Iscussion: The Nature of Managerial Risk

Discussion: The Nature of Managerial Risk

As a manager responsible for the day-to-day operations within your department, which might be sales, marketing, production, etc., you probably do not think much about the daily price of your companys stock or the firms overall value if it is not publicly traded. However, your proposed projects can impact stock price or firm value in different ways. For example, if investors in your company perceive little value in plant expansion or an expensive equipment modernization program due to slowing sales, such a reaction will result in a stock price drop or a lowering of the firms overall value. What you propose as a manager for funding must be perceived as a program or project that supports overall organization strategy with minimal risk. Consider the Goodyear example in your course text reading this week (see pages 286a 287), which focuses on a major investment in a new producta recapped tires. While this new product may have high stand-alone risk, note how and why that risk actually mitigates overall stockholder risk due to its diversification properties.

To prepare for this Discussion, consider your organization or one with which you are familiar, and its current riskiness. Develop an idea for a new product or service that has the potential to generate a good return on investment at reasonable or even high stand-alone risk but that has an opportunity to lower the organizations overall risk.

Post by Day 3:

Develop an argument as to why your suggested project has the potential to reduce the organizations overall risk. Be sure to identify at least two risk measurement tools used in the readings that you would deploy to measure the overall risk in the organization, and explain why your choices are appropriate for the situation.

REFERENCE:

Brigham, E., & Houston, J. (2013). Fundamentals of financial management (13th ed.). Mason, OH: Cengage Learning.

Chapter 8, Risk and Rates of Return(pp. 255a 297)

In this chapter, the authors examine what risk means as it relates to investments, examine procedures that are used to measure risk, and discuss the relationship between risk and return.

Chapter 9, Stocks and Their Valuation(pp. 298a 334)
In this chapter, the authors examine the pros and cons of various models to estimate stocks intrinsic (or true) values.

Domash, H. (n.d.). Dividend detective. Retrieved from big_dividend_list.htm

The Dividend Detective site provides a listing of 800 high-dividend stocks. Each company on the list contains an estimate of its stocks annual dividend in addition to its dividends annual yield.