, the risk management methods that are used in business are divided into four groups of methods.
Avoiding risks;
Localization of risks;
Diversification of risks;
Risk compensation.
We will now take a closer look at risk management techniques in the form of risk aversion techniques.
Risk aversion methods are the most used in business practice.
Risk aversion techniques include:
Refusal from partners who are not credible;
Refusal from projects that are very risky;
The main way to reduce risk is insurance;
The process of finding guarantors.
Risk management methods include methods for localizing risks, they are used quite rarely, only in those cases when it is possible to clearly determine the likelihood of risks and the sources of their occurrence. The main methods of localization, as a rule, include the creation of subsidiaries and special units to carry out projects with a clear risk.
The meaning of risk diversification methods is based on the distribution of the total risk:
Expanding the range of products or services provided;
Diversification of sales and supplies;
Risk compensation techniques are used to create special mechanisms to prevent a hazard.
They are the most labor-intensive and require, first of all, analytical work: strategic planning of activities, planning of the external situation, as well as the creation of reserves.
Assessment of the effectiveness of risk management.
For example, the project is fully completed, and the reporting on this project has already been formed. But the question arises, how to calculate the benefit in monetary and including in time terms from the implementation of the provided measures that are aimed at risk management? The assessment of the effectiveness of risk management is calculated using three formulas, which, in turn, take into account the indicators of the costs of risk treatment.
The cost of risk management is calculated using such a calculation - the sum of the costs of processing identified and unidentified risks.
And of course, the value of the risk management effect itself is calculated as the difference between the predicted effect and the actual costs of risk management.
Risk management methods such as insurance significantly increase the responsibility of managers, while forcing them to take a more serious and responsible attitude to the decision-making process, as often as possible, to carry out protective measures that are consistent with the insurance contract. That is why insurance as a risk management method is a very effective financial instrument.
In cases of creating new types of products, problems arise in the use of insurance, this is due to the fact that insurance companies do not have statistical data and therefore are afraid to insure technologies that they know.
As a result, it turns out that, in any particular case, it is very important to know whether this factor can be an object of insurance. From this it should be understood that risk insurance always has its own characteristics. First of all, you need to know that it is not the risk that is insured, but the interest of the insured, about the possibility of repayment of losses.
As such, the risk should not be withheld, meaning that the investor is not required to take on the risk, for example, if the size of the loss is quite large compared to the savings in the amount insurance premium... In a situation in which there is only one solution, one must undoubtedly try to find other solutions first. It is likely that they exist. In cases of insurance risk, when the preliminary analysis indicates the absence of other decisions, then they plan according to the rule "counting on the worst", which means that a negative decision must be made.
International risk management standards
In Russia, increased attention has been paid to risk management as a management technology only in the last few years. However, the level of development of the risk management system in Russian industrial enterprises is at a fairly low level. The development of the risk management system is facilitated by the professional associations and organizations that are being created in our country, focused on solving individual problems in the field of risk management and conferences regularly held in this area.
International risk management standards, the most famous of which are listed in the table below, can be used as a basis for the development of internal corporate risk management standards.
Summing up the discussion of the concept of risk management, we will give the definition of this process given in the "COSO ERM Framework" standard:
Organizational risk management is a process carried out by the board of directors, managers, and others that begins with the development of a strategy and affects all activities of the organization. It is aimed at identifying events that may affect the organization and managing the associated risk, as well as controlling that the risk appetite of the organization is not exceeded and that there is reasonable assurance that its business objectives will be achieved.
Risk classification helps:
Compile the most complete list of risks inherent in the company's business;
Choose the most suitable control method for each of them;
Organize the company's risk management system in an optimal way.
In the literature on risk management, you can find several dozen options for classifying risks.
The International Association of Risk Management Professionals identifies the following types of risks in its Generally Accepted Risk Principles:
Credit risk (non-compliance with obligations);
Market risk (changes in market factors: prices, currencies, interest rates);
Portfolio concentration risk (on one product, segment, financial instrument);
Liquidity risk (inability to fulfill current obligations);
Operational risk (a set of adverse events, starting with technological failures and ending with personnel errors, fraud);
The risk of a business event (for example, a bad merger with another company or an incorrect marketing estimate of market demand).
Other classification options:
By the nature of the consequences: net (only losses), speculative (losses or unplanned profits).
In terms of the scale of the consequences: insignificant, permissible, critical, catastrophic.
By the frequency of implementation: low, medium, high.
By place of appearance: internal, external (in relation to the managed object).
By level of occurrence: separate workplace or an employee, a structural unit, an enterprise as a whole, an industry or a group of related industries, a region, a country as a whole, global risks.
By sphere of origin: natural-ecological, demographic, geopolitical, socio-political, administrative-legislative, industrial, commercial, financial, innovative.
For reasons of occurrence: uncertainty of the future, lack of information, subjective factors.
By the nature of objects at risk: property, income, life and health of people, civil liability.
Risk management procedures and methods
There are usually 4 main methods of risk management:
Refusal (avoidance) of risk (for example, curtailment of activities fraught with unacceptable risk, refusal to cooperate with an unreliable partner);
Transfer of risk (usually on the basis of a contract) from one party to another (for example, outsourcing or insurance);
Risk reduction - reducing the likelihood (frequency) of a risk situation and / or reducing the amount of damage (for example, by spatially separating the sources of losses or objects that may be damaged, spreading risks in time, introducing restrictions on the level of risks, diversifying types of activities, zones of management, sales and supplies);
Acceptance of risk, which implies independent elimination of the consequences of the onset of a risky situation and coverage of losses from own funds.
