Page 168 - RISK Management IC 86

Risk Management

The art of financial management has been defined as having
available money when needed, money being a scarce
resource which commands a price.

The objectives of cash budgeting are to avoid holding
large idle cash balances on current accounts which make
no contribution to earnings, and on the other hand,
minimize the risk of being unable to meet from current
cash or sudden borrowing.

Even perfectly solvent organizations may be embarrassed
by a liquidity crisis, and may be forced either to borrow
heavily or to realize assets at a short notice.

Apart from the fairly predictable, small, regular losses
the charging of losses to operating costs run counter to
the objectives of cash budgeting.

Organisations that suffer from large fluctuations in their
normal cash flows may be reluctant to set aside additional
liquid funds to provide for the replacement of the damaged
property or to meet payments for other losses. Since, all
risks do not have to be paid in full as soon as they occur,
some spreading of costs can be used to ease the financial
burden.

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