Disadvantages Of Risk Management

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According to studies conducted by Abotsi, Dake, & Agyepong in 2013 it is asserted that the probability of risk management practices is proportional to the organization’s capital which implies risk taking decision will be done in cognizance to the amount of exposure that the organization shall be exposed to in terms of the financial consequences whether positive or negative. A positive risk management decision will be driven by a large capital base whereby management will either take more risk strategically in order to realize high returns on investment while on the other hand it will avoid any risks that might expose the organization’s capital to unwarranted risk. For example, a decision to venture into a new product line to cover terrorism …show more content…
The threats of dropping below the target controls the attention of management in which the gain opportunities becomes unnoticeable leading to a relatively risk aversion decision by the successful management. On the other hand, management that is, or whose trend shows that it might be below the financial performance target, will make a decision that is driven by the need to achieve the target by focusing its attention to a risk taking decision such as avoiding a product whose loss ratio has consistently been high (March & Shapira, …show more content…
For example, due to changes in technology, there is a widespread increase in the use of information and communication technology such as mobile phones, laptops, tablets e.t.c in the society that has led to an increase in the theft risk which could be taken as an opportunity for insurance organizations to come up with new products to cover these items against the risk of theft in response to customer needs. The new product development process is a risk taking venture that could bring about positive or negative returns depending on how well it is implemented. The impact of occupation on risk taking decisions have been examined in some studies such MacCrimmon & Wehrung in which it was confirmed that managers who have a direct ownership in the Company are inclined to take more risk than those who are simply working for a straight salary (MacCrimmon & Wehrung, 1985). Furthermore, the status of a manager’s occupation affects the extent of risk taking ability whereby managers of higher ranks have been found to be more risk taking than those of low ranks (Grable, 1997). This happens in practice in insurance organizations whereby junior managers are required to refer
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