Risk avoidance is usually resorted to in cases where it is not possible to reduce it to a level at which the organization's activities would retain their economic feasibility, taking into account the available alternatives. In other cases, when they resort to transferring risks or accepting them, they usually use one or another method to reduce them (in addition to the above methods of localizing risks, these can be means of internal control, monitoring of the external environment, etc.).
Key steps in the risk management process
In modern market conditions, there is always a need to assess possible risks for effective management of human, material resources, to reduce losses from them and compensate for their negative consequences.
The concept of risk includes the factor of uncertainty, which is based on three important reasons. This is ignorance, chance and opposition. Therefore, uncertainty is the main, absolutely natural reason for the occurrence of any type of risk.
Risk is a certain probability of the occurrence of unfavorable factors, due to which both material losses (loss of money, property, etc.) and physical ones are possible. This is a short-term loss of health, physical and mental trauma, etc.
Any human activity is at risk. Risk contains some elements that convey its basic essence: the possibility of achieving the goal, the possibility of deviating from it, the possibility of receiving various losses in return as a result of unfavorable external and internal influences. An example of the onset of risky circumstances can be force majeure factors. These are both unpredictable risks (environmental disasters) and predictable ones. Classification of risks is very important for making management decisions, since the problem of their occurrence and behavior has been little studied. And in our rapidly changing world, it is very, very difficult to foresee and accurately calculate the impact of risk factors on business processes and possible losses.
The classification of risks is subdivided into separate types according to the type of perceived danger, according to different spheres of their manifestation, according to sources of occurrence, according to the amount of possible damage, according to the temporary nature of manifestation, according to the degree of possible insurance and foresight, according to frequency, according to the time of manifestation, etc.
According to the nature of the perceived hazard, the classification of risks is divided into separate types. These are man-made, natural and mixed risks.
According to the areas of their manifestation, risks can be divided into: environmental, political, social, commercial and professional.
According to possible sources of occurrence, risks are divided into: external (market) and internal (specific), which have different frequency of occurrence.
In terms of the amount of possible damage and visible financial losses, risks are divided into: economic risks, in which a significant loss of capital is possible, risks in the form of lost profits, etc.
At the same time, these risks are also subdivided according to the critical level. Risks can be acceptable, critical and catastrophic
Possibility of forecasting and insurance, according to frequency risk factors are divided into predictable, insured and unpredictable, and uninsured, high, medium and small.
By the time of manifestation, risky circumstances can be permanent or temporary.
But, despite all this, some types of risks are manageable and it is very important to study them, investigate and try to predict, use all possible methods to exclude the possibility of their harmful effects. The classification of risks makes it possible to consider them in detail and study for further counteracting them. Risk management should, above all, be reasonable and carefully considered, since the whole social life of a person is sometimes put at stake. These are finances, and career, and emotional well-being, etc. Moreover, their loss can have a very adverse effect both on the entrepreneur himself and on his close people. After all, practically without his own society, a modern person will not be able to survive as a person. Risk management is expressed in the adoption of certain methods in the conduct of business. Risk management methods that exclude and anticipate various unfavorable circumstances include the policy of accepting risk, reducing it, insurance, diversification and limiting the size of the transaction. Therefore, considering possible risk situations, entrepreneurs try to avoid any negative consequences for their business in the form of bankruptcy and insolvency, which is very important. After all, the main goal of a business is to maximize profit.
The main goal of organizing any entrepreneurial activity is to obtain maximum income. However, any business entity, when investing its capital, faces manifestations of certain risks, sometimes even losses, which may be associated with the non-receipt of expected income. As a result, a zero result may be obtained from the implementation of any new project, or even the entrepreneur will suffer losses. Good risk analysis can help prevent these negative consequences from occurring.
It provides for an assessment of risks in case of their occurrence using established criteria, which should take into account all costs, as well as environmental factors and socio-economic aspects.
Qualitative analysis makes it possible to obtain a result that determines the classification of risks in terms of the likelihood of their occurrence and expected consequences.
The main problem in their management lies in the correctness of the definition of their list at the identification stage. Without this, it is simply impossible to manage these negative factors due to the need to attract significant personnel and financial costs... Therefore, a qualitative analysis is aimed at correctly dividing risks into groups and arranging them in a certain order according to priorities. Their classification, for example, can be carried out by temporal proximity. Those risks that can be detected in the near future should have a higher priority than those that are expected to appear in the distant future. In order to correctly build them, it is necessary to conduct an analysis using an assessment of the likelihood of occurrence and their impact on a future or ongoing project.
Qualitative analysis is a fairly quick and inexpensive way of assigning priorities; it is carried out throughout the entire cyclical existence of the project. Also, it should reflect absolutely all changes that may relate to the manifestations of risks in the project.
The main task of a qualitative analysis is to determine the risk factors and at what stages or in the process of performing which work they arise. In other words, this type of analysis allows at first to potentially establish their areas, and then - to determine absolutely all varieties.
Assessment of financial risks is to determine the impact on their degree in the project. All factors are conventionally divided into two main groups: subjective and objective.
Objective factors include factors that do not depend on the firm itself, but are the consequences of the economic or political situation in the state. These are competition, inflation, economic and political crises, customs duties, ecology, etc.
But subjective factors depend directly on the activities of the firm itself. These are, for example, production potential, level of technical specialization, equipment, work organization, level of safety, level of labor productivity, etc. This type of factors has great importance for the organization, since the profit received at the end of the project depends on it.
