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A critical evaluation of the financial and operational risk management within an organisation
“The improved knowledge of the general concept of the Financial and Operational risk and the particular knowledge of the Financial and Operational risks in the selected company and the proper discussion of the key risks based on detailed research on the general operations of the company under the guidance of a highly qualified mentor is key to the successful passing of the RAP”
Topic 16 is related to the detailed assessment of the different financial and operational (non-financial) risks of the selected company and the manner in which the management of the company manages these in order to achieve long-term sustainability.
Definition of Financial Risk: The possibility that the shareholders will lose money when they invest in a company that has debt, of the company’s cash flow proves inadequate to meet the financial obligations. When a company is using debt financing, its creditors will be repaid before the shareholders if the company becomes insolvent. The financial risk refers to the possibility of a corporation or a government defaulting on its bonds which will cause the bondholders to lose money.
Definition of Business Risk: The possibility that a company will achieve lower than expected profit, or it will experience loss instead of profit. The business risk is influenced by different factors like the sales volume, per-unit price, input costs, competition, overall economic climate and governmental regulative. A company with higher business risk needs to select a capital structure that has lower debt ratio to ensure that it meets the financial obligations at all times.
Anytime the company makes a decision related to the financial and operational objectives, this brings an element of risk. The decision-making is a crucial part of any business, and many companies today allocate large amounts of money and time in the development of risk managing strategies to help to manage the risk related to their business. An important component of the risk management process is the risk assessment which includes determination of the risks that surround the business.
Under topic 16, the student needs to have a good understanding of the general financial and operational risks and in-depth knowledge on the financial and operational risks of their selected company. The student needs to be familiar with every mitigation measures taken by the selected company in overcoming the identified risk. The student will also need to focus on the risk assessment strategy (at the beginning stage of the general risk management process of the company and will need to give their opinion on the effectiveness of the risk assessment strategy of the company based on the general issues faced by the company in the risk assessment process. This topic has a technical nature that requires deep efforts by the student and the needs a correct approach from the beginning as this is very important because the student will have to focus on the important requirements of topic 16 without providing additional or unnecessary information and details in the RAP.
An adequate company for creating the RAP under Topic 16 is a company where the student has appropriate access to the management of the company. Moreover, the management should be willing and able to provide the required information for the proper completion of Topic 16. The selection of the proper company is very important. The student needs to have a better understanding of the sector of operation of the selected company. Upon the knowledge of the selected company and its associated sector of operations, the student can connect the different aspects of the general operations of the selected company with the prescribed requirements of this topic that will, in turn, help them get good grades and pass their RAP.
The student needs to address the following aspects during the selection of proper organization for their RAP.
When Topic 16 is selected for their RAP, the student needs to set a proper plan from the beginning so they can conduct all the necessary tasks in an adequate manner. The student needs to have an in-depth understanding of the main requirements of Topic 16 and needs to estimate the necessary aspects by proposing an operating strategy. The student needs to decide the processes of action that they will follow so they meet all the necessary requirements and this is possible by a thorough planning in the beginning of the RAP.
The student needs to prepare a table of contents of their RAP under Topic 16 so that it flows in a logical manner and covers all the tasks that the student needs to abide. The prepared table of contents will enable the student to stay on the proper course from the start of the project. This way the student can assess the time span needed for completing the various tasks required for the completion of the RAP.
After creating a table of contents for the RAP for Topic 16, the student needs to start gathering the proper information required for the topic. The student needs to go over all the gathered information in an analytical manner through consultation with their Project Mentor. The feedback and comments from the Project Mentor on main areas of the RAP are important for completion of the RAP and the student needs to regularly share their thoughts with their Project Mentor in order to get the proper and timely guidance.
There is not a prescribed approach to Topic 16. There is a broad level approach described above, but the detailed approach under Topic 16 depends on the students’ perception of the requirements of the topic and the available information on the selected company. Whichever approach the student chooses to follow, they will need to keep getting guidance from the Project Mentor at every step of the way so all the prescribed requirements of this topic can be fulfilled and the student will get good grades on the RAP.
Under Topic 16, the RAP will need be completed by using the information provided by the management of the selected company – the primary sources of information, combined with information obtained from relevant secondary sources like online sources, newspapers, journals, books, archives etc. For Topic 16, the availability of information from the primary source is essential as a RAP under this topic can’t be completed unless some specific information is obtained. The student needs to be certain that they have access to numerous information from the management of the selected company and there are no confidentiality clauses that prevent this.
The requirements of Topic 16 are only met if the student has access to enough relevant information on the selected organization, that is why the student needs to carefully consider selecting Topic 16 for their RAP. If there are any issues in getting the required information during the preparatory stage of the RAP, the student should consider going for a different topic, as the use of improper information can lead to low-quality RAP and low grades or even complete failing of the RAP.
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