Page 234 - RISK Management IC 86

Risk Management

Q5. Identify the differences between (a) charging of
losses to operating budget and providing for a
contingency fund (b) pure risk and the
speculative risk.

Ans.5a) When charging losses against operating costs, an
organization need to absorb the additional expenditure
within a short time. Its ability to do so depend upon
either surplus of receipts over payments throughout the
year, or sufficient liquidity.

Therefore, the size of loss or an accumulation of losses
that be absorbed alongside other current expenses
depend upon the size of cash flow surplus / deficit plus
liquid reserves/short term borrowing.

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.

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