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Sample Research Proposal on The Importance of Financial Risk Management

Abstract

Businesses take different kinds of risks depending on the situation in the environment and the gravity of the need of the company. Taking risks can either provide benefits to a company or cause more problems to the company. On the other hand when a company does not take a risk it might regret doing such. Companies then have to make sure that when they take risk they know its probable effects and have actions to counter the negative effects. Risk is found not only in general management practices but in financial management as well. The greater the company's stature is the greater risk is expected of them. Companies belonging to successful countries have the tendency to take bolder risk.  The paper is a proposal about importance of financial risk management for the Saudi companies.

 

 

 

 

 

 

 

 

 

 

 

Introduction

A major concern in recent years in managing projects has been the continuing problem of dealing with risk and uncertainty. Such concerns are prompted by increasingly severe financial and legal consequences of poor risk management. The continuing budget and time overruns as well as the negative impact of poor project management on corporate image are no longer tolerated by funders or shareholders. In response to continuing failure to manage project risks, organizations are investing in more sophisticated and accurate quantitative risk management solutions. However, many of these techniques still fail to deliver the expected result (Lant & Shapira 2001).  The ineffectiveness of traditional quantitative risk analysis to manage projects effectively has also been highlighted by who also confirmed risk factors outside the scope of quantitative risk analysis as a contributory element to failure. Quantitative risk analysis is an extremely useful tool for assessing risk, but it can only deal with risks that have been identified (Lant & Shapira 2001).

 

There appears to be some confusion between the concept of identification and assessment. In many cases, managers and decision makers assume that if quantitative risk analysis has been carried out then most potential risks have been addressed, and they do not engage in a critical evaluation of the procedure. Although risks identified may have been assessed effectively, what about risks that have not been identified? If a key risk element concerns human factors, then why not include this in the process (Lant & Shapira 2001).A good example of the lack of awareness of human factors within the risk assessment process involved an organization that dealt with nuclear processing and subsequent storage of nuclear waste. The project concerned the design and development of an appropriate repository for the waste, which had a potential for high risk to society over a substantial timescale. Within the initial phase of the project development at the design and conceptual phase, quantitative risk analysis focused on the failure rate of technological issues. No provision was made for conducting risk assessment on the project team or any other people involved in the process, except in terms of technology. One of the human factor issues related to serious conflict between members of the central project team resulting from misperceptions about roles and objectives of the project. In taking a stakeholder perspective to risk management, it is necessary to explore why the vested interest of an individual or group may be a key indicator of their likely decision-making processes, which ultimately shape their responses to the process and potential risk (Lant & Shapira 2001). 

 

Risk is an important consideration for a proper management of business. It also is a concern for financial managers in the sense that any financial transaction they make has to be well planned and implemented so that their will be no negative effects for the company. Different companies can be found in different places in the world, some successful companies who take risk during their operations includes Saudi companies. This proposal is about the importance of financial risk management for the Saudi companies.

Statement of purpose

The objectives or the purpose will focus on the necessary problems and objectives that should be clarified in order to gather the intended information and also be able to derive specific information that are not limited by the previous questions. With these objectives, the study will be able to attain the necessary information that can help derive further conclusions and proper recommendations. The study intends to determine the importance of financial risk management for the Saudi companies. There are other objectives or purpose of the study. This includes

  1. Identify the economic condition in Saudi.
  2. Know the financial situation of Saudi companies.
  3. Identify the financial trends in Saudi companies.
  4. Know the different risk Saudi companies face.
  5. Determine the risk management techniques used by Saudi companies.
  6. Analyze the financial risk management strategy of Saudi companies.

 

Background

Oil wealth, which led to dramatic standard of living increases in the Gulf for much of the second half of the twentieth century, no longer is enough to ensure the prosperity of several states. Living standards in Saudi Arabia, Bahrain, and Oman have remained at a standstill in recent years. For example, from 1980 to 1998, the Saudi economy grew at an average of 0.2 percent a year a stagnation that ended only when oil prices soared in 1999 and 2000. In Saudi Arabia, royal family members are increasingly demanding a share of private business transactions, whereas previously they had confined their role to the state's oil sector and government-directed activities (Byman & Wise 2002) Although solid information on the amount spent on the thousands of royal family members is lacking, a common estimate is that each Saudi prince receives about $3000 per month, with senior princes getting far more. Opposition groups, no doubt exaggerating, claim that 40 percent of government revenues go to the royal family.  The lack of transparency in the Saudi economy only fuels speculation and conspiracy theories and inhibits foreign investment (Byman & Wise 2002)

 

