Corporate Security Strategy: Financial Risks in Banking Sector

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Introduction

Corporate security is one of the rapidly growing areas of concern for business organizations. The min perceived risk concerning corporate security includes physical disruption such as those associated with terror activities, particularly to business organizations that heavily rely on technological infrastructure (Allen & Rachelle Loyear, 2017). However, corporate leaders and managers are increasingly becoming aware of the broader scope of maintaining and upholding corporate security (Goncharuk, 2016). Excellent financial management is critical in ensuring the success of the business organization. The advent of globalization has provided greater opportunities for business growth, including potential security risk in managing financial resources, especially owing to the geopolitical instability as evident in the global scene. This report will discuss various aspects of effective corporate security strategy in the financial sector.

Overview of Risks in the Banking Sector

Firms in the banking industry continue to face numerous financial challenges that can impact negatively on their operations. The large size of some banking institutions, overexposure to risk is major contributors to the collapse of most firms in the sector. It is vital to develop well-constructed risk management infrastructures to aid in prudent risk management (Nadikattu, 2019). The primary risks facing financial institutions include market, liquidity, and operational risks. Effective management of potential threats can permit improved profitability and growth of the business organisation (Schoenmaker, 2017). However, the absence of effective risk management interventions is posing significant challenges to the success of financial institutions in the industry. The capabilities of companies and managers to address risk have negative implications on the investors’ decisions as far as investment is concerned. Lack of robust risk management lowers the profit margin due to losses on credit facilities.

Corporate Strategy and Organisational Alignment

It is imperative to align corporate security with organizational goals and objectives. The corporate strategy leverages the need to establish more value from the collection of business units as opposed to the individual units (Simonsen, 1996). Executive leaders and managers can leverage functional and organizational resources in attaining such objectives. Organizational alignment describes the need to ensure that various parts of an organization can coordinate their activities to establish integration and synergy among the team members and organizational units. In this context, organizational alignment ensures improved linkage of organizational goals, systems, resources, and processes (Brůha & Kočenda, 2018; (Shyra et al., 2020)). Within the functional security department, it is imperative to promote a mutual understanding of the overarching organization’s strategic intent. Within the organizational settings, it is critical to adopt the crucial to leverage the three mains of the planning process—strategic development, strategy analysis, and strategic analysis.

Risk and Corporate Security

The management of financial and accounting requires a proper understanding of the principles of corporate security functions, especially in guarding against the foreseeable risks. Corporate security is an essential concept in the banking and investment industry (Walby & Lippert, 2013). Creating a security management framework is crucial in determining the most effective interventions for dealing with potential risks. The business environment tends to be complex and competitive. It is imperative to gain an in-depth understanding of the business environment to ensure seamless processes during strategy development. The top leadership should ensure the integration of value-adding activities within the organisation.

Environmental planning aids the company in adapting and countering the impact of critical changes in the market. Such an approach is crucial in addressing vulnerable areas rather than fixing the entire system. Risk-conscious organizations may require minimal infrastructure updates.

Corporate Security and Risk Management

Business organizations have varied approaches to managing risks as far as financial management and accounting are concerned. Firms in the banking sector put premiums on financial security. Organizations such as airlines emphasise the need to maintain physical security and brand position when managing potential risks. The most effective intervention in managing financial risks is the use of internal audits – they include audits of all processes and financial reporting within the organisational settings (Aikman, et al., 2018). The overarching aims of such interventions include facilitating external audit and informing the corporate leadership and management concerning the potential areas of leakages affecting corporate security. For instance, consistent and poor management of stock indicates ineffective approaches to managing the inventory within and organisational settings.

Types of Financial Risks

The occurrence of financial risks poses significant losses due to the failure to attain the set financial objectives. Usually, risks reflect the uncertainties associated with the ever-changing interest rates, commodity prices, equity prices, credit quality, liquidity, and access to financial resources by the business organisations (Brooks, 2020). Such financial risks are not independent of each other. For example, there exists an interrelation between interest and exchange rates—the management should evaluate such interdependence when implementing the most effective risk management approaches (Yuzvovich et al., 2016). Numerous types of risk exist in financial management and accounting. For example, market risks include the financial risks associated with the potential losses due to the changes in market prices and rates. The alternation in prices affects the interest or foreign exchange rates (Tsintsadze et al., 2019). Secondly, financial, liquidity, and cash flow risks are a risk that affects the company’s obtain ongoing financing. Liquidity risk describes the uncertainty associated with the inability of the business organisation to access credit from financial institutions (Elamer & Benyazid, 2018). Cash flow risk is those that affect the volatility of the organisation concerning the daily operations.

