Essay on Unknown & Unknowable Risks: Understanding & Impact on Companies

Companies experience different risks in their daily operations. Such risks incurred in companies are known, unknowable, and unknown risks. This various kind of risks may result in both positive or negative impacts on the companies. In this assignment, one has to base on unknown and unknowable risks to the company.

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Unknown risks are risks that their full implications and extents remain unclear as they lack judgment (Herring, 2009). Their occurrence time is unknown, but the vents are quantifiable. Some of the possible examples are a virus which evolves expected. While unknowable risks are those risks associated with events that are difficult to model as there is a lack of knowledge in hand to control the risk, it includes risks that are not identified in advance (Huang et al., 2015). There are no specified probabilities for the events or stated boundaries to the consequences. Some examples are; invasion alien, a striking comet on earth, and many others.

For companies to manage these risks, it has to follow the following strategies:

It has to ensure that it uses testing to identify its vulnerability. In case of the occurrence of one of the two risks, it has to apply this method to determine how vulnerable the situation is and evaluate it. For example, where a company starts from the point of failure and uses a backward way to identify how severe the recession would have to be to lead to the sinking of the company uses this strategy. It ensures that it manages the crises as if its a daily routine of their occurrence. In this strategy, it implies that the company has to build buffers for absorbing the shock as it may result in the company's seat in cash significant quantities.

Enabling a wide company response to the threats emerging. For ease management of such unknown and unknowable risks, the companies should allow for strong reactions to them. The company's IT integration, and its financial systems should be in a position to respond to such events. The company has to allow integration of the management of risks as well as strategic planning. That is, by situating the company management of risk responsibility within a group of strategies. The company should have a strategic plan on how to cope up with the occurrence of such risks.

The companies should not focus much on the risk's downside. Not all unknowable and unknown threats are unpleasant. As experts say, risks are always linked up with failure and rewards (Huang et al., 2015). Therefore the companies should focus on these two types of risks in both a positive and negative manner.

In conclusion, if the companies apply those strategies, it could be in the right position to manage the unexpected risks. Companies should have to set some strategic plans on how to manage the risks.

References

Herring, R. J. (2009). The Known, the unknown, and the unknowable in financial policy: An application to the subprime crisis. Yale J. on Reg., 26, 391. https://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=1290&context=yjreg

Huang, L., & Pearce, J. L. (2015). Managing the unknowable: The effectiveness of

early-stage investor gut feel in entrepreneurial investment decisions. Administrative Science Quarterly,60(4),634-670 . https://journals.sagepub.com/doi/abs/10.1177/0001839215597270