What are the financial risks that your business or project may face? How can we know its causes and ways to manage it? What tools can be used to manage financial risks in a professional manner? This is what we will learn about in this article.

What are financial risks? What are its causes?
Financial risks are everything that companies and institutions may be exposed to, including internal and external causes and factors that affect the financial performance and stability of companies, including the following:

The absence of good planning for financial management and the absence of highly qualified people who are familiar with understanding the market and the ability to develop appropriate plans to emerge from any current or anticipated financial crises.
A change in the company’s business strategy, which may lead to exposure to financial crises as a result of weak operational processes.
The presence of external causes such as economic recession, change in currency prices, increase in taxes, and increase in inflation rates.
Failure to earn expected profits, which may lead to liquidity problems and inability to pay various costs and expenses.
Exposure to competition as a result of the lack of good planning, which in turn may lead to increased financial risks.
Types of financial risks
The types of financial risks vary as a result of many reasons that institutions or companies may be exposed to, including the following:

Political risks
As the political conditions and different political decisions actually affect the economic situation, which in turn may affect various institutions, which may expose them to various financial risks.

Market risk
Financial market risks occur as a result of many factors, including:

Variable commodity prices and lack of control.
Variation in stock and bond prices.
Changes in exchange rates and currencies affect the increase in cost prices of raw materials and goods.
Operational risks
Financial operational risks occur as a result of many reasons, such as failure in the performance of the organization's employees, which leads to shortfalls in production, or as a result of damage or errors in the company's various systems. This is in addition to the reasons related to the internal management of the operating departments, which in turn affects production as well.

Financial liquidity risk
Companies may be exposed to financial crises and risks as a result of the lack of liquidity necessary to repay debts and various dues owed by companies, or the lack of financial resources necessary to cover costs. This is in addition to exposure to recession in the financial market, which may lead to selling products at less than their value.

Credit risk
Companies are exposed to this type of financial risk as a result of the inability to pay their obligations to various parties through contracts concluded between them, whether those contracts are investment contracts or commercial contracts. This leads to a decline in the company’s credit rating and a decrease in the value of debt-related bonds.

Business risks
This occurs as a result of the lack of good planning and the failure to develop an ideal market strategy. Some companies may create large, high-cost marketing campaigns and are unable to cover those costs, which leads to a budget deficit and causes some type of financial risk.

What is financial risk management?
Professional financial risk management depends on the ability to anticipate the various financial risks that the organization may be exposed to, develop various mechanisms to confront those risks, and analyze all potential elements.

This is in order to deal with financial crises correctly to limit exposure to any problems that may negatively affect the company’s performance in the market.

What are the required financial risk management steps?
In order for any organization to manage financial risks well, there are some steps that can be used to learn how to deal with these risks and use appropriate tools related to financial risk management to avoid any losses that the company may incur. These steps are as follows:

Identify financial risks
To manage financial risks successfully, you must first determine what those risks are and the reasons for their occurrence. So that the individuals responsible for managing it can handle it in a successful manner. Financial risks can be determined by:

Knowing and analyzing the current financial situation of the organization.
Refer to the causes of old financial risks in the event of exposure to them and study them.
Using statistical analysis mechanisms to identify the departments expected to be exposed to financial risk within the company.
Reviewing the mechanisms and strategies of the company’s operational plans to address any weaknesses.
Reviewing the company's budget reports.
Financial risk assessment
After identifying the types of financial risks and performing all analytical steps, companies must evaluate those risks, prioritize the tasks that must be initiated, and set a timetable for dealing with financial risks successfully.

Develop strategies to manage financial risks
After identifying and evaluating financial risks, the step of developing strategies related to managing financial risks begins, commensurate with the size of those risks. There are a number of strategies that companies resort to in proportion to their situation and the size of potential financial risks, including:

Risk avoidance strategy:
The company is stopping the operation of some of its projects that may negatively affect the company.

Risk reduction strategy:
This strategy includes steps that help mitigate the severity of the impact of financial risks.

Direct dealing strategy:
The company deals with financial risks directly after analyzing the company's financial situation, knowing the costs that may affect it, and choosing the best steps to deal with them.

Continuously monitor financial risks
After implementing various strategies to confront financial risks, what has been implemented and the extent of its impact on the organization must be reviewed to ensure the effectiveness of what has been achieved, predict any financial risks that may occur in the future, and develop plans to confront them.

What are the known financial risk management tools?
There are a number of tools that companies use to manage current or financial risks