Essay about Swot Analysis : Capital Allocation System

720 Words Sep 1st, 2016 3 Pages
Once Nationwide has identified major risk and degree of exposure to this risk, various strategies are employed to deal with these risks. One of these strategies is comparative advantage in risk bearing. This is a strategy that suggests that a company should make decision on which risk to take and which risk to avoid, based on the comparative advantages of the organization. The organization must also assess the tradeoff between risks and returns. The amount of returns associated with a certain venture should cover the cost of risks that arise from pursuing this venture. A centralized approach should be used to assess this venture. Nationwide uses this approach to determine which business opportunity to pursue and which ones are not worth the risk.
Another way in which Nationwide manages risk is through the "factor based" capital allocation system. This approach involves examining the risks factors for the entire business. Nationwide insurance usually conduct its evaluation of risk factors annual basis. This enables the company to focus potential risks and make plan on how to mitigate the impacts of such risks. This approach is usually applied in the management of operational costs. According to Nocco & Stulz (2006) companies previous relied on hedging to manage risk. However, this method is less effective when it comes to operational risks.

Nationwide also manages it risks by determining the right amount of risk. According to Nocco & Stulz (2006) different organizations have…

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