Chapter 4: Basic Concepts of Financial Risk Management

This book examines how organizations manage risk. These organizations are primarily shareholder-oriented companies, but the principles are applicable in non-profits as well. Both types of entities are expected to be good stewards of the capital entrusted to them. Both must raise and allocate capital and do their best to, first, survive, and, second, achieve their objectives. Both types of entities reflect an appetite for risk and are damaged by adverse outcomes, while benefitting from favorable outcomes. While there can be considerable variation in the types of risks faced by organizations, the fundamental principles of risk management are common to all…