Financial decisions should always be made with due caution in a company context due to their vast effects. Capital investments should be approached with particular consideration since they affect a company’s financial performance in the long term, allowing it to place its assets to the ventures that appear to be most promising (Kiln, 2017). Therefore, the described decision is associated with multiple risks, some of which include management, communication, and the choice of investment.
Although each of the threats listed above may have a drastic effect on the performance of a firm, the information-related risk is worth particular attention since it implies the failure to locate critical data and use it in decision-making, which makes the Probable Maximum Loss Plan the most valuable risk management tool.
In order to decrease the risk, one will have to deploy a vast array of risk management techniques, the Probable Maximum Loss Plan being one of them. Allowing one to chart the essential steps of the capital investment process, locate key milestones, and define probable outcomes, the plan will set the criteria for performance assessment (Kiln, 2017). As a result, whenever there is a significant deviation from the plan, a company can introduce immediate changes to the current course of actions, thus leveraging the risks.
While the concept of capital investment is inherently tied to numerous risks as one of the essential financial decisions made by a company, the threat of data mismanagement and, thus, making a fatal error leading to the loss of financial assets is the primary threat. The described issue can be addressed with the help of numerous types of risk assessment techniques, which include data comparisons and market analyses. However, a meticulous Probable Maximum Loss Plan seems to be the most effective devoice in addressing the risks associated with capital investment.
Reference
Kiln, R. (2017). Reinsurance underwriting. New York, NY: Taylor & Francis.