Answer in 125 words undefined As the Chief Risk Officer of my company, I can identify areas where my company may be exposed to systematic and unsystematic risks through various approaches. Systematic and unsystematic risks can be partially mitigated with risk management solutions such as diversification, which is a healthy approach to effective risk planning.

Answer in 125 words

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As the Chief Risk Officer of my company, I can identify areas where my company may be exposed to systematic and unsystematic risks through various approaches. Systematic and unsystematic risks can be partially mitigated with risk management solutions such as diversification, which is a healthy approach to effective risk planning. Diversification is designed to reduce risk by spreading the company portfolio across many investments. This can curb risk while also maximizing returns for the company. Examples of systematic risks, which are risks inherent to an entire financial market, my company may face include foreign policy changes, bank failures, and economic recessions. Examples of unsystematic risks, which are risks unique to a specific company, my company may face include labor issues, weather conditions, and product recalls. If my company decides not to be proactive and plan for these risks, some implications such as business failure/hardship, lawsuits, debt, and possible layoffs can occur. Sound financial decisions should be at the forefront of any Chief Risk Officer’s priority list in order to minimize or entirely eradicate any risk.

https://www.investopedia.com/terms/s/systematicris…

https://www.investopedia.com/terms/u/unsystematicr…

Nneka Chukwu
Answer in 125 words

Risks are an integral part of every business. Some are avoidable, while others are not. There are two types of risks in finance. They are systematic and unsystematic risks. Systematic plus unsystematic risk equals total risk (Corporate Finance Institute, 2020). Systematic risks, also known as undiversifiable risks, are caused by external factors beyond a corporation’s control and always exist due to the stock market’s volatility. This type of risk is primarily unpredictable and can affect all kinds of investments or securities. Market risk, purchasing power risk, and exchange rate risk are all categories of systematic risks. Examples of factors that can lead to systematic risk include recession, the housing bubble burst, pandemics such as COVID-19, market crashes, foreign policy changes, tax reforms, and inflation.

Unsystematic risks, on the other hand, are also described as company-specific risks. These risks are usually unique to a particular type of business or industry. Examples of unsystematic risks are labor disputes, market share, sales, product recalls. These types of risks are mitigated through diversification.

It is pivotal for companies to plan and be ready for potential risks. I work in the healthcare industry, which can be exposed to either type of risk. One of the potential risks my company faces is political change. The proposed changes to the Affordable Care Act posed unique challenges for my company. One of the strategies we adopted was to increase the number of clients who have Medicaid and Medicare.

Additionally, we increased the types of services we provide to include Robotic surgeries. Furthermore, we provide care for the elderly as the number of the aging population is increasing. This is an alternative to contracting this business to a third party like before. Furthermore, my company has branched into education by establishing a Medical school. These steps are means of removing unsystematic risk using diversification. Another risk we may encounter is labor disputes, which may result in a strike. We operate in a union environment, and with that comes the risk of strikes. Establishing relationships with travel agencies is a way to plan and ensure we have coverage in a strike. Most importantly, we have gone above and beyond to ensure that we have strong labor partnerships with our various union groups.

Another type of risk is loss of revenue through the provision of services to uninsured patients. The EMTALA law forbids hospitals from turning away patients based on health insurance. This often means that several uninsured patients come to our emergency rooms and labor and delivery for services. One way to mitigate this risk is to partner with them through social services to obtain Medicaid. Furthermore, the outpatient clinics partner with pregnant mothers who come for perinatal care to get insurance coverage to offset the bills from the care provided.

In the words of Benjamin Franklin, “those who fail to plan, plan to fail. It is pivotal for companies to plan and be ready for potential risks. The COVID-19 Pandemic exposed the healthcare system’s flaws and the need to take on a more proactive approach. Some of the implications of failing to plan are loss of clientele to competition, loss of revenue, litigation risk, and exposure through social media.

References

Corporate Finance Institute. (2020). Systematic Risk. Retrieved from https://corporatefinanceinstitute.com/resources/knowledge/finance/systematic-risk.

Institute of Business and Finance. (2016). Systematic and Unsystematic Risk. Retrieved from https://icfs.com/financial-knowledge-center/systematic-and-unsystematic-risk.

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