**1. Introduction**

A world marked by rapid changes of the economic, financial, political and social environment, a world ruled by uncertainty is subject to the emergence of increasingly higher risks, affecting the process of economic development of world economy. The increasingly frequent manifestation of unforeseen events caused high interest for research in the risk identification, quantification and prevention at the microeconomic level. In this context, risk management can be considered the art of taking decisions in an uncertain environment, on the background of the identification, quantification, analysis and management of the risks which affect an organization.

Why is it necessary an active management of risk? The globalization process, the interdependence between economies in a regional and global plan, the problems arising from the need to ensure compatibility between legislative previsions, the effects of free labor movement, the macroeconomic context located in an accentuated dynamic, the fierce competition at the level of participants from the economic circuits, the limited degree of the resources and unlimited of the needs, the need to adapt to technological changes, the challenges generated of climate change, the high degree of complexity of the factors which influence economic and financial results of the business, the diversity of international economic flows are just some aspects which sustain the organized risk management, training the personnel for managing the activity, the identification of the losses caused by the action of the risk and the insurance of resources necessary to cover them, but also in the identification and communication of the risk, fact which requires the existence of a strong organizational culture oriented to this sense.

Defining risk has been done in different ways over several decades, the polemics continuing today. But regardless of the angle of approach, defining the border between risk and uncertainty, the identification of the management methods, a thing is certain: the existence

© 2012 Dobrotă, licensee InTech. This is an open access chapter distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. © 2012 Dobrotă, licensee InTech. This is a paper distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

of risk. The importance of the risk management is even more striking in the current economic climate, amid a crisis which seems to be having just begun. In these conditions, the timeliness and necessity of the topic is obvious. The existence of an arid land in Romanian economy seeing application of some specific techniques and strategies to the risk impose the immediate development of risk management, especially at the level of small and medium size entities (at the level of large companies it is noticed a considerable orientation towards the risk management, being created even different departments to exercise an active management at the level of risks).

Risk Management in Business – The Foundation of Performance in Economic Organizations 229

The research conducted aims to clarify an issue considered previously, but also to identify new issues, allowing further future approaches. Thus, the paper will be structured in several



So, we consider that the problem that managers are facing is reflected by the need to manage risk at the level of any company, which implies: tracking to identify the factors that impact negatively on the work performed; the estimates quantifying the consequences of the event risk; basis for a complex of measures to prevent event risk; mitigate damage caused when it realized; using the services provided by the specialized units in risk management if it is not possible by the entity. Each manager must determine a minimum and maximum risk on the scale that is willing to accept, as a result of the company's results are dependent on them (assuming a higher risk lead to better results but and corresponding losses and vice

Any firm bases their activity on two major coordinates: satisfying consumer requests and maximizing the obtained profitability. In order to achieve these goals, it is imposed primarily, a sizing of the capital necessary and identifying the funding opportunities. The object of the financing decision is realized by the selection of the sources of capital at the lowest cost for obtaining them in terms of risk reduction. So, developing a financial policy aimed at determining the financing needs for a period of time, selecting a financing structure, meaning a way of funding through its own resources or loans, and establishing the ratio between short-term use of resources or long term. But, all these issues require the identification of potential risks and establishing a strategy which allows reducing or even

Before performing a risk analysis, a differentiation between the concepts of risk and incertitude is necessary [2]. The unanimous opinion is that both regard essential categories that affect the general policy of a firm, but, often it has been made confusion between them, putting the sign of equality. In reality, the two concepts are different and proper understanding. The theoretical and practical approach of the two concepts has suffered

**2. The risks identification at the level of economic entities** 


important parts, concerning the:

the entities they manage.


manage it;

versa).

avoiding their effects.

 The analysis of the economic-financial performances requires taking into consideration the risk factor as well, and hence of its possible implications on profitability and financial stability. At the level of any economy it cannot be discussed about the existence of some investments. Estimated return does not coincide with the actual one. Therefore, in addition to an analysis of profitability, the manager should also focus his attention on potential risk factors of the investment. In addition to estimating the expected future return it is imposed also a quantification of the risk associated with its achievement. Profit variability may involve achieving a lower return than expected; the higher the profit variation range is, the more risky the investment. Thus, the profitability - risk trend analysis provides a better classification of the investment opportunities. Rational investors, generally characterized by an aversion to risks, will exclude from the list those investments that offer the same return, but with a higher risk, and the option for one of the remaining opportunities will ultimately depend on their degree of risk aversion. Also, some authors consider that the risk is measured as variability in comparison with the profitability average of the last exercises and in foresight as variability of the profit in relation to the hope of profitability or as variability of the profit in relation to the volume of activity (turnover) of the company [1].

