How risk management create both a positive and negative impact on the company and the society

It is considered as an undesirable positive risk even though it produces positive results in the face value. The negative impact, on the other hand, is produced when the company's objectives in risk management generate too much of undesirable outcome (Sadgrove). Essentially, the prime objective of risk management is to mitigate against the occurrence of negative outcomes either to the company or the society. For instance, risk management team sets several units such as the project management team. A project management team monitors and manages the risks that a project may result in either a negative or a positive impact (McNeil). The government runs its operations from revenues collected from among other sources, corporate taxes. It, therefore, means if the government fails to encourage mitigation measures against risks facing firms, its future revenues are also adversely affected thus compromising on the stability of the economy.

In addition, other risks arise from political changes that affect exchange rates and interest rates and therefore the government ought to take responsibility (Sadgrove). The government also takes responsibility due to the fact that risks cannot be fully eliminated but they can only be transferred from one party to another, reduced by strengthening internal structures of firms, avoided by venturing in less risky activities, shared between affected parties or retained by not risking so much in anticipation of huge profits. Meaning and examples of: Risk avoidance. An example of risk sharing occurs in insurance whereby individuals come together to create a pool of risks from which each individual can get compensated in case of an occurrence of the insured risk. This means that in case the insured risk occurs, each individual will provide a proportion of money to cater for the compensation.

In essence, risk sharing plans lower the bigger impact that could have been posed by an occurrence of a risk if to be met by each individual entity. Risk retention. Risk retention refers to a technique of risk management whereby an individual or a firm is fully aware that a certain loss will be incurred but does not transfer such risks to another party (McNeil). Lehman Brothers started experiencing a drop in its stocks in August 2007 after the fall of Bear Stearns hedge funds. In 2007 alone, Lehman underwrote about four times mortgage-backed securities compared to its shareholders' equity so as to expand its portfolio to $85 billion (Stein. Lehman's failure to reduce its portfolio after the global equity market rebounded in the last quarter of 2007 led to the start of its downfall.

In 2008, Lehman's shares fell by 48 % owing to its huge portfolio and the subsequent collapse of Bear Stearns, one of the largest underwriter of mortgage-backed securities. On June 9, Lehman Brothers declered a loss of $2. Lehman risk management department could also have encouraged adoption of proactivity and rational business strategy. The idea of accumulating huge mortgage-backed securities was irrational since the housing market was in shambles. Measuring the effectiveness of risk management process of a firm. Yes. It is possible to measure the effectiveness of a risk management process. After setting the mitigation strategies, the last step is monitoring of the risks to ensure any discrepancies are noted early enough and corrective measures adopted. Works Cited. McNeil, Alexander J. , Rüdiger Frey, and Paul Embrechts.