Economic Focus in Risk Assessment
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Economic forecasts are mostly done by the risk assessment unit in either at the level of the country or at the level of the business. Economic forecasts are projections made on what the businesses are expected to their future operations. This could be in terms of profits, labour turnover, market demand and supply and even cost of factors of production. This practice has earlier on been a preserve of the countries but with time, it has gradually been taken up as a function in the various businesses. The firms have taken up Risk management because of recent turmoil in various countries where they have opened shop. Ball & et.al (2013, p. 163)
The other reasons that would have prompted the firms to take up risk management could have been financial or economic reasons. These could arise from the loss of an investment, questionable payment of cherubs or high rates of inflation in the various countries. Government changes may lead businesses to carry out the mentioned function in order to assess if for example a new government would be friendly or hostile to business owned by foreigners.
Laws may change in a country and they bring with them new expectations from both the government and the workforce. Ball & et.al (2013, p.162) says that the various areas that may be affected include taxes, labour permits, tariffs, currency convertibility and quotas. With these laws in place, a firm would be in a position to argue their case in a court of law. The emergent factor that may drive firms to assess for risks is terrorism.
The managers have to compare the nature of the activities of the firms to the amount being increased by the subsequent year. What would be of interest would be relationship or the attitude that the government has towards a firm. They may be facing the impending wage increment as a way to empower the locals or for them to leave the country and their operations all together.
In the event a firm is faced with the dilemma of either closing shop in a particular country or continuing even after knowing the wage rates may increase; they should first consider if they have loan commitments in the country in question and they should weigh in their long-term investments in the country. Some of the long-term investment commitments may take the country over ten years to settle. This would force the managers to continue with the operations of a business, while trying to cushion the firm against the impending increment in the wage rates.
According to Ball & et.al (2013, p.164), risk analysis are made broadly, and may cover a wide scope of economic, social and political assessments that could be conducted for a period. The risk management carried in the businesses was in various departments such as the department of economics, product-producing, finance, planning, legal, public affairs and international division. The departments may get the illusion that they operate independently but they are all involved in the risk assessment in various similar ways.
The firms when faced with a possible increase in wage rates by 10% have the chance to negotiate for changes that they deem unfavorable or that they did not know of them before. Due to the size of the International companies, they have a stronger bargaining power or negotiating power. Ball & et.al (2013, p.162) explains that the International companies boost of massive resources and networks of distribution, processing and marketing. These resources may not be easily available to countries that are developing. In such a situation, if the country contemplating a 10% change is a developing country, they are lured to the demands of the International companies and lead to a reduction in the increment or a complete cancellation of the proposed wage rate increment.