Critically Discuss the Approaches a Non-Financial Company Should Take in Defining, Measuring and Effectively Managing the Risks Inherent in a Potential New Project.

Critically discuss the approaches a non-financial company should take in defining, measuring and effectively managing the risks inherent in a potential new project.

By Junwen Ma FINANCE &ACCOUNTING THE UNIVERSITY OF GREENWICH

I.

INTRODUCTION

In today’s business world, almost everything we do is surrounded a risk of some kind: new competitors appear, customer habits change and many factors outside your expectations and control would delay and impact your project. On average, nine empty oil wells are drilled before a successful oil strike. Similarly, on average, enterprisers have nine failures for each major success. But this does not mean that managers can do nothing about risk. The purpose of this essay is trying to help investors to assess risks and decide what actions would take the minimize disruptions to their plans. The first part of the essay defines what is meant by risk. The second part presents the main approaches from various ways for measuring project risk. The final part highlights a variety of ways of risk management.

II. MAIN BODY Defining Risk
Risk, in the traditional terms, is usually simply described as something that would bring negative outcomes and should be avoided. And risk is defined as “exposing to danger or hazard” in Webster’s dictionary. The Chinese symbols for risk, “危机”, give a more better description of the meaning of risk. The first symbol is the meaning for danger, and the second is the meaning for opportunity. It describes very clearly that risk is a combination of danger and opportunity. (Damodaran,2006)

Here we define risk as the probability that actual returns will be different from expected returns. Risk of any security, asset, or investment may be classified into two categories-those that specifically affect only the individual firm or its immediate competitors or a small group of firms, called unique risk (also called unsystematic risk). It can be diversified away. For example, management quality, strikes... [continues]

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