Methods for assessing financial risks
Methodical basis of risk management is a set of methods for qualitative and quantitative analysis of financial risks.
Qualitative analysis involves the identification of risks, identify sources and their causes, establishing potential risk areas, identify potential benefits and negative consequences of the implementation of risk solutions.
More characterize some aspects of quality risk analysis.
Identification of financial risks is to identify all types of risks associated with each specific transaction. It is important as a part of a portfolio of financial risks identified risks that depend on the enterprise and external risks defined macroeconomic activity. Possible portfolio of enterprise financial risks are presented in Table. 9.1.
Identifying risk factors shall be financed by external and internal financial risks. External financial risks can be caused by general economic and market factors.
By general economic factors include: general decline in production in the country, increasing inflation, slowing payments, imperfection and instability of tax legislation, reduction of real income and purchasing power, and others.
Among market risk factors can be identified: reducing the capacity of the domestic market, the fall in market demand, increased supply of substitute products, the instability of the financial and currency markets, the lack of liquidity of the stock market and so on.
Installing potential areas of financial risk is the possible financial loss compared with an estimated amount of profit, income, equity of the company. Depending on the size of possible financial losses are four main areas of financial risk (Fig. 9.5):
- Risk-free zone: very little risk of financial losses almost no guaranteed financial result in the amount of estimated profit;
- A zone of acceptable risk: medium, possible financial loss in the amount of estimated profit;
- A critical area of risk: high possible financial loss in the amount of the estimated gross revenue;
- Zone catastrophic risk: very high potential financial loss to the extent the amount of equity.
Unlike qualitative analysis quantitative analysis is to determine the specific amount of monetary damages from certain types of financial risks. You can use economic and statistical methods, calculation and analysis, expert, analog. A more detailed look at the content of these methods.
Economic-statistical methods of risk assessment involves studying the statistics of losses and profits in this or a similar company in previous periods. Based on the collected statistical data array defining the magnitude and rate of benefit and a financial loss. This actively use tools such as statistical method, variance, standard (rms) deviation, coefficient of variation.
The economic content of standard deviation from the perspective of risk is in the characteristic maximum possible fluctuations in the studied parameters of its average expected value.
The greater the value of the variance and standard deviation, the riskier management decisions.
Since the coefficient of variation is a relative value, it can be used to compare the level fluctuations of individual parameters expressed in different units of measurement. The coefficient of variation can range from 0 to 100%.
The lower the coefficient of variation, the greater the stability of predictive situation and, therefore, less risk.
Cash and analytical methods used to measure certain types of risks and is to select key parameters that affect risk, and compared them with the actual values critical to the enterprise.
Thus, the risk of losing financial stability can be assessed based on the coefficient of autonomy, the risk of insolvency - by comparing actual liquidity ratios from their normative values.
In world practice, investment risk management has become a widely used measure of risk, the beta factor ß (or rate sensitivity). He used to assess systemic (non-diversified) risk associated with changes in market prices and yields of securities.
Typically, the developed countries with market economies, there are specialized companies involved ß coefficient estimated yield of shares of leading companies and the average yield for certain financial instruments. This information is regularly published in the media and is the basis for investment decisions under risk.
β-factor is of great practical importance. It can be used to determine what level of expected return of individual investment projects fully offset the risks of these investments.
Expert risk assessment methods are based on the subjective assessment of the size of possible financial outcomes by individual experts (consultants, experts on specific issues). This method is used when the array to get the necessary statistical information for any reason can not be unique or if such developments are not. The feature of the method of expert risk assessment is the lack of mathematical proof optimal solutions.
While conventional expert procedures solve a range of problems:
• forecasting possible developments;
• identify the causes and sources of risk, the risk assessment of probabilities of occurrence of the event;
• Analysis of the results of research of other experts;
• Development of scenarios of action to neutralize the risk.
Recently, the practice of risk management are widely used group methods of examination, consultation, meetings, closed discussions, business training, "brain attack." Studies show that a collective idea generation techniques give 70% more ideas than you can get them from the same individual experts in the examination.
Regardless of the form of expert treatments, all expert methods based on point scale assessing individual risk factors and determining their shares.
Despite the great popularity among the experts of the above methods have a serious drawback. They are global and do not include domestic financial risks. Therefore, these typical methods can be used to evaluate the risk of foreign trade, and to evaluate the risk in specific areas of the company should develop special methods of expert estimates.
Analogue methods of risk assessment is to use data on the development of similar activities in the past. This can be used company accounting documents in past years, these publications, insurance companies and others. Thus obtained results are analyzed in detail to identify potential risk factors based on previous experience. But it can not ignore the risk of extrapolating past trends to future financial and business processes, because the financial system of any enterprise is very dynamic. This means that you can enjoy by analogy with considerable reservations. Using this method is useful to identify risk innovation when there is no real basis for comparison and better know the past experience (including other members of entrepreneurial activity) than do not have any information.