Risk Principles - ABC Tissues Products Ltd - Case Study Example

Risk Principles Student’s Name: Instructor’s Name: Course Code: Date of Submission: Abstract Due to competition in various industries in Australia, there is need for ABC Tissues Products Ltd to develop its products to meet the demand of the customers. The purpose of this report was to find out the risks facing ABC Tissues Products Ltd in its strategies for developing the tissue products. The research was conducted by reviewing the business context and the researcher went ahead to identify the various risks that can affect the operations of the organization by conducting the literature review. The report found out that the risks that affect the business operations include financial, political, compliance, strategic and operational risks. The report also found out that the risks identified can be managed by accepting the risks, avoiding the risks, reducing the risks and transferring the risks. The report recommends that risks can also be managed by engaging the stakeholders in strategic planning and seeking the advice of the legal experts to ensure the business operations comply with the legal policies. Table of Contents Abstract 2 Introduction 4 Terms and definitions 4 Principles of risk management 5 Design of framework for managing risk 5 Business context 6 Risk register 7 Financial risks 7 Political risks 7 Strategic risks 8 Compliance risks 8 Operational risks 8 Risk treatment template 9 Risk action plan 11 Recommendations 12 Conclusion 12 Sources cited 13 Introduction The success of any business should consider the risks which face the business and take appropriate measures that can help to manage the negative effects of the risks. For instance, when taking projects for the organization, it is the responsibility of the project manager to identify the risks facing the business so that the project objectives can be achieved successfully (Alberts et al 2008). In this report therefore, the risks facing an organization will be discussed as well as the risk treatment strategies. Terms and definitions There are various definitions which are used in risk management: i. Risk Risk can be defined as the effect that is caused from the deviation from the expected outcome. The effect can be positive or negative (Borodzicz 2005). ii. Risk management Risk management can be defined as the activities and tasks which are effectively integrated to protect an organization from facing various risks (Nederpelt 2012). It includes the activities such as insuring the business activities and transferring the risks. iii. Risk management framework Risk management framework includes the components that help to provide a guideline regarding the business activities that can be taken to manage the effects caused by risks. This framework includes the policies and tasks performed to manage the occurrence of the risks (Alberts et al 2008). iv. Risk Management policy Risk management policy is the statement that discuses the guidelines and intentions as well as the directions that should be undertaken by the organization to ensure effective risk management (Nederpelt 2012). v. Risk attitude Finally, risk attitude is the statement that helps to define the approach that is applied by an organization towards managing the risks in the organization. Principles of risk management An organization that aims to manage risks effectively should follow the following principles. The first principle is to understand that risk management creates and protects value. This means that managing the risks effectively helps to ensure that the goals and objectives have been achieved successfully. This is because risk management helps to improve health and safety as well as legal and regulatory framework (Alexander & Sheedy 2005). The other principle is that risk management is an integral part of all organizational processes. This means that management of risks cannot stand alone but it should be integrated with other departments to perform the processes that protect the organization from risk (Nederpelt 2012). Risk management is part of decision making in an organization. The management of an organization should include risk management plan in the strategic planning. This helps to prioritize actions and activities that help to manage the risks (Altemeyer 2004). The other principle is that managing risks helps to address uncertainty. This is because risk management helps to identify the risks and the most appropriate actions that can be taken to avoid the risks from occurring. This improves the performance of an organization by managing the risks of uncertainty. Design of framework for managing risk In deigning the framework for managing the risk, the first thing to do is to understanding the context of the organization. This is the process that helps to indentify the external and internal business context to help in assessing the possible risks that can affect the organization. The second step to do is to establish the policy for risk management (Nederpelt 2012). This is the step that helps to formulate the goals and objectives that define the commitment to risk management. This includes the rationale for the organization to manage the risks as well as the various responsibilities that can help to manage the risk (Hopkin 2012). Accountability is the next thing to do to as a way of creating openness as well as developing authority to manage the risks. The resources are then allocated by the risk manager. These resources include human skills, experience and financial resources. Internal communication