Responses to Classmates’ Posts
Response to Post on Question 1:
The information shared on the rationale for managing risks are enlightening. There were useful insights which provided valid reasons for managing risks from Galai, Dan, & Crouhy (2014) especially in terms of asserting its importance in tax reduction as well as for ease of control in managing the organization’s resources. One affirms that, although not explicitly stated, the relevance of managing risks are evidenced by the increase in net profits of the firm, which would prove overall profitability and sustaining competitive advantage in the long run. As emphasized in an article on managing risks written by Kaplan & Mikes (2012), “active and cost-effective risk management requires managers to think systematically about the multiple categories of risks they face so that they can institute appropriate processes for each” (p. 1). Being able to identify the risks in greater depth and detail would assist decision-makers in mitigating these risks and in designing measures to control or contain these in the most effective manner.
Response to Post on Question 2:
The response was most appropriate as it addressed the manner by which standard deviation could indeed be a good measure of risk. However, in another discourse, one learned that standard deviation could or could not be a good measure of risk depending on the required analysis . As noted, standard deviation takes into account measuring both upside and downside volatility. However, most investors would like to focus on downside volatility or the volatility of negative returns. As such, in this situation, it was proposed that the most appropriate measure is the downside deviation. Therefore, depending on the kind or type of risk, one analytical or statistical tool might be more appropriate over the other.
References List
Galai, M., Dan, M., & Crouhy, R. (2014). The Essentials of Risk Management. McGraw-Hill Professional.
Kaplan, R. S., & Mikes, A. (2012, June). Managing Risks: A New Framework. Retrieved from Harvard Business Review: https://hbr.org/2012/06/managing-risks-a-new-framework
Managed Futures. (2016). A BETTER MEASURE OF RISK: STANDARD DEVIATION OR DOWNSIDE DEVIATION? Retrieved from managedfuturesinvesting.com: http://www.managedfuturesinvesting.com/managed-futures/news/aisource-news/2015/05/15/a-better-measure-of-risk-standard-deviation-or-downside-deviation