With the correct and timely detection of these risks, it is possible to significantly reduce or completely prevent their negative impact on the implementation of the entire project. This requires very skillful application of qualitative analysis and the development of appropriate and effective measures to minimize such negative consequences.
That is why any manifestations of financial risks should be controlled in the process of concluding any transactions or carrying out monetary transactions. Otherwise, there is a possibility of receiving losses, and possibly ruin.
Organization of risk management in the company
Any business, any commercial activity is dangerous. It is characterized by numerous risks from different areas. These can be risks caused by changes in the political environment, or risks created by a difficult economic situation, yes, in the end, no one excludes the possibility of extreme natural circumstances that can nullify the entire activity of the company.
All this is a brake lever in business, numerous entrepreneurs are afraid of even the smallest risks, fearing to face them face to face. But this is an unfounded fear! You can get out of any situation, therefore, you can fight any risk.
An excellent solution in the fight against risk can be the diversification of the company's activities. What does it mean? Diversification of activities implies that the organization has paths of departure that are capable of compensating for some risks with success in another direction.
For example, a company supplies bananas to the market, but in some of the years there was a terrible crop failure of this overseas fruit. The organization found itself in a difficult situation. But the company's management should have foreseen the possibility of a crop failure, so it would be a wise decision to diversify its activities, that is, start supplying more apples, pears and peaches. Even if the banana crop fails, the organization can always stay afloat by selling other products.
It is for this reason that each company should avoid monopoly in its activities, because this can lead to bankruptcy. And surely no company wants to achieve it.
But it's not just a variety of products that can keep an organization afloat. Risk diversification is also a great way to manage uncertainty in an enterprise. What does risk diversification involve?
Each enterprise must constantly monitor possible risks, monitor changes in the market situation and calculate the likelihood of an event occurring. It is for this that risks should be diversified, that is, from separation. And the more detailed the risks are divided, the easier it is to manage them.
Risk diversification presupposes the creation of a risk tree or their matrix, in which all possible events will be collected: first in aggregate, then in smaller detail.
For example, in aggregate, risks can be presented as economic, political, natural, social, and commercial. But each of these risks can be subdivided into smaller ones. Consider the division of economic risks.
1 - change in the exchange rate;
2 - lack of funds;
3 - high accounts payable;
4 - a decrease in the price of a similar product from competitors;
5 - an increase in the price of raw materials and many others.
Risk diversification makes it possible to break down potential threats into smaller annoyances that can be addressed in advance. For this purpose, such measures are being introduced. Risk managers can see potential threats in advance effective operation enterprises and develop a plan of solutions that can save the situation in time.
Diversification of risks, of course, does not exclude their occurrence, but it enables the company's managers to react in time to the upcoming changes and make an adequate decision without panic and fear of losing everything.
Given these reasons, risk diversification seems to be a fully conscious and appropriate methodology for managing an organization. But the difficulty lies in the fact that few specialists know how to predict possible risks and calculate their probability of occurrence. Nevertheless, universities are already training specialists in this area, and the experience of the organization can largely help in the hard work of dealing with emerging risks.
Entrepreneurship has the main goal - to get the maximum income and at the same time incur the minimum cost of capital, and in an always competitive environment. But in order to realize this goal, it is necessary to compare the size of investments with the financial results of activities.
You must always be prepared for the fact that carrying out any economic activity, there is always a risk (danger) of losses, and their volume, as a rule, is determined by the specifics of a particular type of business. So, risk is the probability of occurrence of losses, losses, shortfalls in profits or planned income.
The financial manager considers risk to be the likelihood of an unfavorable outcome. Therefore, the company must create a financial risk management system. The risk may or may not occur. In any case, the result will be either loss, loss, damage, or a zero result will be obtained, or it will be profit, gain, gain. Experts believe that it is impossible to achieve success in business without taking risks. Therefore, financial risk management is of particular importance.
Financial risk management is the use of all kinds of measures that allow, to one degree or another, to predict the onset of a risky situation and immediately take measures to reduce the degree of risk. Whether or not financial risks are effectively managed is often determined by their classification. We are talking about the distribution of risks into separate groups according to different criteria. Classification that is scientifically based can improve performance and make the organization's financial risk management more effective.
According to the possible result, risks are divided into speculative and pure ones. Net is the ability to get zero or negative results. These include environmental, natural, transport, political and some commercial (trade, production, property). Speculative risks are an opportunity to get not only negative, but also positive results.
The causes of financial risks are inflationary factors. In addition, if the bank's discount rates increase or the value of securities decreases, then financial risks may also arise. They are divided into two groups: some of them are associated with the purchasing power of money, and others with the investment of capital. The first group is deflationary and inflationary risks, liquidity risk, and currency risks. The second group is the risk of loss of profits, direct financial losses and a decrease in profitability.
In order to effectively manage financial risks, it is necessary to be able to correctly assess their magnitude and degree of manifestation. The degree of risk is the probability that a loss event will occur. The risk can be acceptable, that is, there is simply a threat of almost complete loss of profit as a result of the implementation of the project that was planned. Critical risk is a risk that may result in non-receipt of revenue, and losses will be covered by specific entrepreneur... A catastrophic risk threatens the loss of property, capital and bankruptcy in general. Assessing financial risks is not an easy task, it requires a lot of knowledge and experience.
Financial risk management is a mechanism consisting of a special strategy and various techniques financial management... Its ultimate goal is to obtain the greatest profit under the condition of an acceptable, optimal ratio of risk and reward for an entrepreneur. The object of financial risk management is risk, various risky capital investments, as well as all economic relations of economic entities during the implementation of the risk. The subject of management is a special group of people (insurance specialist, financial manager, acquirer and others). They use different methods and techniques to influence the control object.