is another component that is important in formulating the risk management framework. Internal communication helps to ensure that the stakeholders understand the reason of managing the risks (Hopkin 2012). Finally, external communication is the next mechanism that is put in place to improve risk management. The external stakeholders are key in ensuring that the risks have been managed effectively and this can be adopted using the framework provided under: Adapted from: Australian Standard AS/NZS/ISO31000:2009 Business context The company selected for this assignment is the ABC Tissue Products Ltd which is based in Queensland Australia. The company manufactures variety of the tissue products which meet the needs and expectations of the customers. The company was established in the year 1987 and currently the company is one of the leading companies in Australia in the manufacture of tissue products. The company is ranked as the best toilet manufacturer in Australia. Despite the performance of the company, there are various risks that it is facing like developing the tissue products like kitchen towels and napkins. This is because the demand for the products of ABC Tissue products has increased and there is need to increase the product to meet the market demand (ABC Tissue 2015). Risk register Financial risks There are various types of risks which face the organization and its projects. The first category of the risks is the financial risk. This is the risk that is associated with the inability to ensure adequate funding as well as effective management of the financial resources. The factors that cause financial risks include inadequate funding which means that the project might not have adequate finding for each activity and this affects the effectiveness of the business operations. In addition, financial risk is as a result of misappropriation of the financial resources (Alberts et al 2008). This means that the project resources are not utilized effectively due to corruption. Another cause of the financial risk is lack of effective budgeting and this affects the estimation of the cost of each project. Furthermore, changing economic conditions also lead to financial risk since the cost of acquiring the materials might change thus affecting the budgeting for the business operations. In this effect, the project manager should be able to take appropriate measures to ensure that the risks facing the organization have been identified and appropriate measures taken to avoid their sever effects. Political risks The other category of the risks facing the business is the political risk. These are the risks which are associated with the changing government laws and the policies of doing business. The first kind of the political risk is government intervention in business. This is the extent to which the government interferes with the business operations like product development. The other type of the political risk is opportunity costs whereby the management of the business concentrates on making the profits failing to consider the ethical issues (Alberts et al 2008). This affects the reputation if the organization. The other political risk is non compliance with the legal legislations and this affects the reputation of the organization since there will be legal battle with the political laws. In addition, there is the ethical risk where the government changes the disposing laws that should be laws failure to which will lead to legal battle. The business law practice is another type of risk facing the organization regarding the political risks. Strategic risks These are the risks which are associated with the long term strategies of the organization. The strategic risks include ethical issues which affect the strategy formulation due to changes in government laws. There is also training and developing risk whereby the employees are not provided with effective training and development (Alexander & Sheedy 2005). There is also fire detection and prevention fraud issues, fraud prevention and environmental issues. These risks affect the strategic plan for the business if they are not properly taken into account when formulating the strategic plans. Compliance risks These are the risks of failing to comply with the set policies of the government and government departments. These risks include lack of careful strategic planning, quality assurance risks as well as the strategic management. In addition, there are information and security risks and corporate environmental management issues. There is also legislative compliance whereby the management of the company may not consider the legislative policies and also maintain the health and safety occupation health (Alexander & Sheedy 2005). These risks should be taken into account when formulating the business strategies. Operational risks These are the risks that affect the operations of the business. The first one is the technological change that affects the general business operations like the use of the internet and application of the management information system. There is political change which can affect the formulation of the policies of the organization. In addition, there is also disaster management which influences the operations of the business like the distribution process (Alexander & Sheedy 2005). In addition, emergency planning influences the ability to manage the business strategies. Furthermore, discrimination can also affect the success of implementing the business strategies and also there are employment procedure risks. This is because if the