Risk Management Techniques Paper
Diana Rakine – Hteit
Liberty University
BMAL 714 – B02 LUO
Risk Management Techniques Paper
Abstract
This paper’s aim is to delve into the world of business risk management by highlighting the instance of a project in one organization. It intends to shed light on some of the ventures that an organization may undertake to increase its profits, grow its market share or counter competition. The paper shall then highlight some of the environmental risks that may come up in the course of the project and how they may affect the project and its intended objectives. It shall describe such organizational threats and challenges as economic stability, supplier consistency, cyberattacks, political and government changes, weather, and transport losses. It shall them construct a risk management plan that contains technique choices including avoidance, reduction, retention, and sharing. It shall include the members of the team including their various roles and responsibilities and then delve into the methodology for tackling the mentioned threats. The plan shall also include a breakdown of the assumed risks, their probability impacts, and risk estimates. It shall conclude with various recommendations on the aspects of risk management. The author shall use incorporate biblical principles in the course of the risk management exercise to tie the same to the instructions and directions of God.
Keywords: Risk management, Risks, Plan,
Introduction
Risk management includes all the steps that an organization undertakes to identify potential threats that may arise in the course of business, analyze all possibilities, and come up with precautionary steps that shall alleviate the loss or increase the realization of opportunities from the same. It involves a long process of analyzing and accounting for probabilities while utilizing the available resources to minimize the impacts of such risks. Risk management is crucial for every business as they anticipate inevitable and expected challenges in the course of its operation (Woods, 2012). The paper shall focuses on a project at an organization aiming to develop a new product line. The reason behind this move is to venture into a potential market that is opening up and includes the presence of many prospective customers. However, there is a need to highlight some of the probable environmental challenges that are bound to arise in the course of the undertaking. After identifying and highlighting some of the risks that the project could face, the organization shall determine the best technique to adopt, whether it shall be sharing, retention, avoidance, or reduction of the threat. It shall then build a plan to elaborate options towards preparing for such problems and handling them to minimize or halt the resulting losses that may result from it.
Environmental problems that may contribute to the risks of the project
Economic Instability
The first environmental problem that could arise in the move towards developing a new product line is economic stability. Businesses depend on the economy to survive and achieve their set objectives. A stable economy means no fluctuations in the market and constant output growths. This instance enables companies to tap into the market and effectively reach the demands as they arise. According to Daboussi (2016), inflation rates are critical to price stability for companies within every market. Economic instability is a potential risk that the project may face as it may be inevitable and lead to a lot of losses. During economic stability, employment rates increase as demand increase hence businesses expand and grown to meet the needs of their customers. Economic instability can arise from such factors as erratic leadership, stock market crashes, changes in commodity prices, black swan events such as the corona virus pandemic of 2020, and changes in interest rates. All these can cause the business to lose clients as confidence levels drops and also a reduction in investment levels. For the project at hand, an unstable economy could hinder its implementation by lowering investments thus making the project fail. 2 Corinthians 3:12-14 (NIV) encourages Christians to be bold and have hope even in the midst of hardships.
Political and government changes
Every business requires stable and prosperous government to thrive. Governments are responsible for formulating monetary and fiscal policies that may affect businesses in several ways. In a case where the government increases the interest rates, it leads to the cost of borrowing thus leading to lower customer spending. The politics around the country also affect businesses through the laws that the government implements. A study by Mark & Nwaiwu (2015) into multinational companies in Nigeria show that the political environment in the nation had a significant negative impact on the performance of the companies. They suggested that the government to decrease the frequency of its policy changes and implement tools towards ensuring stability of democratic institutions and political integration. For the project that the company intends to implement, the political environment is vital for its success. For the business to be able to successful introduce a new product line, it will need stable political conditions to facilitate market research, and introduction of the same to the customers. It should be able to acquire suppliers without any obstacles and deliver what the customers need. In some countries in western Europe, Brexit had adverse effects on their business communities because of the weakening of the British pound leading to volatility and affecting trade. 1 Timothy 2: 1-2 instructs Christians to pray for their leaders to ensure peace and prosperity for all.
Supplier Consistency
Depending on the type of project that a company undertakes, they have to gain an excellent supply source. In the instance of the development of a new product line, such as in the case at hand, a consistent, reliable, and efficient supply is crucial to the success of the project. The providers of raw and reclaimed materials especially for the manufacturing industry are susceptible to disruption risks. Supply chain disruption can arise from such factors as quality issues, fires, machine breakdowns, or even unexpected surges in capacity. All these stands to affect the business project resulting in losses. According to Mancini, Benini & Sala (2018), these can also result from geopolitical and economic reasons. Their work states that the concept of resource criticality means that businesses should prepare for it as a policy priority as it could have adverse effects on the growth of a business. Ezekiel 38:7 resounds the need for preparation by establishing the potential risks and coming up with ways to protect oneself from its outcomes. In the course of implementing the project, company will have to outsource for resources to come up with a new product line. The suppliers could face several challenges disrupting their delivery thus affecting the release of the new product into the market.
