Page 185 - RISK Management IC 86

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more stable earnings, then it would surely opt for
insurance.

Q4. (b) How does Risk Management contribute to
the achievement of the Corporate Objective.

Ans. Previously some critics held a negative view about risk
management. According to them risk management to
not act of the profits but merely safeguards the profits
the firm has already accumulated. Much modern concept
of risk management brings a positive approach,
according to which effective risk management can
contribute to the profits of the firm.

If property is regarded as the excess of a firm's revenue
over its expenses, then higher revenues or lesser the
expenses, higher is its profits. Risk management
contributes to profitability in two ways:

(i) on the expense side, the proper choice of risk
management techniques such as loss prevention, self
insurance schemes, purchase of commercial
insurance etc minimises the losses of the firm and
help to obtain cash to replace the losses at least
possible cause from the insurers.

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