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RISK ASSESSMENT AND DECISION MAKING IN BUSINESS
Isroilov R. (USA)
Isroilov Rustamjon - Postgraduate student, MBA IN INTERNATIONAL BUSINESS, UNIVERSITY OF MASSACHUSETTS, LOWELL, USA
Abstract: conducting a risk analysis is one of the most crucial aspects of ensuring that a business can continue operations. This field of study is both theoretically and practically significant due to the fact that the application of risk analysis for decision-making may minimize loss, particularly in hazardous activities and corporate performance decline. Businesses cannot expand regionally or internationally if their executives lack an understanding of risk and risk analysis techniques
Keywords: risk analysis, enhancement, risk management strategies, global integration, managerial protocols, strategic and operational facts, best practices.
ОЦЕНКА РИСКОВ И ПРИНЯТИЕ РЕШЕНИЙ В БИЗНЕСЕ Исроилов Р. (Соединенные Штаты Америки)
Исроилов Рустамжон - Аспирант, MBA в области международного бизнеса,
Массачусетский университет, г. Лоуэлл, Соединенные Штаты Америки
Аннотация: проведение анализа рисков является одним из наиболее важных аспектов обеспечения того, чтобы бизнес мог продолжать свою деятельность. Эта область исследований имеет как теоретическое, так и практическое значение в связи с тем, что применение анализа рисков для принятия решений может минимизировать потери, особенно в опасных видах деятельности и снижении корпоративной эффективности. Компании не могут расширяться на региональном или международном уровне, если их руководители не разбираются в рисках и методах анализа рисков.
Ключевые слова: анализ рисков, улучшение, стратегии управления рисками, глобальная интеграция, управленческие протоколы, стратегические и операционные факты, лучшие практики.
This study investigates the processes involved in corporate risk analysis throughout the various phases of risk management. The primary goal of this study is to define risk and assess potential hazards to businesses of all sizes. Since we are unable to assume that we are aware of every possible positive or negative future scenario, it is essential for any entity to establish long-term objectives and strategies for achieving goals. In the face of uncertainty and instability, an organization's leadership must make decisions while keeping risks in mind.
Introduction: the operational environment for both small and large businesses is characterized by unpredictability and difficulty, necessitating a constant drive for enhancement and exploration of novel and unconventional approaches to decision-making frameworks. Conducting a risk analysis is an essential element in ensuring the successful performance of a business. The investigation of risk analysis is crucial both theoretically and practically as it reduces the probability of experiencing losses (Zatloukal, M. 2009).
Risk assessment involves four main steps, which are
> Organizational investigation
> Identification,
> Estimation
> Evaluation
The regulatory landscape is currently experiencing an upward trend in the requirement for enhanced risk assessment and internal control monitoring to facilitate effective decision-making. The dynamic nature of the contemporary business landscape, coupled with the proliferation of information and the
trend towards global integration, has amplified the susceptibility of businesses to risk, thereby necessitating the adoption of risk management strategies (Súbertová, 2014).
The ability of an organization to adapt to its external and internal conditions is crucial for its survival and growth. In order to thrive, an organization must effectively adjust its changeability to the environment in which it operates. Over the last two decades, there has been a growing popularity of operations research methods in the domains of risk assessment and decision-making. The significance of decision analysis optimization and a-optimization support systems is increasing in the domain of financial operations research. Contemporary organizations encounter risks that are of greater magnitude, exhibit greater diversity in their characteristics, and possess the potential to cause more extensive damage on a worldwide level. (Hnilica, J. 2014).