In Russia, a huge number of enterprises use such risk management methods as risk avoidance and localization. The first method is to abandon projects that raise even the slightest doubt in the entrepreneur. For example, enterprises prefer to work only with trusted suppliers, with partners who inspire confidence and avoid entering into agreements with new companies. The second method involves identifying sources of risk and, on this basis, controlling the most dangerous sources.
Risk diversification means the distribution of funds in different directions that are not related to each other. For example, an enterprise invests money not in one large project, but in several small ones. However, this method is rarely used by managers.
Insurance, self-insurance, limiting, hedging are also methods of risk reduction.
Limiting is usually applied large enterprises, which are characterized by a branched structure. An example of this method can be the establishment of investment limits in a certain project, the limits of borrowed funds of the enterprise, the limits of competence in making decisions by employees.
Insurance is characterized by the fact that the firm transfers responsibility for the risks to the insurance company.
Self-insurance consists in the creation of special funds by the company to overcome the negative consequences of risk.
Hedging is used when an entity enters into a contract immediately due to possible changes in currencies that could adversely affect economic activity enterprises.
The risk acceptance method can also be applied when the cost of risk mitigation measures exceeds the assessment of actions to combat negative consequences.
Risk management consists of comprehensive analysis financial and economic, production, technological and other factors that may affect an economic entity.
To overcome the consequences of risk, it is necessary to have large funds, so companies develop effective solutions to minimize risk. Risk management is based on a comprehensive analysis of financial, economic, production, technological and other factors that can affect the company's performance. It is necessary to attach importance not only to existing risks, but also to anticipate potential ones in order to take timely measures to reduce them.
Risk management and internal control
The present time can be called a qualitatively new stage in the development of risk management. In addition to the adoption of national standards GOST R ISO 31000 "Risk Management" Principles and Guidelines and Methods for Risk Assessment, work has begun on the creation of an industry standard for risk management in the leasing sector. The document being developed should summarize the accumulated experience of leasing companies and serve to disseminate best practices.
It is obvious that the topic of creating an effective risk management system is very relevant today. The article touches upon the topic of the practice of building a risk management system, in particular, the relationship between internal control and risk management.
At first glance, these areas of activity have little in common. Under control, we are used to understanding checks, reporting to management, taking appropriate measures to identify those responsible. In general, little pleasant.
By risk management, we often mean the activity of forecasting and reducing the likelihood of risk events. Those. management is unpredictable.
But if you look at these processes more broadly, you will see a lot in common. The purpose of internal control is to ensure the efficiency of operations and use of the company's assets, reduce risks, guarantee the reliability of reporting, and comply with regulations.
The goals of risk management do not contradict these goals in any way. In many ways, he is engaged in solving the same problems. If the internal control system identifies weaknesses, the risk management system should prevent them in principle.
In detail, the relationship between the objectives of internal control and risk management can be considered on the development of the COSO concepts developed in the United States by the Committee of Sponsoring Organizations of the Tridway Commission.
The risk and control models proposed by this committee have served as the basis for a number of models and standards developed in other countries.
The COSO Report "Internal Control. An Integrated Model", prepared in 1992, defines internal control as a process carried out by the board of directors of an organization, management, and other personnel, designed to provide reasonable assurance that the company's goals are achieved in the following categories:
- efficiency and effectiveness of operations;
Reliability of financial reporting;
Compliance with applicable laws and regulations.
Let's consider this definition using the example of a leasing company:
1) This is an ongoing process, not separate procedures. In the leasing business, it is not enough to make a decision once to enter a transaction, it is necessary to constantly monitor the client's market, his financial condition, payment discipline, property safety.
2) All levels of management and all divisions of the company are involved in the process. The Board of Directors approves the fundamental work regulations and makes decisions on risk limits, the General Director approves the regulations on the work of services and is responsible for compliance with risk limits before the board of directors, heads of divisions are responsible for controlling the risks arising in their areas of activity: safety and insurance of property, ensuring the company's liquidity, market risk management, legal, tax risks, etc. Each employee within job description understands for which part of the company's business process he is responsible.
3) Objectives of internal control:
Avoiding losses or additional expenses on leasing transactions, as well as within the framework of economic activities, concluding leasing transactions with an acceptable risk / profitability ratio for the company, safety of leased property;
Reliable reporting for shareholders, investors, tax authorities;
Avoiding losses from business interruption or in the form of fines, preserving business reputation.
The internal control system consists of 5 interrelated components:
Control environment - philosophy and leadership style, rules and techniques for working with labor resources, honesty and spiritual qualities of employees, organizational structure, the leadership of the board of directors). Here the work must be carried out at all levels of the company. But the style of behavior of the leadership is always the tuning fork.
Risk assessment (identification and analysis of external and internal risks). The internal control system must ensure the timely identification of all possible risk events and assess the likelihood and consequences of their occurrence - from an accountant's computer failure to a lessee's fraud.
Control activities - principles and procedures that ensure that the instructions of the management are followed. The company must have a detailed description of business processes, instructions for the work of all services and employees, regulations of operations.
Information and communication. The written regulations must be communicated to the responsible employees. Arising failures in the work of the company or in the implementation of a leasing transaction must be promptly brought to the attention of the managers of the appropriate level.
Monitoring. All components of the internal control system should be checked for operational efficiency. Is the code of ethics adhered to, were the risks of the leasing transaction assessed correctly and the liquidity of the company ensured, is there a conflict of interest in the supplier selection procedures, are there periodic checks on compliance with regulations, do the regulations require revision due to the changing market situation?
