Reviewed by Sep 28, 2020| Updated on
Risk control refers to various methods which firms use to evaluate any potential losses and initiate action to mitigate potential losses. The technique of risk control uses the findings from risk assessments which identify potential risk factors arising in the operations of a company. The risk factors include technical and non-technical factors in a business, finance policies, and other factors which can affect the day-to-day working of a company.
Understanding Risk Control
Risk control enables the implementation of proactive changes in the business to reduce potential risks. Risk control can help companies in limiting their losses and protecting their assets and income. In many companies, risk control is one of the key matters in the enterprise risk management (ERM) programme.
In modern times, businesses face varied types of risks and issues, competition, and other dangers. Risk control enables planning of a business strategy which looks at identifying, assessing, and preparing for any potential losses, dangers, or other potential disasters. The loss from a disaster may be physical or maybe a huge monetary loss.
In common terms, avoidance is one of the best ways to mitigate risk and losses. For example, if after discovering that a gas used in a laboratory is poisonous and hazardous, a factory owner can find a safe substitute for the gas and protect the workers’ health and the surrounding environment.
In case a company seeks to prevent losses, then there is an assumption of risk, but the aim is to minimise the losses which are likely to occur. For example, in a gold jewellery store, there is a risk of theft and loss. Hence, the management may decide to take insurance against the theft to minimise the losses from theft. There may be additional clauses in the insurance contract requiring the company to install security cameras, deploy security staff 24/7 in the jewellery store.
A company should devise a risk control strategy identifying the key risks and the causes for the risk. The areas may include inventory protection, staff protection, safety measures for assets, and equipment, among others.
Likewise, a company may seek to minimise losses in any contractual arrangement by imposing additional conditions on the delivery of goods or performance of the contract.
Market complexity is the ability of the market to maintain relatively large market orders, without affecting the security price. Read more
A rolling settlement is a method of settling asset trades on continuous days depending on the particular date on which the original trade was placed. Read more
A spot market is where financial instruments are exchanged for immediate delivery, such as commodities, currencies, and securities. Read more
Value-Added Monthly Index (VAMI)
A Value-Added Monthly Index (VAMI) tracks, assuming reinvestment, the monthly output of a hypothetical $1,000 investment over a period of time. Read more
Relative strength is a calculation of the price trend of a stock or a financial instrument in comparison to another instrument, stock, or industry. Read more
Ulcer Index (UI)
The Ulcer Index (UI) is an indicator that calculates downside risk in terms of price declines both in magnitude and length. Read more