The word strategy originates from Greek strategos – «the art of general» and represents a particularized, integrated, and complete plan, which is meant to secure the achievement of the stated objective during the activity progress.
We believe that management strategy in business consists in the choice and substantiation of attraction policy and efficient allocation of resources in the commercial organization, but management tactics in this sphere involves substantiation of set objectives in the form of plan system, business plans and their resource provision on various characteristics – temporary, material and technical, informative, personnel.
The theory of risk management supposes investigation, consideration, analysis, principles valuation, consecution, regularities, and expected economic development of grand factor system in conditions of constantly changing market conjuncture of Russian economics. Risk management is represented by single integral knowledge system, which is characterized by logical dependence and interrelation between the income and financial stability in certain risk limits for the achievement of economic objectives of business subjects. The theory of risk management supposes integral system of knowledge, which is characterized by logical interdependence and interrelation between income and financial stability with account of permissible limits of consequence risk, which cumulatively secures the achievement of set objectives by business subjects. The theoretic framework of risk management is general principles, models, methods, techniques, describing the laws of entrepreneurship development and emergent risks.
We persecute the following at the formation of optimal strategy of risk management in the economic system of Russia:
— the objective of continuing supervision and timely detection of actual outcome deviation of financing and operating activities in business subjects from the planned outcome, causing the worsening of financial conditions of enterprise, as well as the development of causes, producing these deviations;
— development of proposals and methods on the corresponding adjustment of particular rates and directions.
Strategy is mainly stated and developed by higher management, but its implementation involves participation at all management levels. Strategic project should be substantiated by extensive research and actual data. We consider incontestable the fact that for successful competition in contemporary economics of Russia, business a subject should permanently possess a vast number of information on the branch, market competition and many other factors, constantly analyze the obtained data and on the ground of analysis receive necessary outcome for further successful existence and lowering of the risk levels in the course of business and financial performance of enterprise.
During the strategy development of risk management for enterprises it is important not only to assess the risk of financial inability, loss of creditworthiness, and other things, but also to select controlling mechanisms of production and financial risks. Taking reasonable and systematized corporate actions, administration reduces the risk of taking false decisions because of mistaken economic policy or business failures, consequences of incorrect planning of entrepreneurial business when using unreliable information on the possibilities of the organization or on the external situation.
The research results testify that the risk management objective is to lead the analyzed and assessed risk to the acceptable results. Thus, risk management strategy supposes finding of direction and mechanisms for the decrease of risk level, and tactics supposes the series of certain implementation methods of mechanisms data. At the present time we know four most important approaches to management, which bring in a substantial contribution in the theory and practice management:
— approach from a perspective of separation of various schools — schools of scientific management, administration management, human relations and behavioral science, as well as management science, or quantitative methods;
— process approach, which considers management as continuous series of interrelated administrative functions;
— system approach, in which the management should consider the organization as a complex of interacting components, such as people, structure, tasks, and technologies, focused on the achievement of various objectives in conditions of changing external medium;
— situational access, which is focused on the fact, that the availability of various management methods is defined upon the situation, in other words, the most efficient method in the particular situation is the method, which corresponds the given situation the most.
The founders of scientific management school were F.U. Taylor, Frank and Lilian Gilbert, Henry Gantt. If to consider their investigations, it is possible to draw the following conclusion — they suggested in their works that it is possible to improve various hand work activities, and achieve a more efficient implementation using observations, measurements, logic and analysis . Besides, they did not neglect a human factor, using the material encouragement on the regular basis with the aim of motivation of employees in the increase in efficiency and volume of production. The authors of work on the scientific management gave weight to selection of people, who corresponded to the executed work physically and intellectually, also they emphasized on the importance of training. For the first time the scientific management separated management process as a separate specialty from the actual performance of work. The scientific management conception became a serious critical stage, thanks to which management became widely recognized as an independent sphere of investigation, methods and approaches of which, used in science and technology, can be used in the practice of the organization objective fulfillment and would allow to avoid unreasonable risk. The approach was developed the most in the years 1885-1920.
From the years 1920 to 1950 special expansion received a classical or administrative school in management. Founders of this school are considered to be Henri Fayol, who is sometimes called the father of management, Lyndall Urwick, James D. Mooney, A.K.Reilly, A.Smith, J. Mill. The goal of Classical School was creation of universal management principles. In addition, it judged from the idea, that following to these principles will undoubtedly lead the organization to success and there will not be any risk. On the first hand, Classical School considers management as a universal process, consisting of several interrelated functions, such as planning and organization On the other hand, the category of classical principles concerns the organization of structure and employee management. Henri Fayol named 14 principles of management, such, as specialization of labor, authority and responsibility discipline, individual responsibility, integration of direction, subordination of private interests to general, reward of employees, order, justice, initiative and others. Many of them are practically useful until then, in spite of all changes, which have taken place over time.
