Most business decisions are made with incomplete information and an uncertainty future. Managers have to deal with risks every day. More specific a company may have a great new technology but consumer acceptance of this innovation is mysterious. A competitor may be tempted to engage in direct competition with a firm or may decide that the profits of a divided market are too slim and go on to look for other opportunities. Uncertainty includes both identifiable trends whose depth and timing can only be guessed at and unexpected events whose effect is immediate. What is risk? (Doherty Neil A. integrated risk management, mc graw hill professional 2000) Risk is present when the outcome of some defined activity is not known. Risk refers to the variation in the range of possible outcomes, the greater the potential variation, the greater the risk. In the economic sense risk does not refer to the adverse quality of some outcomes likes losses instead of profits but rather to the lack of knowledge about which of several outcomes may prevail. A risk is implied by our inability to predict the future. What is certainty? Certainty is a procedure that always show you the way for a specific outcome. Uncertainty Uncertainty refers on a situation of not having more information about the future. It is necessary in an environment of decision making. Managers should handle the uncertainty in a way that the probability of making mistakes will be in logical stage. For example costumers’ acceptance of a new product can be beyond the most hopeful prediction. Threats Threats are risks from the behavior of others. For example when goody’s enter to the Greek market where McDonalds was making profits then there is a threat for mc Donald’s because this might reduce their profits. The lower profits can be expected but the moves of the other competitors business can’t be expected with sureness. A risk condition is a position where the results are unfamiliar to the decision maker. For example a manager is not confident about the outcome and uncertainty may lead to bad choices. Market risk is something that businesses concern because if their hopes about the future market situation are wrong then they have losses. It is a natural part of investing and market involvement. It can be control but not reducing it. If managers use future contracts then they are not worried about any loss may have because they will take some profits. Prepayment risk refers to the possibility that the resources may be prepaid earlier than their designated day.( financial markets and institutions j, Madura cengage learning 2008) Credit risk refers to the risk that a loss will occur because of the defaults on the contract. Business worried about the stability of their stock. The economic future of a business can’t be predicted with confidence. A company might fail about their credit value. In order to identify risks that a company might have managers should ask their selves: what can go wrong?’ for example if Starbucks company wants to make a coffee with a specific ingredient and the supplier don’t bring it on time then they faced an unexpected risk.
We will send an essay sample to you in 2 Hours. If you need help faster you can always use our custom writing service.Get help with my paper