It is considered that the internal control system is effective if all 5 presented components exist and function effectively in relation to all stated goals in all divisions of the company and in each of its business processes: from registering a lease application to transferring ownership of leased property at the end of the contract ...
The COSO concept was further developed in 2005 by the publication of the document "Conceptual framework for risk management of organizations". Risk management is seen as an extension and modernization of internal control.
Risk management has the same purpose as internal control, namely, "to provide reasonable assurance that the objectives of the company will be achieved." The list of goals additionally includes the direction " Strategic Objectives" - goals high level related to the mission of the organization. Thus, risk management should contribute to the achievement of the company's strategic goals.
The list of activities has been expanded in accordance with the expansion of the list of objectives of activities:
Setting goals (The company's management must properly organize the process of selecting and forming goals so that they correspond to the mission and the level of risk appetite);
Definition of events (Events affecting the achievement of goals should be divided into risks or opportunities. Opportunities should be taken into account when formulating a strategy and setting goals);
Risk response (Management chooses a response method: risk avoidance, acceptance, reduction or transfer in order to bring the identified risk into line with the risk appetite);
The risk management system should involve the services of all legal entities group of companies.
Thus, the company's risk management model is an extension of the institution of internal control.
The conceptual renewal of the model is to change the basic principle of guaranteeing the achievement of goals. If internal control uses control over current activities to ensure this, risk management is based on control over expected results.
System audit is necessary process in risk management. Traditionally, during the audit of the effectiveness of the system, the following are considered:
- the effectiveness of communications within the company and within enterprises, as well as with external inspection bodies;
- the efficiency of spending funds on activities related to risk management;
- efficiency external consultants;
- availability of crisis response mechanisms and the effectiveness of the company's business continuity plan;
- procedures for dealing with key risks. With regard to operational risks, it is important to consider equipment maintenance procedures, modernization processes, operational efficiency and organization. information system in the company, to analyze the inventory management process of the enterprise. Various questionnaires designed for hazard identification, matching methods, physical inspection, financial audit activities of divisions and whole line other methods.
Features that can be optimized
Ensuring industrial safety. The function of ensuring industrial safety in world practice refers to any property objects, in Russian practice - only to hazardous production facilities assigned to this category by state regulatory bodies, that is, it does not apply to the entire property object, as is customary abroad.
Ensuring labor protection. This function is regulated by Russian law, so the author does not expect that companies will incur significant losses due to violations of labor protection standards in short term... Nevertheless, it is important to take into account that in the world practice, losses associated with violations in the field of labor protection are among the most significant for the industry, along with ensuring environmental compliance.
Providing effective equipment maintenance. In Western practice, there is no separation of the functions of ensuring the safety of production equipment and the safety of the operation of buildings and structures.
In Russian practice, these functions are separated, moreover, they often fall within the competence of various directorates. This leads to the division of financial flows into ensuring activities to prevent unplanned losses and makes their control from the point of view of investment efficiency more difficult.
In turn, to resolve the conflict arising between the desire to increase production indicators Due to the increased use of equipment and the need to ensure some level of equipment reliability, risk management departments should oversee the development of equipment maintenance policy and verify its compliance.
The increase in overhaul periods is one of the main reasons for the occurrence of large losses at enterprises in world practice.
Providing fire safety. Ensuring the fire safety of the enterprise is one of the important functions in the system for preventing unplanned losses. Internal conflict is rooted in the very principle of the functioning of the fire safety units at Russian enterprises, when the main goal is to meet the requirements of state regulatory bodies, and not to effectively protect the property of the owners. This is an important and often underestimated cost item for an enterprise. As a rule, this function is not managed at the level of the central office of the company, but belongs to the competence of individual enterprises, which needs to be changed in order to increase efficiency.
Providing activities for work in emergency situations... As a rule, operational risks in industrial companies arise at enterprises and it is the effectiveness of this function immediately after the occurrence of an incident that allows minimizing financial losses and the time it takes to recover the business process. It is obvious that on corporate level this function is assigned to the corporate risk management unit and is formalized by writing a business continuity plan. At the local level of an individual enterprise, emergency response plans should be developed and periodically updated.
Communicative function. This function is key in organizing effective risk management of the company in general and at individual enterprises in particular. In practice, the function is often performed satisfactorily at the company's headquarters, but each enterprise within the company should have an operational risk management process coordinator who is entrusted with and communicative function... It is necessary to determine this coordinator precisely at the fourth stage of building a risk management system.
During the analysis, critical scenarios for the occurrence of possible losses, as well as a system for responding to recommendations to reduce existing risks, given earlier, should be checked for adequacy.
An important element of the risk management system is the proactive recognition of alarming situations and the accumulation of information about probable losses. For example, in our company, regardless of the level of risk management (management company or business unit), the risk signal goes immediately to the risk manager. At the same time, possible consequences are monitored and recommendations for their elimination are issued. This allows you to control the work of risk management in enterprises.
It is obvious that in connection with business development, the composition and materiality of the risks of the enterprises included in the holding may change. Therefore, we have developed a regulation according to which enterprises regularly inform management company on the purchase of new equipment or carrying out repair and installation works, that is, about the emergence of new risks or changes in the degree of existing ones. If the cost of equipment or possible losses from its loss exceed the limits determined by us, then information about such equipment should be sent to the central office immediately. We are notified of any cases that have signs of an insured event on the same day, and all further actions are controlled by the Risk Management Department of the management company.