As the economy of Saudi Arabia remains highly dependent on oil, the level of economic activity is largely determined by oil price and production developments. Government policy has aimed to encourage economic diversification, but the comparative advantage of the economy is in oil related activities, a situation which is unlikely to change for the foreseeable future. As the Kingdom accounts for at least one third of proven world oil reserves, it makes sense to exploit this resource, especially given the relatively low extraction costs compared to those in most other regions of the world (Hetherington & Najem 2003). Living standards are relatively high in Saudi Arabia in relation to many developing countries and Arab states, but lower than in the smaller Gulf Cooperation Council (GCC) states. The level of per capita Gross Domestic Product (GDP) is important in determining what status a country should have in the WTO, with developing countries with lower per capita GDP given more lengthy transitional periods for reducing tariffs and phasing out trade barriers. Saudi Arabia has argued that it wants developing country status, rather than have to introduce the more rapid trade liberalization agreed by the smaller GCC states when they were admitted to the World trade organization (WTO) (Hetherington & Najem 2003).

 

Economic growth will depend on how effectively the improved oil revenue flows are managed, over which there is greater uncertainty. The oil revenue windfall of 1999 may reduce pressures for reform and privatization, as the state can again contemplate capital spending. Nevertheless there are some encouraging signs that bode well for the future. The share of the private sector in GDP is increasing rapidly, from only 33 per cent in 1997 to 40 per cent by 1999.  The measures taken to raise non-oil revenues are being implemented in full, with raised electricity tariffs, higher local petroleum prices for domestic consumers, increased work permit fees and departure taxes on foreigners expected to raise at least $3 billion annually.  Overall the most lasting effect of the oil price falls is likely to be the more diversified sources of revenue, and increased caution in increasing government spending in response to oil revenue increases alone (Hetherington & Najem 2003). The main economy of Saudi focuses on oil exploration and production. This kind of product brings most of the income to the country and it helps in making sure that their citizens can have good paying sources of income.

Significance

With the establishment of the goals given, this study may also be of importance to the goals that have been set. By fulfilling the aims that were stated in the previous section, this study will be helpful for other researchers who may be focusing on the current customer orientated strategies, and innovation being ultimately destructive to the principles of sustainability or of other areas especially with regards to the method of gathering the information. Such data will hopefully be helpful for researchers in establishing their own means of conducting their study. As such, the notable significance of this study is the possibility that it may be able to use the findings for the other studies that may wish to analyze the factors for the success or demise of a particular study. The methods that this study will take must also be credible and help researchers in knowing how to look for particular information and know how to analyze them. It is through this that researchers will then be able to find out how they will be able to focus on their particular investigation and also know the possible methods that they may choose in the possible time that they may choose to already conduct their study.

 

Literature Review

As the world enters the twenty-first century, the most significant trend to impact successful corporate financial management will be the continuing globalization of business in general and financial management in particular. There are no major U.S. or foreign corporations that do business solely within the confines of their own country. The need to deal with multiple currencies, worldwide money and capital markets where investment capital moves across borders at an increasing pace facing fewer and fewer barriers, a wide variety of accounting systems and tax laws, and a multitude of political risk environments is now a normal part of the responsibilities of a corporate financial manager (Droms 1997).  This globalization of business does not change the fundamental theories of corporate financial management, but it does have a substantial impact on corporate financial practice and domestic financial markets. The only thing certain about the future is that finance and industry will continue to change, offering new challenges and opportunities to financial managers. The importance of competent financial management to the success and even survival of the modern business organization cannot be overemphasized (Droms 1997). Financial management is needed by companies to be able to compete in a changing environment.  They have to ensure themselves that any transactions made will result in benefits for the company.

 

Methodology

The study shall use questionnaires and interview methods to gather pertinent data. The questionnaire and interview will be made in such a way that the employees will spend less time in answering it. Moreover, the study shall also use interviews with open ended questions.  By using such methods the study can be probed deeply and the study will determine the importance of financial risk management for the Saudi companies.

Time Scale

The first thing to be done is to collect necessary data and information. This includes colleting data from primary and secondary sources. Within this time frame the questionnaire has been formulated and ready for use, the survey will be conducted to the respondents. After gathering such data the next thing to be done is analyzing it to use it in the study. This will be done for a month. The next activity is formulating the first two chapters. Within the said activity the data is integrated with the research, and the related literature is included. This will be done in 2 weeks. The next activity is formulating the last few chapters of the study wherein the data gathered from the survey is integrated and the analysis of the data is included in the research. This will be done for at least 3 weeks to ensure that the study is done well.  The last activity is finalizing the paper and preparation to present the results of the study.

 

ProblemsOne of the major problems for the study is getting negative feedbacks from the participants. Some of the people might accept the purpose of the study but some might be offended by it. Some people might also question the importance of the study to their organization. Another problem for the study is to create changes not all people would be willing to accept. Not all people can accept sudden changes in a short span of time.  Lastly a risk for the study is it not able to find the information it needs at the allowed time. Finding the information may take some more time due to time constraints. 


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