The scope of these hazards exceeds the realm of managerial protocols and conformity with regulations, encompassing apprehensions regarding the strategic and operational facets of the enterprise. The proliferation of corporate strategic alliances and commercial partnerships has led to a rise in the number of risk interdependencies. In order to conduct business, it is necessary for every corporation to assume risks. The aforementioned risks possess the potential to diminish the company's worth, weaken its influence, or even jeopardize its survival. Consequently, it is imperative to avoid these hazards or mitigate their effects (Zatloukal, M. 2009)
Through utilizing a more methodical perspective, it is possible to conceptualize risk management as an integrated and structured methodology for addressing risks across an organization. This approach encompasses all levels of management, as well as all processes and types of risks, and is designed to manage the interrelationships between them. This underscores the importance of implementing efficient risk management strategies. In reality, risk monitoring in smaller businesses tends to be unsystematic, spontaneous, intuitive, and lacking in structure, even though numerous managers perceive otherwise. There is a common assumption that the comprehensive awareness of risks by upper management or the owner obviates the need to individually address stated threats (Hub 2009).
IDENTIFY
ANALYZE
CONTROL
TREANSFER
Objectives:
The study aims to identify and outline the following primary objectives.
• To report on the significance of risk management and to highlight its function in facilitating better strategic and operational decision-making.
• To answer specific issues about risk reporting, such as how the information should be organized, distributed, and communicated, and what effect they should be expected to produce.
• To talk about the difficulties of disclosing risks, such as the potential hazards of choosing poor decisions.
Importance of study area:
The examination of risk analysis holds significant importance both theoretically and practically as it mitigates the likelihood of loss, intricate business operations, and impairment to a business's standard. The insufficient theoretical and practical understanding of risk, risk analysis methods, and their respective stages is a hindrance for companies seeking to expand their operations both domestically and internationally.
The examination of this domain holds greater significance owing to the absence of a universally recognized and precise definition of risk analysis that is acceptable to both academia and the corporate sector. It is imperative for decision-makers to possess a comprehensive comprehension of the diverse organizational risks in order to mitigate erroneous investments that may result in significant organizational expenses (Grada, 2014).
The concept of risk analysis is a diverse and consequential procedure that involves the identification, evaluation, analysis, and estimation of risks, thereby necessitating management, incentivizes firms to delegate this task to experts, namely specialized risk analysis companies. The proliferation of such companies is attributable to the market void in this domain (Nothhelfer, R. 2017).
Literature review:
The concept of risk is frequently employed in the field of economics, yet a universally accepted definition remains elusive. The fundamental characteristic shared by all risk definitions is the intrinsic unpredictability that accompanies the process of forecasting future events and taking appropriate measures. The classification of risks into two broad groups can be achieved by considering various perspectives. Two distinct perspectives on the concept of risk exist in academic literature. The first perspective defines risk in a negative light, perceiving it as a potential hazard. The second perspective, however, views risk as a potential avenue for future gain and therefore emphasizes its positive aspects (AlexandreDolgui 2015).
In situations where an unfavorable outcome is probable, the degree of risk is assessed in conjunction with various alternative options. The outcome of an event and the probability of its occurrence are two variables upon which the concept of risk can be dependent (Grazina Startiene 2019).
The initial phase of risk management involves the identification of events that may pose a potential risk. According to the Guideline, it is advisable for organizations to develop a comprehensive inventory of all conceivable risks that may affect the entire organization in order to mitigate the level of risk exposure. The identification of events is a crucial component of risk assessment, as subsequent actions are predicated upon this stage. (Iwona Gorze 2014).
In the field, greater emphasis is placed on negative deviations as a result of prudence. Risk is a factor that is taken into consideration when evaluating various alternative solutions, particularly when one of the options is typically unfavorable. The risk can be expressed as a mathematical function that takes into account two variables, namely the likelihood of an event happening and the potential consequences associated with it. (Nothhelfer, R. 2017).
Risk categorization can be approached through various methods, including grouping based on common attributes or alternatively, grouping based on divergences. Risks are commonly categorized into distinct classifications such as physical or intangible, controllable or uncontrollable, insured or uninsured, and strategic, tactical, or operational in the context of decision-making. The hazards are often categorized into financial and non-financial risks. Internal and external hazards can be differentiated based on the individual who is susceptible to the peril. The aforementioned pertain to the internal components of the enterprise and are generally controllable and subject to the entrepreneur's influence. (Maciej PIECHOCKI 2019).
