Why is it important to manage financial risk in an organization?

Managing financial risk is crucial for an organization primarily because it safeguards the organization’s assets and ensures liquidity. Financial risk encompasses various factors such as market fluctuations, interest rate changes, credit risk, and operational risks that could adversely affect the organization’s financial health.

By effectively managing these risks, an organization can protect its resources from unexpected events that could lead to financial losses. This involves employing strategies like diversification of investments, hedging against market risks, maintaining adequate cash reserves, and ensuring access to credit when needed.

Moreover, ensuring liquidity is critical because it allows an organization to meet its short-term obligations and take advantage of strategic opportunities as they arise. This stability can enhance the confidence of investors, stakeholders, and customers, contributing to the overall sustainability and growth of the organization.