Risk management is a core component of finance, as every single investment decision carries a degree of risk. The importance of reducing risk, coupled with the prevalence of risk in today’s world, is partly why financial risk specialists are so well compensated, earning a median annual wage of $106,090 in 2023, per the U.S. Bureau of Labor Statistics (BLS). For rising graduates, risk management represents a stable, high-paying career that will continue to grow in demand.
However, it can be difficult for young professionals to stand out in the job market, which is why many pursue an advanced degree, like a Master of Business Administration (MBA). Obtaining a degree from a specialized program, such as the online MBA with a Concentration in Financial Services from the University of North Carolina at Pembroke (UNC Pembroke), communicates to employers that you have both the hard and soft skills to thrive in risk management.
What Is Financial Risk Management?
Financial risk management is the process of identifying potential downsides in a decision and deciding whether to accept the risks or take measures to mitigate them. In financial services, “risk” almost always refers to the risk of losing money from an investment. Some of the most common types of risk that financial professionals need to consider are:
- Systematic risk: The risk that the overall market will decline and bring down asset prices
- Unsystematic risk: The risk associated with uncertainties about owning a specific asset
- Political/regulatory risk: The risk that political decisions (which are outside of the investor’s control) will hurt asset prices
- Interest rate risk: The risk that interest rates will change and influence asset prices
- Management risk: The risk that an organization’s management team will make poor decisions that hurt asset prices
Financial services professionals must balance these and other types of risks while also doing their best to achieve investment goals, such as generating income, tracking a given benchmark or maximizing the highest return possible. Young professionals who can reliably reach their investment goals while minimizing risk will likely be in high demand in the job market.
Financial Risk Management Strategies
Financial services professionals deploy a wide range of strategies to reduce risk. Four of the most common risk management strategies include:
- Avoidance: This involves choosing the safest assets that carry little to no risks, effectively reducing risk as much as possible.
- Retention: Accepting risk can potentially lead to higher returns. Ideally, the higher returns will offset any losses suffered from taking on additional risk.
- Sharing: This strategy involves spreading the risk across multiple parties. For example, a real estate investor who buys a home insurance policy shares the risk of property damage with the insurer, who will cover any damage.
- Loss reduction: Combining volatile assets with conservative ones can help balance risk.
These risk management strategies are foundational. However, the field of risk management is constantly changing, forcing financial services professionals to adapt to new risks present in the market. A few emerging risk management challenges outlined by KPMG include:
- Maintaining the effectiveness of risk management programs while reducing costs
- Establishing risk frameworks that are adaptable, resilient and scalable
- Moving from judgment-based approaches to data-driven frameworks
One of the best ways for rising graduates to prepare for this rapidly changing landscape is by obtaining an MBA that specializes in financial services. This degree teaches students foundational and cutting-edge risk management techniques, preparing them for career success.
Learn to Manage Risk With an Online MBA in Financial Services
UNC Pembroke’s online MBA in Financial Services program helps graduate students learn how to evaluate the financial market, identify risks and take the necessary steps to mitigate them. Students experience a curriculum that covers foundational and timely subject matter, including courses such as:
- Managerial Finance: Students learn principles that illustrate the impact of financial decisions, including the time value of money, capital budgeting, and microeconomics.
- Investment Analysis: Students explore higher-level risk management subjects, such as the principles of duration, immunization and the study of modern investment theory.
Students can complete this program entirely online in as few as 12 months. Graduates emerge with a diversified knowledge base that today’s employers are likely to find attractive.
Learn more about UNC Pembroke’s online Master of Business Administration with a Concentration in Financial Services program.