A substantial contribution was brought by scientists Mary Parker Follett, Elton Mayo, Abraham Maslow in the development of human relations school, which was common in the years 1930-1950. They suggested that the motives of people’s behavior were basically not economic forces, as supporters and followers of scientific management school thought, but various demands, which may be only partially and indirectly satisfied with the help of money. Based on these conclusions, researchers of psychological school supposed that at the demonstration of greater care for the employees by the management, the satisfaction level of employees should grow up, thus leading to the increase in productivity and, therefore, to the improvement of economic indicators.
Among the greatest figures of behavioural science school there are such scientists as Chris Argyris, Rensis Likert, Douglas McGregor, Frederick Herzberg. These and other researchers studied various aspects of social interaction, motivation, nature of power and authority, organizational structure, communication in organizations, leadership, changes in the job content and quality of working life. In general terms, the main objective of this school is the enhancement of efficiency of the organization at the expense of effectivization of its human resources. Behavioural approach almost completely took all spheres of management in the 60’s. He, as well as other earlier schools, defended a «single best way» of management problem solution. But, despite of various essential results in management on the application of postulates of behavioral science school, behavioral approach often appeared groundless in situations other than ones investigated by its supporters.
Beginning with the year 1950 and to the present day quantitative approach or school of science management received maximum development in the theory of management. Principles of this school specify primarily the operational research, application of scientific research methods to the operational problem of the organization. In this case the strategy is as follows:
— statement of the organization problem;
— development of the situation model by the panel of experts;
— variables, which are subject to consideration, are given quantitative meanings;
— comparison and description of every changeable and relations between them;
— generalization of the outcome and possibility to draw a conclusion.
The problem of economic risk was paid far less attention in the native economic literature. In our understanding it was connected with the fact that presence of uncertainty and risk under the conditions of planned economy was considered to be impossible. As the analysis shows, transition to market economy in Russia has lead to the necessity of adaptation of existent standard procedures in business, but, to the greater extent, to the creation of new methodological support for the evaluation and management of entrepreneurial risk, at the development of which it is necessary to use the achievement of various directions of contemporary investigations. Analyzing current trends of investigation in the risk management in Russian business, we can name the following ones:
— management theory, which includes fundamental concepts – a system, management processes, principles and regularities of system behaviour analysis and synthetics;
— financial management theory, which reveals methods and approaches of cash flow management, movement of financial resources and relevant design organization of fiscal relations during the progress of business activity implementation;
— theory of probability, mathematical apparatus, which makes it possible to establish regularities of business medium and define a concept of «risk» as a probability of receiving an unfavourable result, offering an opportunity of its strict mathematical analysis and accounting;
— theory of mathematical or economical statistics, which allows to study quantitative changes of business results on the ground of statistical approach in their interrelation, evaluate the importance and immateriality of their differences, and on their basis predict the value and the degree of risk, and to catch the transition of quantitative changes in qualitative ones;
— decision-making theory, which allows to choose the optimum alternative of purposeful operations from the variety of alternative rating choices, corresponding to a particular set of data and the risk management method, for the transition from starting to final risk taking into account the resource cost on the implementation of the strategy and risk management technique. Methods and techniques of strategic games, statistical decisions, mathematic programming, expert evaluation etc. are used as a mathematical tool of decision making under the uncertainty and risk.
Thus, we make a conclusion, that strategy risk management has a certain arsenal of models, methods, techniques, ways, which allow to achieve settled objectives in the risk management.
We consider that model building received the most spread in the strategy development of risk management in the economic domain. In our opinion, a model is the form of presentation of reality. Usually the model simplifies the reality or represents it in theory. Models simplify the understanding of reality complexity, reduce the number of running values, subject to consideration, to the managed quantity. A key feature of management science is a substitution of verbal reasoning and a descriptive analysis of models, symbols, and values.
One more conception in the management theory, widely applicable at the present time, is process approach, which considers management functions or functions of a manager as interrelated evaluations.
Management and risk management in that case is considered as a process, because the work upon reaching the objectives by means of other possibilities is not some one-time action, but a series of continuous interrelated actions, which can be called management functions. Management process is a summary total of all functions.