Transport losses
For any organization that undertakes the provision of goods and services to the client base, transport is a crucial part of the process. These could include moving goods and services from the warehouses to the customers, from the factory to the warehouse or sending services to the customers. In all cases, a reliable transport means is necessary. A company could lose its transport means due to intentional and unintentional circumstances and occurrences. There could be a breakdown of their vehicles or even natural disasters hindering such movements. In other instances, companies that deal with produces that are delicate could also incur losses due to accidents and mishandling of such goods. The transport service provides a link between what the company does and their delivery to its market. Pereira et al. (2019) outlines that in Brazil, land transportation accounts for more than 60% of the total cargo movement. This is the same case for all the countries across the world with varying degrees as to the percentage. As a result, the transport means should be able to deliver within the stipulated time. Proverbs 3:5-6 directs Christians to trust and believe in God to carter for their daily heart desires while also doing their part.
Catastrophes and natural disasters
While businesses can prepare for and anticipate the happening of specific events, and therefore, avert their consequences, other occurrences may be beyond them. In 2020, the outbreak of the corona virus has destabilized most businesses and led to losses. While companies may have prepared for certain challenges along the way, they could not foresee such an epidemic. Other catastrophes that may happen, therefore throwing the project off its intended direction include, earthquakes and famine. These may have devastating effects on the operation and success of businesses, especially in instances where they do not have back-up plans. Companies such as the ones that rely on shipping of goods may lag in the completion of projects or meeting individual targets. For the company at hand, some man-made and natural catastrophes may occur leading to delays or complete putting off the introduction of a new product line. Samantha (2018) carried out a study into the impact that the 2016 floods in Sri Lanka had on micro, small, and medium enterprises. The study results showed how the micro and small businesses were affected in terms of capital, logistics, labor, and market fonts. Such small businesses are also susceptible to numerous losses that may completely kill them.
Extreme weather conditions
Weather changes are another environmental factor that can lead to specific risks to a business. These are different from man-made and natural catastrophes. These can affect the facilitation of transport or the production of goods. Weather conditions such as tropical storms pose the greatest challenge to freight using sea transport. Such weather conditions are capable of not only destroying cargo but also destroying ocean carriers. Technological advances may have enabled businesses to establish the routes that enable them to avoid such occurrences. However, due to the increase in climate change, such weather conditions are bound to increase. A study by Leppänen, Ledyaeva & Kosonen (2016) in Russia proved the hypothesis that while foreign companies benefited from the local colder climate, this was not the case for foreign companies with climatic conditions similar to Russia or the local companies thus making weather conditions a competitive advantage. Psalms 121: 1-8 encourages Christians that even in uncertain times while experiencing difficulties, they should remember to turn to the Lord because he is the maker of all conditions and, therefore, the only hope for help.
Cyberattacks
The twenty first century brought about a lot of technological developments such that the world is like a global village. Most business have adopted such technology thus making them more efficient. However, this move also has its various risks. Company information and secrets are susceptible to cyberattacks. This means that any malicious and capable person across the world can try to gain access to an organization’s information to either destroy, steal, alter, or expose certain material that are critical to the company. One company that faced such an attack in 2016 is Yahoo when a group of hackers breached most of their data compromising the private information of more than 500 million accounts. This case was followed by another target targeting close to one billion accounts. Verizon then acquired the initially publicly traded company in 2017. Cyberattacks can lead to the exposure of trade secrets and result in the loss of valuable information (Agrafiotis et al. 2018). For the organization at hand, a cyberattack could leak the intended product line before it is even introduced in the market thus leading to the loss of a competitive edge. Cyberattacks may be for various purposes although they still add up to unauthorized access to information and theft. The bible strongly disapproves theft in several versus such as in 1 Corinthians 6:10 and Exodus 20:15.
