The paper "Political Risk and Methods of Risk Management" is a good example of management coursework. Different changes occur in the political set up of a country every time a decision is made or when the government of any state adjusts its policies (Kerner & Lawrence, 2014). The changes that take place have both negative and positive effects on the citizens as well as on the businesses within the areas of political changes (Bená ček et al. 2014). These changes expose the organizations to various risks which reduce their profitability a challenge that remains to be handled by the managers of the affected organization.
They also cause the mother countries to have stagnated development and economic progression process within the institutions of political change is always negative (Kerner & Lawrence, 2014). With the understanding of various challenges that the organizations face due to political changes as well as the effects on the citizens of a country, this paper will address the following. It will explain and identify various issues related to political risks. Secondly, it will proceed to look at various methods managers can use to manage risks in the international market. Political risk is the complications that an operating business or government may face due to the influence of the political decisions in a country or society.
The decisions in context include alteration of government policies and structures which greatly have an impact on the expected outcomes or profitability of a company or organization. Sometimes political risks become very unpredictable and the managers fail to understand and predict the behaviour of the risk on a long term basis. There exist two types of political risks depending on the number of individuals or firms affected by the political decision or political structure change (Kerner & Lawrence, 2014).
The first type of political risk is the macro-political risk and the second one is the micro-political risk as discussed below. Macro-political risk is the type of risk in which all the foreign firms within a state are affected by political decision such as expropriation or insurrection (Bená ček et al. 2014). The risk poses two portfolios for the business that is; it creates both portfolio investments and foreign direct investments which changes the overall suitability of destination for investment. The second type of political risk is the micro-political risks which are more of specific projects risks.
The risk majorly affects the local business in relation to the political climate that is created. They are sometimes referred to the internal risks are they are majorly affecting specific projects at different times. The risks are more depended on the governance and at most cases get corrected through the use of the international discussions to determine the reliability and solutions to the problems. Various organizations have made mistakes as they have ignored as well as others underestimating the risk that might be exposed to them by politics (Bená ček et al.
2014). The issue of sovereign debts is an indicator of political risk which has been ignored by different organizations as the governments are trying to negotiate on the debt ceiling debates. Political risks have been based on the security and threats that different countries offer in relation to the stability of their actions. Challenges come on a daily basis and the threat has ensured that some companies shy away from the production or investment leading to failure of success and progression.
Benáček, V., Lenihan, H., Andreosso‐O'Callaghan, B., Michalíková, E., & Kan, D. (2014). Political risk, institutions and foreign direct investment: how do they relate in various European countries?. The World Economy, 37(5), 625-653.
Haimes, Y. Y. (2015). Risk modeling, assessment, and management. John Wiley & Sons.
Kerner, A., & Lawrence, J. (2014). What's the risk? Bilateral investment treaties, political risk and fixed capital accumulation. British Journal of Political Science, 44(01), 107-121.
Marcelino-Sádaba, S., Pérez-Ezcurdia, A., Lazcano, A. M. E., & Villanueva, P. (2014). Project risk management methodology for small firms. International Journal of Project Management, 32(2), 327-340.