Henri Fayol considered that there were five initial management functions:
«To manage means to predict and plan, organize, dispose, coordinate and control». Analyzing modern investigation, one may separate the following management functions: planning, organization, arrangement, motivation, guidance, coordination, control, communication, investigation, evaluation, decision making, personnel selection, representation, negotiation, trading.
All functions contain a defined risk to a greater or lesser degree, as there is a constant uncertainty of the future.
Studying the history of management science, it is possible to make a conclusion, that the management approach additionally provides a system approach to the management or the use of a system theory to the management of process. System theory was first used in the exact sciences and in technique, and was the most important contribution of the administrative science school. System approach is not a set of some instructions or principles for administrators, but a mode of thought in relation to the organization and management. We consider that a system is consistency, which consists of interrelated parts, each of which contributes in the characteristics of the whole. If some part is absent or misfunctions, then the whole system will function incorrectly.
All organizations are systems to a greater or lesser degree. There are two basic types of systems: closed and open. A closed system has strict fixed boundaries, its actions are relatively independent from the environment, surrounding the system. An open system is characterized by interaction with the environment. The objects of exchange with the external environment over the border of the system are energy, information, materials. Almost all organizations refer to open systems, and the survival of any organization depends on the external world. Large constituents of complicated systems are often systems themselves and are called subsystems. This explains why every of the considered schools in the risk management were practically acceptable only in narrow limits. Every school considered the problem of any subsystem organization and could not correctly define all basic constituents of the organization and take into account the external agency on the organization. At the present time there is a widely used point of view that external forces can be basic determinants of company’s success.
Let us consider a schematic model of the organization as an open system.
At first the organization receives information, capital, human resources, and material from the environment. These components are called entries. The organization processes these entries in the course of transformation, transforming them into production or services, which, in their turn, can be called company exits, going to the environment. Additional costs of entries appear at the successful management in the course of transformation. And also appear additional exits such as profit, sales growth, development of the organization etc.
The mode of interaction of production forces with reference to creation social product at the present stage of economic performance is the organization, which is considered as an open economic and social system. The essence of risk consists in deviation from the planned course of events  under the effect of various external and internal, controlled and uncontrolled, foreseen and unforeseen, objective and subjective factors.
It appears that in conditions of modern Russian medium, which can be characterized in the majority of cases as indistinct, the stability increase of the efficient functioning is possible just by means of a complex preventive accounting of deflecting risk factor impact of diverse genesis. In such a manner, methodical sphere of problem solving for the purpose of improving stability of the efficient activity intersects the task field of risk management.
For the characteristics of general possibilities of efficient functioning, despite the deflecting impact of the risk factor it is supposed to use the category «economic risk tolerance firm», interpreted by one of the integral properties of the company as an open system. The economic risk tolerance company is defined by the factor system, characterizing the peculiarities of external and internal environment. The stages of level detection of economic risk tolerance of the company are presented in Fig.1
Comparative analysis of categories «economic risk of the company» and «economic risk tolerance of the company»
The category of «economic risk»
The category of «economic risk tolerance of the company»
1. Essential peculiarities
Deviation from the planned course of events under the action of diverse factors
Ability of purposeful functioning in conditions of possible economic risk onset
2. Performed functions
Determination of possible losses in the course of implementation of actions
1. Forecasting of business environment development
2. Upside potential determination of economic effectiveness of enterprise functioning
3. Size detection of the required reserves and creation of compensatory mechanisms
3. Estimated figure
Economic risk factor in absolute and
The level of economic risk tolerance,
in percentage points
4 Factor character
In relation to analyzed economic measures, over a period of its implementation, in statics
Momentary, taking into account the particular business environment in the company, characterizing the discrete dynamics of processes
5. Information, necessary for the factor determination
Data on the expected (objective) and actual (real) outcomes and expenses, connected with the implementation of economy measures
The system of external and internal factors, defining characteristics of the company as an open system, characterizing the economic situation.
6. Prognostic potential
Low, related to the investigation of eventual results and independent evaluation of separate components of the system, requires a large number of observations
High, is defined by the system research of incompany processes and mechanisms in their interrelation, interdependence and interconditionality
7. Application for the effectivization of business operation
Below average, as the determination model of risk factor cannot become the basis for creation of business mechanism on the adjustment of its level
High, as the level detection of economic risk tolerance of the company is the system basis on the control over the company or situation
The practicability of the use of term «economic risk tolerance of the company» for the characteristics of general possibility of efficient functioning is explain by the fact that, for example, the term «economic effectiveness» has an integral meaning, it characterizes the operating behavior of the company as a whole, on all activity types.