Risk management plan
Risk management techniques
The first step before developing a risk management plan is to establish the view and techniques that the organization prefers. These can range from an avoidance stance, acceptance, mitigation, and transfer (Okumu & Wanjira, 2017). When a business goes in the avoidance direction, it means that they take initiatives that lead to the elimination of hazards or activities that may negatively affect the organization’s assets. It means taking steps to ensure that the risk or threat does not occur at all. In the organization planning to venture into a new product line they could analyze potential risks and when they find that it is too great and the undertaking could trigger it, they could stop the move. The second technique is risk acceptance where the organization agrees to let the risk take its course because they are able to handle it. I some cases, the cost of avoiding the risk may be greater than its hazardous effects. The third technique is mitigation or reduction where the organization comes up with strategies towards eliminating the consequences or losses that could result from a risky undertaking or the occurrence of such an unfortunate event. The final strategy is risk transfer where the business can decide to shift the risk that they face to another party. The company at hand is seeking to develop a business plan with the risk mitigation technique in mind.
Methodology
The first step towards managing risks includes identifying the potential risks as the exercise above has highlighted. According to Vovchencko et al. (2017), companies need to come up with comprehensible risk management instruments to identify potential risks to ensure factors such as their financial stability. The project should not just point out potential risk but also make an educated assessment of the likelihood of their occurrence and how they might affect the business. While it may be hard to establish the possibility of such risks as catastrophes, it is necessary to include them as they can happen at any time. In this step, the project team shall also develop a register to provide a home for every step of the risk management process. This step also includes establishing the magnitude of losses that potential risk could cause or the results of its outcome. Philippians 2: 6-7 encourages prayer and supplication even when faced with difficult choices. The second step is analyzing the risk to establish all information regarding it. The risk register could also come in handy in this step as it enables the risk management team to categorise each type of risk, its probability and chances of occurrence, its nature, how it could affect the move towards introducing a new product line, and also its resultant consequence on the organization generally. Coming up with such a plan requires an open mind and the ability to make drastic decisions as the need may arise. The organization could even decide to adopt a technique such as acceptance for certain risk categories.
The third step is evaluation or ranking the risks that the project team decides to mitigate. After understanding the nature of the risk and its potential loss results, it is crucial to gauge and determine its significance to the business operations. This instance also includes establishing the risk magnitude and how much loss it could cause. The team could find out the magnitude by combining the likelihood of the risk plus the consequences that could result from it. According to Murnane, Simpson & Jongman (2016), risk assessment comprises a broader perspective including understanding the advancement of the social processes that inspire and generate a risk. It encompasses having a wholesome grasp of the background and potential development of a risk factor. During this step, the team also gets to establish the seriousness of a risk factor and weather it warrants consideration and treatment. The group should also add all this information to the risk register. The register should be a tabular document containing updated information concerning all the risks that the project team discusses. It should be consistent, compact, and contain coincide information.
The next step is risk treatment that emerges from the previous stage of the plan. Here, the group goes through the risk register to determine the highest-ranking risk and establishing ways to treat the same. The suggested methods should modify the risks to a level that the company can manage. The plan should enable the company to come up with ways that would minimize the probability of negative effects while maximizing on opportunities. In the case of a risk such as catastrophes, the organization could come up with a robust strategy that could ensure the continuity of operations even after a catastrophe. This instance could include the devotion of resources such as cloud-based tools as a back-up form. This step also includes the creation of contingency and preventive plans for the established risks in their magnitude order. The last step is monitoring and reviewing the plans. Because risks are uncertain events, it is difficult to give them timelines. Having a plan ensures that the organization is prepared and cannot act impulsively when they face such challenges.
Risk management team
The project shall also be successful when they have a team to focus on and work on the risks that they envisioned. The team could include of people from diverse backgrounds bringing in an extensive array of experience and knowledge. They could have a project manager to head the team with an oversight role. The leader could also facilitate group meetings and look into the updating of the risk register all the time. The team members could come in to own risks, assist the development of response plans, and also to monitor the risks as they occur. The team could establish the number of times that they meet, for example, once per week and have duties such as researchers and even a secretary to note down points. Effective communication is crucial to the passing on of information and coming up with appropriate ways to handle each case. Proverbs 18:2 teaches the virtue of understanding before even responding to any instance. Communication is a two-way street and only successful when one understands the other before responding.
Conclusion and recommendation
For any organization that sets out to come up with any form of project, risks are inevitable. These may range from man-made factors to natural occurrences beyond one’s understanding. They include such instances as extreme weather conditions, transport losses, inconsistent suppliers, cyberattacks, catastrophes, economic instability, and political or government changes. All this stands to affect the organizational projects in many ways. However, organizations need to come up with risk management plans to anticipate and treat the risks as they come along. Their plans could also outline what risks to accept, transfer, or even avoid. I would recommend starting up with a plan even before delving into the intended project. Such plans offer the organization a chance to prepare for the future while also handling obstacles along the way. Psalms 62:8 encourages Christians to believe and trust in God to provide and direct all their endeavors while also seeking refuge in him.
References
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