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Risk management methods, depending on the goals and tools used, can be conditionally divided into two groups:
- methods of risk prevention and limitation (expert examination of decisions and assessment of the risk level, risk limitation, use of guarantees and collateral, risk diversification, etc.);
- methods of compensation for losses (reserve funds and risk insurance).
Let us consider in more detail such methods of risk reduction as risk avoidance, risk diversification, risk localization, risk distribution, high informatization of the management process (obtaining more information about the upcoming choice and results), project optimization under risk conditions (Fig. 7.3).
Avoiding risk
The easiest way to avoid risk is to give it up. This method is used by companies with strong positions in the market, their leaders prefer to avoid risky projects, to act with confidence, not to deal with unreliable partners.
One example is company behavior IBM. In the 60s and 70s. XX century she occupied a leading position in the computer market. Com-
Rice. 7.3.
Pania did not invest in the development of a new direction for the production of personal computers, as a result, it fell behind and lost its dominant position in the computer market, suffering heavy losses, while Bill Gates made his fortune precisely on the development of new directions in software... Thus, the implementation of an innovative policy of introducing new forms, new methods, new products is often more profitable than the production of familiar, proven products.
In 2006 the company IBM published the results of a survey of enterprises in 20 sectors of the economy from 11 geographic regions of developed and emerging markets. It was found that the leaders of enterprises and organizations consider the introduction of innovative business models and production processes; 76% of CEOs consider collaboration with business partners and customers as the main source of new ideas. When it comes to innovation, only 35% of executives surveyed are willing to tackle internal constraints by taking responsibility for implementation. At the same time, there are certain stereotypes in various countries, for example, in Japan, China, Korea, Eastern Europe, 47% of managers personally contribute to the introduction of innovations; In India and the United States, innovation management is split into different parts of the company and shared with business partners, so only 20% of executives personally contribute to innovation. In the most developed markets, innovation management plays a special role Chief Operating Officer companies.
More than 80% of executives say that the changes made in their company have not been very successful; the main reasons for the failures were the insufficient level of corporate culture and the inappropriate corporate climate, i.e. internal factors... External factors include government and other legal restrictions.
Sources of innovative ideas are company employees (41%), business partners (38%), customers (36%). One third of the resources allocated for the implementation of innovations are directed to transforming the business model (innovations in the structure and financial model). At the same time, companies that innovate in a business model achieve a significant increase in operating profit, and companies that innovate in products, services, markets, receive a stable (unchanging) profit.
Risk optimization techniques
Risk optimization methods are the most time consuming, but also the most effective. The essence of the method is the periodic development of development scenarios and an assessment of the future state of the enterprise and its external economic environment. The method requires special preliminary analytical work, on the completeness, correctness and thoroughness of which the effectiveness of its application depends. The risk optimization method refers to the proactive management methods associated with strategic planning. Strategic planning is understood as studying the potential of an enterprise, forecasting the external situation, periodically developing development scenarios and assessing the future state of the economic environment, predicting the behavior of potential partners and the actions of competitors. The results obtained make it possible to catch trends in the relationship of economic entities, to prepare in a timely manner for legislative changes, take the necessary measures to compensate for losses from changes in the rules of doing business, adjust operational, tactical and strategic plans. Strategic management risks involves:
- continuous monitoring of external conditions;
- collection of information on the most significant risks for this project;
- making adjustments to the initial project risk assessment, taking into account additional information on risks, changes in the external environment and in the project itself;
- regularly informing the manager about external adjustments.
Risk optimization methods can also include limiting, reserving funds to cover unforeseen expenses, as well as focusing on an average rate of return (profitability): the pursuit of high profits dramatically increases risk.
Limiting involves setting a limit, i.e. certain amounts of expenses, sales of goods on credit, amounts of capital investment, etc.
Reserving funds to cover unforeseen expenses involves establishing a balance between potential risks and the amount of costs necessary to overcome the consequences of these risks. This method of risk mitigation is usually used in the implementation of various projects. In the general case, reservation is used to finance additional work, compensate for unforeseen changes in material and labor costs, overhead costs and other costs arising in the course of the project.
The exception is factors that are not included in the model, for example, the risk factors for recruiting the wrong team. The identification of such factors is carried out by expert analytical methods.
Diversification of risks
Risk diversification is the allocation of capital investment across a variety of activities, the results of which are not directly related. An enterprise, incurring losses in one type of activity, can make a profit at the expense of another field of activity. Reducing the risks of entrepreneurial activity through diversification can manifest itself in the following areas:
- expansion of areas of activity in which there is an increase in the number of used or ready-to-use technologies, expansion of the range of products or services provided;
- an increase in the number of suppliers of raw materials, materials, components, which makes it possible to reduce losses from the unreliability of individual suppliers, violation of the schedule or terms of delivery;
- expansion of sales markets, i.e. work simultaneously on several commodity markets, focus on different social groups consumers, enterprises of different regions, etc .;
- diversification of investment policy, i.e. giving preferences to the implementation of several projects of relatively low capital intensity or investing capital in various types of activities (at least 12 companies are recommended), in various types of securities (8-20 types are considered optimal), optimization of the investment portfolio structure (1/3 - large firms, 1 / 3 - medium, 1/3 - small).
Diversification of activities contributes to an increase in net cash flow due to an increase in the efficiency of economic activities and allows an enterprise to increase its resilience to changes in the business environment.
Risk localization methods
Risk localization methods are used when it is possible to identify an economically more dangerous area of activity and make it more controllable, thus reducing the level of risk of the enterprise. Such methods apply large companies when introducing innovative projects, mastering new types of products that require intensive research and development, using the latest unproven achievements of science and technology, the commercial success of which raises great doubts. To reduce the risk of innovation policy, subsidiary "venture" companies are created or R&D is given to government agencies(universities, institutes, design bureaus).