In accordance with homeostasis principles every company aspires to self-protection by the use of resource potential. In a similar manner, the economic risk tolerance is determined by the interaction of two constituents: internal resource potential and the impact of specific outdoor environment factors.
The estimated figure of this category, which is «the level of economic risk tolerance», is momentary. The use dynamic of risk tolerance notion is defined by the necessity to consider the discrete dynamics of incompany processes, as well as the specifity of a definite economic situation. The level of economic risk tolerance is defined by the efficiency of managerial decisions, the efficient use of incompany resources, peculiarity of external and internal environment, rational choice of strategic resource zone and strategic management zone. The increase of this level is possible at the expense of usage of strategic prognostication instruments, development planning of the internal business environment, monitoring of external and internal factors of economic risk tolerance, acceptance of the efficient, system-based management decisions.
High economic risk tolerance in the strategic plan is connected with the process, which secures long-term survival of the enterprise and is secured by the development of economical strategy. Standard measures for the reduction of harmful interference of diverse factors on the operation of business, such as refinement of planning, organization and production management, usage complex, logistic, and marketing approaches, based on the optimization of flow system with orientation on the specific consumer, manufacture diversification, innovative marketing are also measures on the increase of economic risk tolerance of the company.
The economic risk tolerance is achieved within the bounds of company as a whole. The level of economic risk tolerance is defined by the efficiency of incompany processes, the external manifestation of which is the production and financial stability. The rise of economic risk tolerance of the company is carried out by using of possibilities of achievement of qualitative and quantitative objectives at all stages of development of outcomes in financing and operating activities by means of efficient internal resource potential of the enterprise.
In conclusion we need to mention, that in recent years there has been a tendency for the growth of financial and production stability, as well as economic risk tolerance at the enterprises of the the Tambov Region. This mostly encourages the growth of business production potential because of activation of investment processes.
This is a comparatively new approach in the theory and management practice. But even now it is evidently, that its impact is great and will grow in the future.
Situational approach is a logical continuation of system theory, which contributed greatly to the management theory, using the possibility of direct application of science in specific situations, definite set of circumstances, which markedly affect the organization for a given definite period of time. Situational approach, which is closely related to the system approach, tries to integrate diverse partial approaches, such as the conception of conventional management theory, behavioral school and school of science management. Situational access does not separate the administrative function to the individual constituent, and contrarily emphasizes on the inextricable connection between them. Again, a situational approach tries to correlate specific methods and conceptions with certain specific situations in order to attain the objectives of the organization the most efficiently, is centred on the situational distinctions between the organizations and within them, tries to define how relevant the variable situation are and ehat effect they have on the organization efficiency.
The methodology of situational approach may be presented as a four stage process:
— the first stage – the chief executive officer must be equipped with the means of professional management, which proved its efficiency. He should understand the process of management, individual and group behavior of the employees, systems analysis, planning and control techniques, quantitative methods for the decision making;
— second stage – the chief executive officer should to be able to anticipate positive/negative consequences from the use of each several management conceptions and techniques in each specific situation;
— third stage – the chief executive officer should be able to obtain the correct interpretation of the situation in time and define correctly, which factor is the most important on this occasion, and which probable effect results in the change of one or several changeables;
— stage four – the chief executive officer should to be able to correlate specific methods, which give the least negative effect, with the definite situations in order to get the maximum positive effect in specific conditions.
According to our reckoning, all means, rates, methods, techniques with a view to ensuring the above mentioned processes, should be secured, developed, and presented for the authorities by the risk manager.
The chief executive officer, after the consideration of all materials provided, makes the decision, which is the choice of alternative. He chooses the direction of activities not only for himself, but for other employees, and for the organization as a whole. These decisions may markedly affect the life of many people and be associated with a huge capital dimension.
As professor Frank Harrison said, «Decision making is an integral part of management of any organization. The competence in this sphere distinguishes a manager from non-manager more than anything else, and what is even more important, the efficiency working manager from his inefficiency working colleague».
Let us examine and analyze the diverse forecasting risk models for the achievement of target objectives under the development of risk management strategies.
On the first hand, this is a physical model, which presents what is investigated with the help of increased or decreases description of the object or system. The example of a physical model may be a draft a designer, a mock-up machine, a model of construction project.
Secondly, the analog model, which represents the investigated object by the analogue, which behaves like a real object, but does not look the same. For example, a diagram, which illustrates the relation between the volume of output and costs, is the analog model. The diagram shows, how the level of output affects the costs.
Third, a mathematical model can also be called symbolic, as it uses symbols for the description of properties and characteristics of an object or event.
Mathematical models refer to the type of model, which are mostly used at the acceptance of organizational decisions, for example, for the investigation of dependence between the volume of output and costs.
