Science is based on certainties, but there are few certainties for business these days. That's why knowing how to manage risks is becoming more of an art.
On one side is the extreme of those who focus only on the short term and operate in a reactive manner, with few options to generate value and more focused on survival. On the other extreme, the mode is almost speculative with margins too open to chance, which can bring great profits or widen losses.
As in everything, the art is to know how to find the points of equilibrium in specific contexts, says INCAE professor Arnoldo Camacho, an expert teacher and consultant in banking and finance, with decades of experience in academia and consultancy.
"Risk management consists above all in creating the conditions to know how to anticipate events and other factors that can affect performance," summarizes Professor Camacho before warning that risks can be business or financial.
Sales and marketing forecasts, or scenario generation, all go directly to revenue; operations must manage cost risk; and finance must know how to ensure liquidity and solvency.
"It's not about guessing, but about understanding how the factors behave and how they translate into business impact," adds Camacho, who insists on the need to generate the best combination of performance and risk. This must be present from the beginning of the processes, when sales forecasts or scenarios for meeting targets are drawn up.
Sustainable profitability should be aimed at because, together with proper risk management, it produces a real competitive advantage. This makes it possible to opt for an operation that reduces costs and improves profits or performance indicators.
Risk management, however, "must be comprehensive because risks are interrelated, with multiple impacts at various points. For example: exchange rate affects several flanks of the same company".
The three primary objectives of risk management should not be lost sight of:
1. Risks should be better understood before seeking coverage and assigning costs to them.
2. Optimize the risk-return ratio to achieve sustainable profitability and financial stability.
Monitor and control risks, but with a balanced risk profile. Risk management has a cost for hedging mechanisms.
"Managing risk is an art because we must evaluate the company's potential and measure it against the investor's profile," adds the expert, although he recognizes that after the 2008-2009 crisis, short-term investments with a propensity for liquidity have gained ground.