Distribution of risk (dissipation)
Risk sharing (dissipation) involves the sharing of risk among several project participants interested in the success of a common cause. The growth in the size and duration of investment, the introduction of new technologies, and the highly dynamic external environment increase the risk of the project.
The methods of risk distribution can also include various forms of partnerships between entrepreneurs and the creation of corporate structures with horizontal and vertical integration and a diversified structure, holdings, groups, etc. Horizontal integration entrepreneurial structures involves the amalgamation of homogeneous businesses (energy, sales, telecommunications companies, etc.). Vertical integration, or concerns, are created according to the principle of combining enterprises of one production chain (extraction of raw materials, processing, production of products, consumption, sales). A diversified structure brings together unrelated businesses, including banks that invest in some kind of enterprise. At the same time, the risk of entrepreneurial activity is reduced and an additional effect is achieved: the supply of raw materials and the sale of finished products, works or services become more predictable and, consequently, more stable; industrial enterprises receive additional sources of financing, means of faster adaptation to market conditions, and financial structures - additional income.
Factoring operations and insurance are ways of sharing risk and at the same time a means of compensating for possible losses.
In the practice of foreign banks, the development of factoring operations is mainly associated with the need of individual suppliers for accelerated receipt of payments, which seem questionable. As a rule, in these situations there is a risk of non-payment of claims by the payer at all. The bank that bought such claims from the supplier may incur losses in this case. Factoring operations are high-risk operations. The size of the commission depends both on the degree of risk (on the level of “doubtfulness” of the debt being redeemed) and on the length of the contractual grace period; in some cases, it reaches 20% of the payment amount.
Insurance is also a method of risk redistribution and involves the transfer of certain risks to the insurance company.
Russian legislation provides for the possibility of insuring the following events: stoppage of production or reduction of production volume as a result of events specified in the contract; bankruptcy; Unexpected expenses; non-fulfillment (improper fulfillment) of contractual obligations by the counterparty of the insured person who is the creditor under the transaction; legal expenses incurred by the insured person; other events. Thus, the list of events that can entail financial damage and against the risk of which can be insured is quite wide.
Insurance of probable losses not only serves as a reliable protection against unsuccessful decisions, which is very important in itself, but also increases the responsibility of the leaders of an entrepreneurial organization, forcing them to take more seriously the development and adoption of decisions, and regularly carry out preventive measures of protection in accordance with the insurance contract.
When seeking to insure its financial risks, a firm must select an insurance company that suits its insurance coverage needs. The status of a "large insurance company" does not mean that it is reliable, but it is a company with a large turnover and, therefore, great potential, for example, for investment activities, this company is more financially stable than Insurance Company with little funds.
The relationship between the company and the insurance company is based on an insurance contract - an agreement between the policyholder and the insurer, which regulates their mutual rights and obligations under the terms of insurance of certain business risks.
Abroad, this type of insurance is widely used as hedging (conclusion of exchange transactions) - insurance of the price of a product against the risk of its undesirable fall for the manufacturer, or an increase that is unprofitable for the consumer. Depending on the objectives and technique of the transaction, hedging is divided into hedging by sale, i.e. the conclusion by the manufacturer or the commodity owner of a futures contract for the purpose of insurance against a decrease in price when selling in the future goods, either already available or not yet produced, but provided for mandatory delivery at a certain time; buy hedging, i.e. conclusion by a consumer or seller of a futures contract with the aim of insuring against price increases when buying the necessary goods in the future. Thus, insurance can also be considered a means of compensating for possible losses.
High informatization of the management process
Any management decision is made in conditions where the results are not defined and information is limited. Consequently, the more complete the information, the more prerequisites to make a better forecast and reduce risk. The cost of complete information is calculated as the difference between the expected cost of an activity (acquisition project) when complete information is available and the expected cost when information is incomplete.
Accounting for risks using a discount rate
The conversion factor used to bring the future cash flow to the present value and reflecting the expected or required rate of return is called the discount rate (synonymous names of the indicator - discount rate, discount rate, discount rate). In other words, the discount rate is the level of return that an entrepreneur or investor would agree to when deciding whether to invest in a particular operation or business project.
To determine future income or costs, the compounding formula can be applied:
where R- initial investment estimate; i - discount coefficient (interest rate, rate of return); R ( - attachments by the end of the time period t.
To assess risky business projects, the discount rate of future income to the current point in time is critical. At the same time, it is possible to classify projects into low-risk ones, adding to the rate, for example, 2%; medium-risk, adding 4%, and high-risk, adding 6%. It is clear that the risk premium depends on the discount rate itself, which is influenced by inflation rates, business confidence in government policies, and other factors.
Thus, a company that wants to work on the market for a long time should strive to reduce the risk premium, increasing its investment attractiveness and self-confidence, paying dividends on time, respecting the rights of shareholders, etc.
Accordingly, the higher the level of risk associated with investing in this enterprise, the higher the rate of return the investor has the right to demand, all other things being equal.
The calculation of the discount rate depends on the type of cash flow: for equity, the discount rate is equal to the rate of return on invested capital required by the owner (the most applicable methods of cumulative construction and the capital asset valuation model SARM); for all invested capital - at the level of the weighted average cost of capital (model WACC).
The cumulative construction method (summation method, cumulative method) is based on the formation of the discount rate as the sum of the risk-free rate of return and premiums for the risk of investing in a particular company. The method best takes into account all types of investment risks associated with both macroeconomic and sectoral factors, and with the specifics of the business.