Any strategy is materialized with tactics, which is a short-term strategy for the achievement of an objective, generally developed at the level of middle managers.
Firstly, the tactics provides model building. Basic stages of that process include formulation of the problem, building, validity check, usage, and replacement of the model.
The most important stage, able to secure a successful solution of the problem of management and minimization of risk, is the formulation of the problem, and definite diagnosis of the problem. As Albert Einstein said, «….the correct statement of the problem is even more important than its solution. It is necessary to know the problem well before finding its acceptable or optimal solution».
The next process step is a model building. The risk manager should define the primary objective of the model, projected reception of exit standards and information for the delivery of assistance to the chief executive officer in resolution of the problem he is facing. Additionally, the risk manager should define, which information is necessary for model building. It should answer the requirements and the stated objectives, and produce the desired results at the output. When building the model, it is necessary to consider costs or expenses, and the reaction of the collective body as well. If the model stand costs more than the assigned task, which requires solution with the help of this model, it is not worth to think about the practicality of build such a model.
After the model has been built, we need to perform its validity check, define the correspondence of model to the actual world. The better the model reflects the reality, the higher is its potential as a method or means of taking a faithful problem solving by the chief executive officer, unless it is too complicated for the implementation.
After the model has been checked, it may be used.
But even a successful model demands adaptation, refurbishment with the course of time and change of the organizational objective. This will also require change in the external environment, appearance of new suppliers, consumers, technologies, which may devalue the background information, used previously in the construction of a model.
Any model suggests a fundamental construction of some assumptions or prerequisites, from the accuracy of which depends the accuracy model. If the original assumptions are inaccurate or limited, or the availability of necessary information is limited, the efficiency of the model is decreased. It may also be decreased by a large variety of potential errors such as customer fear, poor usage in practice, excessively high model value.
There is a great variety of specific models of management science, as well as the variety of problems, for the solution of which these models are developed. Let us consider some of them.
Thus, for example, a game theory  used as a method of impact assessment of the adopted decision modeling on business rivals. Competitiveness is one of most important changeables, from which the success of the organization depends. Therefore, the ability to project the actions of business rivals is the advantage for any organization.
The theory of games was primary developed by military men for the purpose of accounting of threat in the strategy. Game models are used in business for the forecasting of business rivals reaction on the change of prices, new campaign for the support of sales activity, proposal of secondary service, modification and mastering of new products. A game theory is used not often, as the situations of actual world are often very complex and change so rapidly that it is impossible to forecast the exact reaction of business rivals on the change of company strategy, but it is very useful, when it is necessary to define the most important and involving accounting factors in the situation of decision making in conditions of competitive activity.
The model of of queuing theory or the model optimal servicing is used for the evaluation of optimal number of service channels in relation to demands in them. This model is useful in situations, when the customers have to wait long or stand in a queue for getting some service, when they are dissatisfied with such service, may go to other companies, banks. This model secures chief executive officers and risk managers with the instruments for the evaluation of optimal number of service channels, necessary for the enterprise in order to balance the expenditures in case of their insufficient and excessive number.
Every enterprise must support a definite level of stock raw materials, materials, goods in stock in order to avoid the shutdown or standstill of production or sales. In order to define that level we may use the storage model, which allows to define the time for the placement of orders for resources, they number, and the required volume of finished goods in stock.
The objective of building the current model is the achievement of optimum inventory, and minimization of negative consequences of excessive stockbuilding. We think it is extremely necessary, because, on the one hand, maintenance of high level of stock releases from losses, caused by their insufficiency, but, on the other hand, the stock surplus distracts the capital unproductively and prevents the capital investment into the interest-bearing valuable securities or other projects.
The linear programming model is possible to be used for the determination of optimal mode of distribution of resources in short supply at the presence of competing needs, for example, in following working stages of the risk manager:
— preliminary plan of production;
— product planning;
— determination of optimal operational order of production of goods;
— industrial process control;
— stock control;
— production scheduling;
— production distribution programming;
— determination of optimal location of new partnership;
— allocation of labor;
— operation scheduling transport and mechanisms;
— shipping and delivery of material values etc.
The following model, used in modern risk management science, is simulation modeling, which means the process of model development and its experimental usage for the determination of changes in the reality situation. The experts in production and finances can elaborate the model, which allows to simulate the expected gain of production and income as a result of application of technological innovation or labor change-over. Marketing people can create models for the simulation of market expectations in connection with price variance or production advertisement. Simulation may be used in situations, which are too complicated for mathematical methods like linear programming, connected with the overmuch number of changeables, difficulty of mathematical analysis of dependences between changeables or high level of ambiguity. Simulation is a practical method of model substitution in the place of the actual system.
