Diversification is a strategy based on the distribution of investments among different assets, enterprises in different geographic regions and expansion of the range of offered goods or services. This method is used to overcome industry, investment and government risks.
Minimization is a method used in situations where threats cannot be avoided. The maximum reduction in the number of possible negative scenarios is carried out. Key tools: obtaining guarantees from counterparties through insurance or surety, reducing the list of force majeure circumstances in contracts and using option transactions in exchange transactions.
Limiting is the formation of internal standards that limit the specific weight of loans, the minimum amount of liquid assets, the credit limit, the maximum amount of deposits and investments in securities of one issuer. It should be noted that these methods help to neutralize only those threats that can be controlled.
To select the most effective engineer data package method of reducing financial risks, it is necessary to conduct their analysis. This process includes several stages:
Identifying the risks that could have the greatest impact on the business.
Identification of qualitative and quantitative parameters of danger.
Determination of the method of loss minimization.
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Methods of managing different types of financial risks
Financial risk management requires a systematic approach and constant attention to detail in order to identify and resolve future problems in a timely manner.
Risk planning and analysis is the most important stage of any project implementation. It is important to create a financial reserve for the most probable risks, such as mass layoffs requiring severance payments. A reserve can also be allocated for doubtful debts or warranty repairs of sold products.
Inflation risk
Changes in the cost of raw materials that exceed the growth in prices for finished products pose a significant risk for companies. An example is caustic soda, the cost of which increased from 10 thousand rubles per ton in 2020 to 15 thousand rubles in 2021. This reduces profits and limits development opportunities, especially in the auto chemicals sector due to high competition.
Inflation risk can be managed through supplier diversity, regular price comparisons, stockpiling, and competitor analysis. Notifying customers of upcoming price increases is also important.
Deflationary risk
Deflationary trends can lead to a decrease in selling prices, which in turn has a negative impact on the financial position of the enterprise. Many companies faced this problem in the summer of 2022. In the spring, asset prices rose rapidly, so many enterprises replenished their warehouses with stocks purchased at a high cost.
However, after this, a gradual reduction in prices began. This put businesses in front of a difficult choice: either reduce prices, selling goods at cost or with a minimum markup, or risk losing customers.
Deflationary risk
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Let's look at an example. A company faced a deflationary risk when it bought caustic soda in April at 25 thousand rubles per ton and immediately raised prices for car chemicals. The stock was calculated for six months. In June, small competitors, who had enough raw materials for only 2-3 months, began buying it at 15 thousand rubles per ton and quickly reduced selling prices for customers.
To manage deflation risk, it is recommended to:
Avoid purchasing during periods of high demand at high prices.
Do not postpone the decision to reduce prices in the hope that prices for finished products will rise again. In such situations, it is more expedient to sell the goods at cost or at a small loss in order to meet the expiration dates.
How to achieve multiple