Other types of risks include credit risks, which describe the potential risks associated with the possibility of the default by a counter-party. Credit risks arise from the failure of the customers to remit payment for the goods and services rendered on credit. Business organisations can be exposed to potential credit risks of other firms that are interrelated in operations. For instance, an organisation can incur losses if one of its suppliers or partners in a joint venture finds it difficult to access credit to further trading activities. The top management should categorise potential risks based on types and magnitude to ensure the effective management of such risk when they occur.

Response to Financial Risk

Business organisations must identify effective approaches to responding to the identified risks. Numerous approaches are available for navigating the financial risks within the organisational settings. For example, it is important to set out internal policy detailing the response of an organisation to specific risks in line with the broader organisational goals and objectives (Brůha & Kočenda, 2018). Executive managers and leaders should establish a management team to be used in dealing with the identified risks, including delegating duties and responsibility for individuals dealing with the risk (Kabundi & De Simone, 2020). Facilitating the monitoring of the identified risk requires the team members to develop performance measures to evaluate the success of dealing with such risks (Maqbool & Zameer, 2018). The top management should also determine the cost of implementing the selected risk management interventions (Belás et al., 2017). Timely management of risks prevents or limits adverse effects associated with the occurrence of such risk as far as the management of finances is concerned (Onour, Assandri, & Abdo, 2019). Effective leadership and management are some of the enabling factors in the success of the management of financial risks within corporate settings.

Benefits of Financial Risks Management

Business organisations benefit from effective corporate risk management in many ways. For instance, it helps firms in protecting the abilities of the respective organisations in attending to their core business and attain their strategic objectives. Usually, effective risk management is associated with increased confidence among investors, creditors, and employees, including the customers and suppliers. In the short-run, the company can enhance its goodwill in various dimensions, resulting in a wide range of ancillary benefits such as enhanced brand recognition. Excellent risk management can the volatility of earnings, enhancing the accuracy of financial statements, and increase the relevance of dividend announcements. It is important to note that improved earning is crucial in limiting the average tax liabilities. Excellent risk management reduces the cost of capital while enhancing the cash flows within an organisational setting.

It is imperative to develop effective strategies for risk identification and assessment. The most critical aspect of risk management is the identification of potential risk factors facing the organisation. The identification of risk should be methodological and evaluate the main activities within an organisation, including potential risks. The conventional strategies of identifying risks include leveraging data collection tools such as surveys, questionnaires, and brainstorming sessions with the relevant stakeholders (Sookye & Mohamudally-Boolaky, 2019). Other risk assessment methods include implementing incentive investigation, interviews, auditing, and root cause analysis. The overarching goals of the risk evaluation are to leverage the expertise of the team members in identifying and describing all the potential financial risks that face the business organisation (Pellegrini & Meoli, 2017). The magnitude of the risks can be assessed using the qualitative and quantitative methodologies – the outcomes of such assessment determine the ranking of the risks based on the perceived magnitude in tandem with the organisational objectives.

Conclusion

It is imperative to note that all business organisations face financial risks. Effective financial risk management is one of the critical enabling factors for the success and survival of business organisations in the banking sector. It is crucial to leverage frameworks that facilitate seamless processes in identifying and managing risks. Excellent financial risk management affords business organisation numerous benefits, including improved organisational reputation, enhanced trusts among suppliers, creditors, investors, and employees of the company. Numerous types of risks exist within the financial sector, which can have adverse implications in the management and running of business organisations (Fraser & Simkins, 2016) (Aikman, et al., 2018). This report provides great insights concerning the identification and management of various forms of financial risks within the organisational settings. Financial risk management is a continuous process that requires increased allocation of organisational resources, including financial and human resources, to facilitate effective prevention or minimise foreseeable risks.

Recommendations

It is imperative to establish a practical internal control framework to assess and evaluate the potential risks associated with managing finances. Concerning the contemporary competition in the banking industry, it is vital to establish a useful internal control framework to ensure sustained success. Based on the outcomes of the literature review, building internal control mechanisms will entail the organisation taking drastic steps as outlined below.

It is imperative for corporate managers to conduct a constant evaluation of the efficiency of the design and implementation of effective controls to eliminate the identified risks.
The management of the business should conduct a review of the operational effectiveness of the adopted internal risk management strategies.
The organisations in the banking sector should continually improve on their existing risk management strategies by identifying the most critical controls that cover risks of greater magnitude (based on the selected scale).

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