RISK MANAGEMENT

Risk Management

Risk Management

Introduction

Risk management is the process followed by the organizations that identify, analyze and understand the risks that are likely to happen in the future time periods. It enables the organization to develop a plan that could be implemented effectively in order to reduce the intensity of the losses or to prevent these losses from occurring. Over the years the fluctuation among the oil and gas prices had an indirect relation as oil prices are increasing and on the other hand gas prices are reducing all over the world. Many countries have converted or replaced their oil consumptions with that of natural gas. This is the reason there has been a very high vitality rate in the oil and gas prices in the markets due to which many countries have benefited and others had to face huge losses.

Thus in order to respond to the vitality among the prices of oil and gas many organizations and governments have adopted risk management policies in order to predict future stability or instability in the prices of the oil and gas. Therefore a critical analysis of the fact that risk management either helps or it does not helps in managing the risk attached with the price volatility in the global markets of oil and gas.

Discussion

Since the year 2010 the world has witnessed high percentages of price volatility among the prices of oil and gas in the global markets. Price volatilities have a great impact on the companies especially during the phases when there is a decline in the prices of the oil and gas. The reduction in the prices has a direct impact on the companies that are involved in capital intensive projects. The price volatility also has an impact on the revenues and finances required by the companies for different projects. On the other hand if these prices increase the margin of the refiners will tend to reduce. Thus companies in order to overcome the uncertainty among the prices adopt risk management process and take the following steps in order to respond to the price volatility situation in the gas and oil markets. The critical analysis of the risk management managers gave their view that the firms should first evaluate all their previous investments and their strategies and thus making a balance between the investments of oil and gas. The planning and diversification of investments will enable the organizations to respond to the low and high prices. This management of investments will help the firms in creating large amounts of liquidity before investing in a project and protect against any volatility in the prices of oil and gas. Secondly critiques gave their view that the organizations need to implement or involve in the econometrics model. This model helps in developing a better understanding of the day to day developments in the international market of oil and gas. Many companies have overlooked towards practicing this model but it is a very useful model that can help the organizations in anticipating the volatility ...