In our opinion, the most commonly encountered model-building technique is economic analysis. The economic analysis includes almost all estimation methods of expenditures and economic benefits, as well as relative profitability of enterprise activity.
System approach to the activity analysis of economic units imply the understanding that each such unit represents a complex system of elements, incorporated by various connections both with each other, and with external medium. The more complicated is the economic entity, the more complex and many-sided must be the assessment of its business and financial performance. It usually begins with the separation of basic system elements. These are production, sales, financial, management and supply subsystems for business production sector. As for trade enterprises, the most important subsystems are probably of delivery, sales and finances. Besides, the separation of basic subsystems should be performed individually in each specific case, taking into account the specifity of business activity.
At the second stage we elaborate the system of factors, which characterize best various functions and subsystems of the enterprise, as well as evaluation criteria and threshold values, which allow to refer the received factor values to successful or ineffectual.
In the course of the third stage, which is the most important, we reveal the interrelation of enterprise subsystems and factors, which characterize these connections, as economic analysis of financial and economic activities cannot be called complete for the objective basis of management decision making, unless interrelations of all subsystems of a commercial enterprise are revealed and described.
The connection of economic phenomena is a joint alteration of more than one phenomenon. We believe, that a causal connection plays an important role among various connection forms between phenomena; its essence consists in the creation of one phenomenon by another. Such connections may be called causal or deterministic.
We call these attributes, characterizing the cause or conditions, factorial or independent, exogenous ones. Attributes, characterizing the consequence, are called effective or dependent.
A complex factorial (x1,x2,…..хm) and effective attributes (y) , connected by a single cause and effect relationship, is called a factorial system, then a mathematical formula, which expresses the connection between these attribute, is called the model of factorial system. It may be presented by formula:
y = f ( x1, x2, ……, xm)
The process of construction of analytical dependence expression is the process of modeling of economic phenomenon.
Typical «economic» model is based on the cost-volume-profit analysis, decision-making technique in risk management with point determination, wherein the overall income is equalized with combined costs, it est points, in which the enterprise becomes profitable.
It is necessary to take into account three pacing factors for the determination of a breakeven point:
— sale price of production unit;
— direct expenses per article, that is actual expenditures, directly included in manufacture of every production unit, which grow with the increase of goods production volume;
— common fixed expenses per article, that is, expenses, which are unchanged in the short term, irrespective of production value, for example, management expenses, amortization expenses, rental of premises and so on.
Market price with the deduction of variable costs or expenses will show the investment in profit per unit of output sold, and will allow the chief executive officer or the risk manager to establish the volume of sales, which covers the amount of fixed charges, which is to say, will define the project economics.
Determination of break-even point gives the risk manager a substantial volume of useful information, as the magnitude relation of break-even point with the evaluation of sales volume, ideally received by market analysis methods, shows, if the projection is profitable, and what the estimated risk level is. Indeed, the break-even analysis helps to detect the alternative approaches, which would be more useful for the company.
Other models of economic analysis can be used for the assessment of profit on the invested capital, the values of net profit, which the enterprise or employer have in the given period, the dividend amount on a single share within the enterprise.
Descriptive, predicative and normative models are referred to these models.
According to our reckoning, descriptive models, or models of descriptive character, are basic ones for the assessment of financial condition enterprise for the risk manager and the chief executive officer.
These include the following:
— system construction of performance balance;
— financial reporting in various analytical angles;
— vertical and horizontal reporting analysis;
— the system of analytical coefficients;
— analytical notes to reporting.
All these models are based on the information use of accounting reports.
Presentation of accounting reporting in the form of relative amounts, characterizing the structure of roundup summary indicators, is the basis for the vertical analysis. Time series of these values serve as a compulsory figure for the analysis, which allows to monitor and forecast the changing structure as part of economical means and sources of their coverage.
Horizontal analysis allows to reveal tendencies of alteration of individual articles or their groups, comprising the accounting reporting. We consider that calculation of basic rate of growth in the on-balance-sheet items or entries of profit-and-loss reports is at the heart of this analysis.