Blazek (2014) suggests that in practical applications, greater emphasis is placed on negative deviations, which are grounded in the principle of prudence. Risk is a factor that is taken into consideration in relation to multiple potential solutions, particularly when one of the available options is
typically unfavorable. The risk can be expressed as a mathematical relationship between two factors, namely the likelihood of an event taking place and the magnitude of its potential consequences.
Risk segmentation involves various methods, including categorization based on shared characteristics or conversely, based on inconsistencies. Risk categorization is a common practice in which risks are classified based on various factors such as tangibility, controllability, insurability, and level of decision-making. The categories include tangible and intangible, controllable and uncontrollable, insurable and uninsurable, and strategic, tactical, and operational. Frequently, these risks are categorized into financial and non-financial classifications. Internal and external risks can be differentiated with respect to the party assuming the risk. The aforementioned pertain to endogenous elements within the organization and are typically subject to control and manipulation by the entrepreneur. There exist various types of risks, including but not limited to operational, financial, supply chain, organizational, and other forms of risks (Renáta Mysková, 2015)
Presently, there has been an escalation in the magnitude of the hazards linked to information security. The risks in question are additionally impacted by other attributes of information systems, specifically the user interface's usability, as noted by Hub (2009). On the contrary, external risks are typically beyond the realm of control or management, such as macroeconomic risks. According to Súbertová's (2014) assertion, the degree of influence exerted on the business environment is directly proportional to its proximity to the internal environment.
Methodology:
In the field of risk analysis, the techniques employed can be classified into distinct categories based on the variables involved. Quantitative and qualitative techniques are available to articulate the magnitudes of risk analysis, which may be employed either independently or in conjunction. Qualitative research methods are distinguished by the expression of risks within a defined range, such as a numerical score between 1 and 10, a probability range between 0 and 1, or verbal descriptions. The determination of the level is typically based on an informed estimation. Qualitative research methods are characterized by their relative simplicity and expediency, but are also subject to greater subjectivity in comparison to quantitative methods. The absence of a precise financial articulation poses challenges in managing the cost-effectiveness (Grazina Startiene. (n.d.). 2019).
Risk analysis is a crucial component of risk management procedures, possessing significant theoretical and practical significance. The absence of a universally accepted risk analysis methodology impeded the ability to make informed decisions that effectively mitigate unacceptable risks to a tolerable level (Desheng Wu 2015).
Within the context of academic research, the term "methodology" refers to the collection of protocols, standards, and equipment utilized by a researcher to facilitate the acquisition of data pertaining to the subject of their research. The study will utilize data gathered from primary and secondary sources. The study will encompass both quantitative and qualitative research methodologies. The research methodology employed in this study is Random Sampling, which involves the selection of survey participants from various organizational managers. This approach is deemed optimal for statistical purposes.
The questionnaire is commonly regarded as the initial and principal instrument utilized by researchers due to its cost-effectiveness in conducting surveys. A straightforward and comprehensible questionnaire was designed to efficiently gather a substantial amount of data within a restricted timeframe. A self-administered questionnaire is a personal interview method that allows for the collection of a substantial amount of raw data (Kerzner, H. 2009).
It should be noted that a homologous approach to the risk analysis process does not exist. During the phase of 'Risk Assessment', it is crucial to evaluate the significance and likelihood of occurrence of all the risks that have been identified as potentially significant.
A range of quantitative techniques are at one's disposal to evaluate the potential cost of a risk materializing. Furthermore, it is imperative to evaluate the benefits that may arise from an appropriate response to the risk. The determination of the payoff of a risk management initiative becomes feasible through the quantification of both costs and benefits (., Rais, K. 2013).
The escalation of economic growth rates has a significant impact on the intricacy of risk analysis methodologies, the diversity of their classifications, and the duration required for their implementation. The questionnaire comprises two sections, the first of which pertains to general information about managers, while the second section pertains to their experience in dealing with such challenges.
