Corporate risk management Essay Example | Topics and Well Written Essays - 2000 words - 2

Corporate risk management - Essay Example If the quantum of investment is significant and depending on the size of the firm, sizeable enough to affect future earnings in a way that negatively affects the firm, then it is more preferable to go for risk transfer. Conversely, if the investment is not of a quantum that can affect the firm negatively it is better to go for risk retention. 2) Risk Transfer: Risk transfer, also known as Risk sharing is in many ways the complete opposite strategy of Risk retention. The principle of Risk transfer is the underlying tenet behind most insurance transactions. Risk transfer generally involves the shifting of risk to another party, most usually by means of insurance or through warranty. This method assumes the longevity of the third party and the ability of the insurer to maintain business continuity. Cash Flow Regularity: One of the biggest risks associated with investment decisions, particularly in light of whether or not to transfer risk or not, or to whether just bear with the uncertainty is how regular or irregular the earnings of that particular investment decision are. It follows then that the more irregular or uncertain the earnings of a particular investment decision are, the more likely a firm is to increase its security or safety in regards to that investment or that line of cash flows. Hence, the greater irregularity is seen in cash flows, or the higher risk factor involved, the more likely a firm is to transfer risk either via Insurance or Warranty. 3) Risk Avoidance: Risk avoidance, on the spectrum of Risk management activities is on one end of the spectrum, wherein the company decides to altogether excuse itself from all possibility of risk. Although this strategy is often considered the safest form of risk management it also entails the loss of any potential revenue that could have been gained from the investment, therefore while it is the safest strategy it