A financial risk manager examines a company’s daily operations and works to reduce activities that could harm the company’s bottom line. The possibility that a company will be unable to meet its financial obligations to its creditors is known as financial risk. Vendors, the government, shareholders, or even employees of a company could be among the creditors. A financial risk manager considers all of these factors and makes recommendations or develops processes and procedures to reduce the risk of financial hardship as much as possible.
Forecasting, also known as hedging, is one of the tools used by a financial risk manager. A financial risk manager can create programs or take preventative measures to ensure that a business can meet its financial obligations by considering the current economic environment and comparing it to similar environments in the past. Because the job often requires a financial risk manager to object to a company’s new product or service idea, it isn’t always a popular one in the workplace. The financial risk manager can refuse to approve a project if it carries too much risk, such as if it could result in a large loss of funds for the company if the product or service fails, and if the potential profits of the new venture are insufficient to justify the risk.
A loan underwriter is an example of a financial risk manager. When a company or individual approaches a lending institution for funding, an underwriter examines the application, the potential borrower’s financial health, and whether the loan will make or lose money for the bank. If the underwriter believes the risk of the borrower defaulting on the loan is too high, the loan can be refused, reducing the risk of the bank losing money on the transaction. If the underwriter believes the borrower will repay the loan, the loan will be approved, and the bank will profit from the transaction through loan fees and accrued interest.
A bachelor’s degree in business, such as management or accounting, is typically required of a financial risk manager. Many risk managers are also accountants, so they have an accounting license and certification. There are also risk management certifications available. These usually necessitate a bachelor’s degree in finance, the passing of certain exams, and, in some cases, work experience and the completion of continuing education courses.