Question

What steps can you, or a business, take to mitigate and manage risk?

What are the costs in monetary and non-monetary terms?

Answer 1

What steps can you, or a business, take to mitigate and manage risk?

Entrepreneurs   face risk but these risk could be reduced by adapting some risk reduction management. Risk management technique reduces risk by transferring , avoiding and by many others ways. Therefore entrepreneurs should adapt these the following methods in order to avoid personal risk.

1. If the business is sole proprietor then it should change the structure to business corporation , limited liability , doing this will limit the personal liability.
2. Transfer to risk insurance by insuring against facilities, customers , or suppliers.
3. Avoiding activities which have severe and likely consequences and low benefits.
4. Reduction of risk by product failure or warranty claims with implementation of quality assurance program.
5. Reduce risk of surprises   IE generating a system which gives key information about company performance   then you can evaluate the controls and reporting system by comparing it with actual practice and performance.
6. Identification of poor credit risk by taking advances from clients who don’t meet the standards.
7. Reducing financial risk by keeping outstanding loan financing needs to minimize.

What are the costs in monetary and non-monetary terms?

Monetary cost are those cost which is relatively direct and easily measureable financial cost IE   it can be said the amount of money required to fund it.

Whereas non monetary cost refers to which are not directly measureable .These things are spend in form of time , convenience, and psychology. Nowadays non monetary cost has become a important concern as compared to monetary cost.

If we discuss about Time cost Ie It requires time energy   to avail that services which could not be measured. While buying a product or availing service people survey from many other sources so that they could avail the best .

Search Cost also is a concern for non monetary cost as discussed in above para

Then it is Convenience Cost IE the inconvenience that a person goes through to get that service is called Convenience cost .It includes travelling expenses .

Fear of not understanding (insurance), fear of rejection (bank loan) ,fear of uncertainty (fear of high cost) are psychological cost.

Therefore a firm needs to buy a perfect balance of monetary and non monetary cost in order to sell the product so that it could get the maximum benefits in form of profits.