Unexpected Loss

Losses occur in the business in various forms. Some may be expected and some which cannot be expected by the risk managers. These unexpected ones are called unexpected loss. These unexpected losses happen due to various economic factors or government law which cannot be controlled by the management of the organization. The management would not be in a position to expect these kinds of losses. For example during the economic downturn in the year 2009 the managers of many organizations would not have predicted such sudden downfall in global demand for their products and many completed product would have been stacked unsold in the inventory. This is a typical example of unexpected loss. Risk assessment and risk management team in an organization are usually not aware of such losses in advance. It is highly difficult to predict such loss and make implement proper risk aversion technique in advance. The probability of happening of such risks are very low, however the effects of such risks are huge in any companies output and profit.

Business definition of unexpected Loss:

It is nothing but the loss that a company incurs if the defaults exceed the expectation and deviate from the average estimated loss is called unexpected loss.

Steps that can be adopted to reduce unexpected loss,

• The work force must be well educated and trained to meet any such unexpected devastating happening.

• Certain reservoir must be always located for these kinds of losses. Reservoir includes both financial reservoirs as well as asset allocations.

• Team of researchers must be properly placed whose main function must to determine any such unexpected risk happening in the future. It is always better to predict the things before rather than solving it after the happening of it. If the risk are predicted to be sufficiently devastating then proper steps must be taken as soon as possible to avoid it or in worst case scenario to reduce the impact of it in the organization.

• Once such any devastating loss occurred the organization must have efficient managers who got sufficient strategies and method to bring the organization out of problem as soon as possible. ‘

Questions:

• Define unexpected loss.
• List our some of the Steps that can be taken to reduce unexpected risk?