The calculation of the discount rate by the cumulative construction method is carried out according to the formula:
where DR - discount rate; DR 6 - risk-free rate of return; Rj - risk premium of the type /; N - the number of risks taken into account.
The discount rate is understood as the risk-free discount rate expressed in fractions of a unit. The discount rate reflects the inflation-adjusted minimum return on invested capital acceptable to the investor in case of alternative risk-free investment directions available on the market. In modern Russian conditions, there are practically no such directions, therefore, the discount rate is usually considered constant over time and is determined by adjusting the profitability of profitable alternative directions of capital investment, taking into account inflation and risk factors.
To assess the commercial efficiency of investments, foreign experts recommend using the commercial discount rate set at the level of the weighted average cost of capital as the sum of the weighted rates of return on equity and borrowed funds, where the weights are the shares of equity and borrowed funds in the capital structure: 
where DR - discount rate (weighted average cost of capital WACC) K (- the cost of raising capital from a source /; Dj - the share of capital from the source / in the total capital structure of the enterprise; N - the number of sources of capital taken into account.
Usually, this formula is decomposed into separate components of capital into borrowed capital adjusted for the tax rate (if the company's expenses for servicing borrowed funds are included in the cost price and therefore are not taxed), by share capital separately for ordinary shares and preference shares.
As you know, the most common procedure is the choice of the interest rate for calculating the present value based on the rates prevailing in the country's money market at the moment. Applied to investment resources government agencies management often uses a discount rate at the level of the refinancing rate of the Central Bank of the Russian Federation, which is not always justified. Some Russian scientists, in order to determine the cost of investment resources and, accordingly, the discount coefficient, suggest focusing on inflation indicators and changes in the rating of regional bonds and an assessment of the yield of other municipal government bonds with similar ratings circulating on the world market.
To assess risk premiums, the method of expert determination of risk premiums is widely used (Table 7.4).
Table 7.4
Risk premiums for a separate company
The discount rate using the cumulative method is most often defined as the sum of the risk-free rate of return and the amount
expert estimates of risk premiums and can be represented by the characteristics of the considered risk parameters (Table 7.5).
Calculating the discount rate using the cumulative method and characterizing the risk premiums associated with investing in a particular company
Table 7.5
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Areas of risk assessment |
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Vero bright interval value, |
Most probable meaning, |
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Risk-free rate of return (excluding inflation) |
It is set at the level of profitability of risk-free government securities of a particular territorial entity |
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Leadership team: key person, quality of management |
Availability of qualified management personnel, characteristics of the key figure (personal, business qualities, influence on the company's policy), assessment of the current management practice |
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Company size |
Large, medium, small business; monopoly or competitive form of the market from the position of supply (the larger the size of the object of assessment and the degree of monopolization in a given market segment, the lower the risk) |
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Financial structure (sources of financing of the enterprise, dependence on external sources) |
Installed by the filed financial analysis the optimality of the capital structure in aggregate, taking into account and assessing a specific field of activity (turnover indicators), the size of the enterprise, the ratio of constant and variable costs, the form of institutional management (policy of leadership), comparison with the industry average indicators in the region |
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Areas of risk assessment |
Characterization of risk parameters |
Vero bright interval values, |
Most probable meaning, |
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Commodity and territorial diversification |
Assessment of the structure of the product specialization of the business: the presence of business segments (territorial or operational); assessment of market factors of the company's work in specific market segments (communication accessibility and quality of transport and logistics services, friendliness local authorities management and regulation in this area of activity, the level of monopolization). For a monopoly business, the risk premium is 0 |
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Diversified clientele |
Study customer base through surveys, questionnaires, analysis of agreements and contracts: the presence of regular customers, the number of different categories of consumers, dependence on large customers |
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Income level and predictability |
Assessment of retrospective financial results for 3-5 years of the company's work, establishing the validity of the company's business plan in comparison with the dynamics and development trends of a specific field of activity in the country and the region |
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Other special risks |
Assessment of specific (form of ownership, location or use of leased property, unreliability of suppliers) and, if necessary, macroeconomic risks ( governmental support, stock market, lack of stability in the development of the sphere |
The main disadvantages of the cumulative method can be considered the subjectivity of assessments regarding the various risks of a particular object, the assessment and blurred accounting of other risks, which sometimes leads to inaccurate results. However, this method has a number of significant advantages over some other methods, and above all, a detailed consideration of the main risk factors associated with investing in a particular company. In addition, this method is used to determine the discount rate in countries with a weakly developed stock market, therefore it is most common in Russia.
Another method for calculating the discount rate of cash flows, widely used in economic practice, is the capital asset valuation model (SARM), developed by W. Sharp; he also developed a model for assessing the profitability of financial assets, for which he was awarded the Nobel Prize.
The discount rate according to the Sharpe model is determined by the formula:
where D r is the required (expected) rate of return on equity capital of the analyzed enterprise; R f - the profitability of risk-free (absolutely reliable, usually government) securities; R m- yield for the current period on average in the securities market; Р - coefficient reflecting the level of risk of investments in a given enterprise, calculated on the basis of statistical data; S x - additional rate of return for the risk of investing in a specific company (non-systematic risks); S 2 - additional rate of return for the risk of investing in a small business; C is an additional rate of return that takes into account country risk.
This model is based on the analysis of extensive statistical material on stock markets and the position that the profitability of securities is directly related to risk: the higher the profitability, the higher the risk.
To take into account the factor of sensitivity of specific enterprises to macroeconomic changes, the Sharpe model uses an indicator of systematic risks)
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