Business And Management

Risk Management for Financial Agreements

Risk is often a source of confusion and concern for both individuals and businesses. The word itself can be misunderstood because of disagreements about what constitutes a risky activity.

Because risk can have so many different interpretations, strategies for reducing or managing risk can prove unsuccessful merely because the risk management goal is not adequately described. But this difficulty does not mean that risk management should be ignored. Instead it should serve as a caution signal that a bumpy road is on the horizon when dealing with risks of any kind.

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How do financial agreements fit into a risk management conversation?

When companies talk about the risks they are exposed to, it is usually in the context of unknown events such as the economy and political outcomes.

It seems unlikely that a manager would point to her commercial mortgage financing agreement when asked to identify the top ten business risks faced by her company. Nevertheless financial agreements like this do provide a unique risk exposure that is often overlooked until it is too late to avoid a serious problem.

Small businesses frequently experience different risks than those at larger companies. The lack of personnel is a common factor contributing to this. While a large company might have someone (or several people) whose full-time job is to handle risk management, a smaller company is more likely to have its business owner attempting to keep risks under control whenever possible.

When managing risk is just one of several dozen important responsibilities, risk management is by default handled much differently than when it is a full-time job.