Corporate Risk Management Essay Example | Topics and Well Written Essays - 1250 words

Corporate Risk Management - Essay Example The expenditures of the business in order to compensate the physical damages of workplace and manpower could serve as important inputs in the process of capital budgeting that has the objective to determine the actual net present value and internal rate of return of the business (Shapiro, 2008, p. 42). Firm’s exposure to physical risk The physical risk is the foremost risk that affects the organization and its people. The establishments, factories, plants and buildings in which the business is carried out as well as the employees of the business house are subject to physical risk. The physical risk to the business occurs as result of the uncertainty of the occurrence of unforeseen situations and accidents that badly affects the infrastructure of the business and its entire business set up. The physical risk may occur due to the unfortunate incidents of fire breakout in the company buildings. There may be accidents as a result of the explosions happening inside the workplace (M egginson and  Smart, 2008, p. 63). The companies spend substantial amounts in setting up the business infrastructure. A huge amount of expenditure is incurred by the business in constructing the office set up, the interior decoration and the wooden construction for making the buildings and its rooms suitable for official use. The other expenditures include glass fittings, work place arrangement of improved designs. The corporate look in the offices is due to the standardization of the infrastructure for business that is required to be established in the workplace. The occurrence of fire accidents and small explosions inside the office buildings are huge risks as it destroys the infrastructure for carrying out business operations and also injures or adversely affects the manpower resources of the business. The physical risk for the business may also be due to the spillage of hazardous materials in the workplace. The hazardous materials like the acids, gases, toxic wastes, and toxic fumes could adversely affect the employees of the company which would in turn affect the business operations. Physical Risk consideration in Capital budgeting The capital budgeting techniques are aimed at assessing the feasibility of the business investment in a particular project. The capital budgeting techniques assess the viability of business investments with the help of various approaches that determines the extent to which the business is profitable. The assessment of the business takes into account the risk of the business. The physical risks associated to the business takes into account the several factors of uncertainty that would reduce the net valuation of the business or the expected return from the business investments (Chandra, 2008, p. 96). The consideration of the physical risk is thereby necessary to determine the feasibility of the investments through Capital budgeting techniques. The various capital budgeting techniques used to judge the viability of the investme nt are the Net Present Value method, the Internal Rate of Return, etc. The Net Present value of the business is the actual present value of the business adjusted with the initial investments required for starting the project (Lumby, 1988, p. 84). The Net Present Valu