The system of analytical coefficient is the pivotal element of financial analysis, used by various user groups: managers, analysts, shareholders, investors, creditors etc. There are deciles of these factors known, therefore we will divide them into several groups and separate five basic factor groups for the use in our investigation on the following directions of the financial analysis:
— liquidity analysis, which allows to describe and analyze the ability of the enterprise to be liable for its current liabilities;
— the analysis of business solvency, we will estimate the structure of financing sources and dynamics of relations between them with the help of these factors;
— analysis of day-to-day operations, where key figures are indicative of the usage efficiency of material, labor, financial resources: elaboration, capital productivity ratio, turnover ratio of asset in stock and in calculation;
— benefit cost analysis, designed for the evaluation of general effectiveness of capital investment into this business as a whole;
— analysis of location and activity at the capital market within the frames of which it is possible to carry out the spatial-temporal factor associations, characterizing the position of enterprise at the market of valuable securities: dividends, earnings per share, share value etc.
Predicative models are the models of predictive, prognostic nature, which can be used for the income projection of enterprises and their future financial situations. In our opinion, the most commonly encountered among them, are calculation of the point of critical sale volume in the making of financial report forecasting, the dynamic analysis model (rough determined factor models and regression models), situational analysis model.
Normative models allow to compare actual outcomes of business activity with expectations, calculated according to the budget. We will use these models mainly in the internal financial analysis, as well as in the management accounting, in cost management in particular. Their essence is limited to the establishment of normative standards on every item of expense on the engineering procedures, kinds of goods, responsibility centers etc. and to the variance analysis of the actual date from these normative standards.
Investigating the whole variety of usage of economic models under the construction of risk management strategies in business, we may classify applicable methods and techniques in the analysis of financing and operating activities of the enterprise.
At the conduction of analytical procedures at all stages of analysis of financing and operating activities, the risk manager has to deal with the large volume of numerical data, which hampers the outcome perception by the final user. In order to avoid such difficulties, it is possible to use a special representation of data in digital tabulations and diagrams.
The analysis of production and financing activities of economic pattern in modern business cannot be imagined without use of computer technologies of various modifications. Such complex analytical systems, as Platinum, Statistica involve processing of large amounts of information of bookkeeping and management accounting, implemented by large manufacturing companies for generalization, data systematization, and allow to control productive processes.
The comparison for the realization of integrated assessment of production and financial activities of enterprise is insufficient on some separate criterion. It is necessary to analyze the economic entities on several criteria at once. Moreover, not all factors are equivalent; a lot of them are incommensurable or can act as differently directed. It is possible to use some method of rating in this case. Practically the most often applies methods are taxon technique and method of total placings. Besides, one may use the building of analytical tables, detalization technique, Delphi method, morphological analysis, scenario method, balance method, differential method, integral method, forecasting based on the proportional dependence, conventional methods of conventional method economic statistics, methods of financial calculations, mathematical and statistical methods of connection study and various others.
The top-ranked economy management method, developed by successful Soviet scientists, is the method of planning, the value of which does not diminish at the present time in conditions of dynamic development of economics, stochasticity market and constant growing competitive struggle. It is natural that newly-emerging market relations have lead not only to the implementation of new economic categories for Russia, but also to the appearance of alternate approaches to economics planning and management. First of all, it should be noted that the necessity of planning is determined by various reasons. We may single out three of them, which are the basic in our opinion:
— ambiguity of future;
— coordinating role of plan;
— optimization of economic results.
Indeed, supposing that future of business organization is absolute predetermined, and there are no risks, there would be no necessity in risk management, no need in elaboration of programs, perfection of methods and their making and structuring. Herefrom, it is evident, that primary objective of composition of any plan, which is the identification on each of several most important directions of some «passage», in the range of which a particular factor may vary.
In our opinion, the sense of coordinating role plan consists in the fact that presence of well-structured, detailed and interrelated objectives discipline both projected, and current operations, reduces it to the determined system, which allows the economic entity to work without essential failures.
And the last cause of planning lies in the fact that every error of system activity requires additional financial expenditure on its overcoming. The probability of onset of such disagreement is lower, if the work is performed according to the plan, and negative financial consequences are minor.
The meaning of planning is difficult to overestimate in the activity of enterprise, because in particular plan represent the guideline, to which the company strives, and simultaneously the evaluation criterion of success of its activity and the correctness of management of this activity.
Business organization, as an economic agent, can place various objectives of activity in front of itself, besides the objectives in short-term and long-term perspective may differ greatly. Acquisition of gain as a primary objective of business is a frequent categorical assertion in economic literature. This assertion seems to be totally incorrect. We consider that the main objective of any economic activity is mainly, a social welfare of business entity owner. Welfare in that case is understood not only as wealth in monetary value, but as improvement in life quality. And this objective can be achieved not only by means of consumption expansion of separate material goods, but also the improvement of ecological situation in town, accessibility to cultural values, to an extensive sweep of informational resources, availability of definite social welfare. Every economic entity aspires to the achievement of welfare in the own way, with the help of formulation of the system of special objectives, elaboration of a plan of their implementation and strategy generation of actions with the aim of risk minimization. Planning allows to execute a purpose, and, chiefly, offers an opportunity of correct evaluation of actions in the administrative apparatus and the risk manager of the enterprise.
