Advantages And Disadvantages Of Financial Risk Management

Register to read the introduction… Knowing that there is risk management in firm, people may be overconfident in it. They may misunderstand that all financial risks can be avoid and companies will not suffer losses at all. People in society may have faith and invest because of the trust in risk management. In fact, risk management does not necessarily avoid all risks. Moreover, financial situation varies frequently and are difficult to handle properly. Sometimes, people really ignore the possibility of management failure and an actual financial downslide. Being overconfident and do investment in haste will finally lead people to loss.

Secondly, there is a definite cost in carrying out financial risk management. Indeed, the cost of supporting risk management can be quite high. In terms of resources allocation, this reduces the amount of investment in other areas, which may offer a higher return. To every company, developing risk management software is very costly, not to mention maintenance and updating cost, especially when financial situation always changes. Requirement in capital is particularly a problem for middle and small firms. Sometimes, it is even true that the outcome of financial risk …show more content…
Financial risk management is a professional job, even if educated workers are provided, the software can be very difficult to understand and operate. Extra time and resources for training can be a burden. Some interfaces can be very complex, with tools that employees are not used to. Training reduces the time available for implementation of financial decisions. In addition, the time required for complete risk management is an obstacle to firms’ swift actions. There are usually months of suspension to any decisions before their actual implementation. Therefore, financial risk management can be a very inconvenient procedure for