Avoiding risks due to significant changes in the activities concerned can be considered a beneficial strategy for the trader, in the context of the possibility of occurrence of problems with serious consequences. Against the background of strong economic and financial instability or when carrying out complex activities involving the development of partnerships, strategies may be adopted to follow fundamental indicators and to develop action plans for risk occurrence (for example, we can predict the resources used in case of higher costs or stocks of spare parts can be constituted to repair equipment and avoid large interruptions in production, are identified the opportunities for rescheduling of exchanges in case of defects which do not allow obtaining the quantity of finished products necessary to comply with the contractual obligations and so on). A commonly used option is that of transferring potential risks to specialized companies or individuals (insurance companies, experts in the field) or to some businesses which provide service for the technological equipment used, even if this generates additional costs.

The emphasized development of the international economic relations, the existence of a complex ensemble of agents that influence the economic-financial performances of the economic organizations, the economic - financial instability, the competitive environment's volatility, the extension of information and communication technologies are just some aspects that support unconditionally the necessity of risk management.

The research conducted aims to clarify an issue considered previously, but also to identify new issues, allowing further future approaches. Thus, the paper will be structured in several important parts, concerning the:


228 Risk Management – Current Issues and Challenges

active management at the level of risks).

of risk. The importance of the risk management is even more striking in the current economic climate, amid a crisis which seems to be having just begun. In these conditions, the timeliness and necessity of the topic is obvious. The existence of an arid land in Romanian economy seeing application of some specific techniques and strategies to the risk impose the immediate development of risk management, especially at the level of small and medium size entities (at the level of large companies it is noticed a considerable orientation towards the risk management, being created even different departments to exercise an

 The analysis of the economic-financial performances requires taking into consideration the risk factor as well, and hence of its possible implications on profitability and financial stability. At the level of any economy it cannot be discussed about the existence of some investments. Estimated return does not coincide with the actual one. Therefore, in addition to an analysis of profitability, the manager should also focus his attention on potential risk factors of the investment. In addition to estimating the expected future return it is imposed also a quantification of the risk associated with its achievement. Profit variability may involve achieving a lower return than expected; the higher the profit variation range is, the more risky the investment. Thus, the profitability - risk trend analysis provides a better classification of the investment opportunities. Rational investors, generally characterized by an aversion to risks, will exclude from the list those investments that offer the same return, but with a higher risk, and the option for one of the remaining opportunities will ultimately depend on their degree of risk aversion. Also, some authors consider that the risk is measured as variability in comparison with the profitability average of the last exercises and in foresight as variability of the profit in relation to the hope of profitability or as variability

of the profit in relation to the volume of activity (turnover) of the company [1].

equipment used, even if this generates additional costs.

aspects that support unconditionally the necessity of risk management.

Avoiding risks due to significant changes in the activities concerned can be considered a beneficial strategy for the trader, in the context of the possibility of occurrence of problems with serious consequences. Against the background of strong economic and financial instability or when carrying out complex activities involving the development of partnerships, strategies may be adopted to follow fundamental indicators and to develop action plans for risk occurrence (for example, we can predict the resources used in case of higher costs or stocks of spare parts can be constituted to repair equipment and avoid large interruptions in production, are identified the opportunities for rescheduling of exchanges in case of defects which do not allow obtaining the quantity of finished products necessary to comply with the contractual obligations and so on). A commonly used option is that of transferring potential risks to specialized companies or individuals (insurance companies, experts in the field) or to some businesses which provide service for the technological

The emphasized development of the international economic relations, the existence of a complex ensemble of agents that influence the economic-financial performances of the economic organizations, the economic - financial instability, the competitive environment's volatility, the extension of information and communication technologies are just some


So, we consider that the problem that managers are facing is reflected by the need to manage risk at the level of any company, which implies: tracking to identify the factors that impact negatively on the work performed; the estimates quantifying the consequences of the event risk; basis for a complex of measures to prevent event risk; mitigate damage caused when it realized; using the services provided by the specialized units in risk management if it is not possible by the entity. Each manager must determine a minimum and maximum risk on the scale that is willing to accept, as a result of the company's results are dependent on them (assuming a higher risk lead to better results but and corresponding losses and vice versa).