The primary inquiries to be posed to operational and branch managers in order to obtain data for research are as follows:
• In which manners your education prepared you for your career?
• What assignment was too difficult for you, and how did you resolve the issue?
• What kind of financial risks do you like to take?
• If a marketing manager came to you with a new product to launch, what things would you consider before launching it?
• How do you determine the risk profile of a company?
• What are the big issues our industry is facing?
• How do you incorporate the risk tolerance of the firm into decision making?
• When you model risk, how do you deal with missing information?
• What did you learn in Data Analytics that might be useful to us?
• What approach do you use when dealing with large data sets? How do you scrub the data?
The data that was gathered was subsequently arranged in a tabular format using MS-Excel in order to conduct an analysis and obtain conclusive outcomes. The composition of reports will ultimately be accomplished through the utilization of MS Word.
Limitations:
Business enterprises attempt to address risk analysis issues such as the analysis of risks. The presence of immaturity, inadequate information and data security measures, inadequate employee competency in risk analysis, or a lack of organizational experience necessitate the implementation of effective solutions to address these issues (Kerzner, H. 2009).
The initial constraint pertains to the manner in which operational department heads and managers typically evaluate potential hazards from an internal organizational perspective. The focus of their investigation is primarily on internal hazards, with minimal attention given to external hazardous events. Financial managers may potentially deviate from this limitation as they may take into account the external environment with respect to factors such as prices, interest rates, exchange rates, and other monetary indicators. A limited number of individuals conduct an analysis of the external environment and the various factors that impact it, such as competitors, regulatory bodies, and potential new market entrants, with the aim of evaluating and enhancing their comprehension of the challenges that the organization is presently encountering or may encounter in the immediate future ( Hub, M., Zatloukal, M. 2009).
Division managers tend to focus on their specific department and the associated risks, as well as strategies for addressing and reducing those risks. Moreover, they regularly assess the risks linked to their internal protocols and operations, while staying within their established boundaries. In the event that all unit commanders hold identical viewpoints, what would be the outcome? Which, if any, of these entities will possess the capability to detect hazards that do not neatly align with any predefined categories, but rather occupy an intermediate position? What would be the potential consequences if these hazards were to exert a substantial influence on one or more of the adjacent organizational demarcations (Iwona Gorze 2014).
One notable limitation is the absence of alignment or linkage between the organization's strategy and the identified hazards. At times, there may be a disconnect between directors and executives. Moreover, they exhibit a lack of awareness regarding the potential hazards associated with implementing novel, sanctioned strategies. The comprehensive understanding of the strategy, its impact on the business, and potential risks that may arise in the current, developing, or unanticipated circumstances is inadequate (Blazek, L. 2014).
Conclusion:
The present research expands upon prior investigations of the determinants of risky decision-making by evaluating their impact in non-experimental data derived from authentic business operations, wherein managers engage in customary business practices.
The findings of our research on the evaluation of risk by commercial lenders indicate that the accuracy of risk assessment in commercial lending is influenced by both cognitive and organizational factors.
The initial step in risk identification involves an examination of both internal and external factors that could potentially affect the objectives of the organization. The task at hand necessitates the collaborative endeavors of a team of individuals, rather than relying solely on the contributions of a single worker. In small organizations, the responsibility of identifying hazards typically rests solely with the proprietor or management, as there is apprehension that the dissemination of such information may result in its misuse. The veracity of the statement that the scope and scale of data gathering is contingent upon the magnitude of an organization remains valid.
According to Chevalier, conventional risk management approaches that adopted a cautious and inactive approach towards economic unpredictability and escalating rivalry have become largely outdated. Hence, it is imperative for management to focus on mitigating controllable risks, even in a modest organization. In order to attain this objective, it is imperative to adhere to a routine of continual data gathering, enhanced optimization of organizational resources, and cultivation of customer relationships. Small and medium-sized enterprises (SMEs) tend to underutilize grants and initiatives due to inadequate awareness and concerns regarding potential, yet unidentified, risks.
References /Список литературы
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