From the point of view of a period duration, to which the developed planned actions refer, we may single out three various levels of planning: strategic, tactical, and operational.
Under the strategic planning we understand the formulation of objectives, tasks, scale and spheres of activities at the qualitative level or in the form of general quantitative benchmarks on the long-term perspective.
Tactical planning will be realized for a period of 1-5 years, it may help us to define the resources, necessary to enter the chosen strategic point for the enterprise.
Operating planning will cover the current operations of enterprise throughout the year with monthly, decade, weekly breakdown when required.
Attribution of periods to one or another category is extremely conventional and depends on various things at different enterprises and in various branches of activity.
There are at least four types of objectives within the framework of strategic planning: market, production, financial and economic, and social. In any case, among the main objectives, for the achievement of which strategic projects are developed, is the presence of substantiation of which product should be in production in the first place, and secondly, where it should be implemented, which is the combination of «goods – market».
Tactical planning is best performed in the form of a business plan, as it reflects the key factors, substantiating the project expediency. Business plan reveals the essence of hypothetical recent trends of business entity activity clearly and visually, and is one of the most efficient instrument, which is in the arsenal of the company higher irrespective its sizes, spheres and ranges of activity. The objective and primary task of risk management is that before we begin the entrepreneurial activity, we need to be sure, that it brings the profit, sufficient with a view to ensuring the average life of the enterprise, service of current transactions with creditors and suppliers and the expansion of production. Business plan does not only allow to substantiate the amount of means for that, but also serves some pattern, concerning which the activity of this company is measured.
In our view, business plan executes four functions from a perspective of economic theory:
— the first function is associated with the availability business plan for the development of business strategy, when it is used as some formalized means of qualitative and quantitative statement of reasons and the correctness of selected course by the enterprise;
— the second function is proper planning, which serves for the economic assessment of selected activity direction and identification of key benchmarks, but in case of realization of business plan, for the control of its implementation;
— the third function is procurement of loans and credits, as any bank for its insurance from loan default, requires a carefully developed conception, business strategy for the entity of entrepreneurial business, which is the reasonable and convincing business plan of company work;
— the fourth function is promotional Business plan is developed as a document for these purposes, which is is destined for the conviction of potential partners and investors in the perspective of future business and attractiveness of their personal commitment therein.
If necessary, managers and risk managers can elaborate private business plans for the internal use with the aim of decision making at all levels of management.
We think, it is efficient to use the detailed activity plan of enterprise for the nearest period, in other words, a budget (the ordinary term is one year), for the purpose of operating management and activity planning of business entity. It is possible to develop a budget, satisfying the requirements of formulated tasks and covering the return on sales, production and financial charges, flow of funds, generate of profits of the company. It is also possible to define the skill level of the manager and risk manager of the organization with the help of budget – if they are able to implement the budget in the course of their work, in case if a failure in budget execution was not their fault.
Managers, risk managers and upper managers take various decisions, concerning both current, and projected activity of the company every day in the course of activity of the economic entity. The adopted decisions are based on the results of planning and analysis to a greater or lesser degree. The price of mistakes, admitted during the plan elaboration of various levels is high enough, increase the risk of adopted decision. Therefore, we all understand the importance of timely conduction of the in-depth and comprehensive analysis of the company activity objectives, and the ways of their achievement. Moreover, if the mistakes of current planing can be corrected and overcome considerably rapidly, the mistakes of medium-term or more strategic planning can become fatal for company.
System analysis of planning at different levels implies the execution of an examination on several directions. It is possible to conduct a technological, commercial, institutional, social, environmental, economic, and financial analyses of aspects, factors and results of current and future activity, variance analysis, break-even condition of single component and multicomponent production, liquidity and paying capacity, etc.
Certainly, the key role belongs to the procedure of control and evaluation of plan execution, carried out post factum, especially the execution of budget control. It is necessary to define the periodicity of control procedures together with the approval of a budget. Budget accomplishment becomes the criterion of work estimation of managers and risk managers.
Generalizing the above mentioned, we have come to the conclusion, that risk management in business is a complex organizational open dynamic system with the probabilistic nature of processes, running in it. Therefore, the technology of risk management plays an essential role in risk management together with its structure.