employment procedures are not effective they will affect the ability to hire the best skills for the organization. This can be indicated by the risk register below; Ref The risk The consequence Likelihood Adequacy of existing controls Consequence rating Likelihood rating Level of risk Risk priority 1 Financial risk Affects the allocated budget for all activities Likely Not adequate Catastrophic High High Low 2 Political risks Affects the market operations Unlikely Not definite Medium Medium Moderate High 3 Strategic risks Affects the long term market operations Likely Adequate Low Low Medium Low 4 Compliance risks Affects the legislative laws of the organization Unlikely Adequate Low Medium Low First priority 5 Operational risks Affects the business operations Likely Adequate Medium Low High First priority Adapted from: Australian Standard AS/NZS/ISO31000:2009 Risk treatment template There are various ways in which the risks can be treated. In the first place, the identified risks can be treated by accepting the risks. This is the treatment which is given to the risks by accepting the risks cannot be inevitable and the best thing to do is to formulate the most effective strategies and measures that can help to reduce the effects of the risks (Altemeyer 2004). This is because there are risks which cannot be avoided like technology change and this means that it is upon the management of ABC Tissue product Ltd to ensure that appropriate measures have been put in place to manage the severe effects of the risks. In this way, the risks will have been avoided. The other way in which the risks can be treated is avoiding the risks. This is the process of taking precautions after identifying the risks so that they don’t happen. This means that the project management team and the management of the organizations ensure that the activities that pose more risks to the business have been identified and avoided. This is important because avoiding the risks can help to reduce the risks that happen to the organization. As a result, the activities undertaken by the organization that can increase the risks are identified and avoided thus treating the risks effectively. For instance, removing the physical hazard and implementing age restrictions can be helpful in avoiding the risks (Altemeyer 2004). In addition, the other way to treat the risks is to reduce the risks. This is the risk treatment strategy that ensures that the risks are identified and appropriate measures taken to reduce the risks. This means that the management should take appropriate measures to ensure that the risks identified have been treated fairly. This is done by ensuring that effective policies have been taken to manage the severe effects of the risks (Altemeyer 2004). For instance, the policies should be developed as well as providing effective training and development to develop the skills of the workforce so that they can be able to manage the risks appropriately. Furthermore, the risks can be treated by transferring the risks to third parties that can help to manage the risks. In any business, there are risks that can affect the operations of the same organization. However, these risks can be managed by transferring the risks to a third party and this means that the risks can be reduced. For instance, the risks can be transferred by taking up the insurance covers so that the company can be restored to the initial position before the risk occurred (Borodzicz 2005). On the other hand, there waivers as well as warning signs that the risk is likely to happen and effective measures taken to reduce the impact. This can be indicated by the risk treatment template below; Risk in Priority Order from Risk Register Possible Treatment Options Preferred Options Risk Rating After Treatment Person/s Responsible for Implementation Of option Timetable for implementation How will this risk & Treatment options be monitored Financial risk Avoiding the risk Reducing the risk Transferring the risk Transferring the risks Reducing the risk Medium Finance manager Operations manager September to December 2015 Assessing the performance of the organization Political risks Reducing the risk Avoiding the risk Transferring the risk Avoiding the risk and reducing the risk Low Operations manager Legal manager September to March 2016 Assessing the legal complaints Strategic risks Transferring the risks Avoiding the risks Reducing the risks Loss control Loss control Transferring the risks Medium Risk manager Strategic manager and operations manager September to December 2015 Assess the strategic success of the organization Compliance risks Comply with policies Avoiding the risks Reducing the risk Comply with the policies Reducing the risks Low Legal manager Operations manager September to December 2015 Assess the compliance with the legal policies Operational risks Transferring the risks Reducing the risks Conducting environmental scanning Conduct environmental scanning Transferring the risks Medium Operations manager Strategic manager September to December 2015 Evaluating the success of the business operations Adapted from: Australian Standard AS/NZS/ISO31000:2009 Risk action plan There are various actions that should be taken to implement the risk measures. The first risk identified is the financial risk. These are the risks which are associated with the finances of the organization. These risks can be managed by conducting auditing to identify the bottlenecks when using the finances of the organization and this will help to eliminate the misuse of the resources. In addition, careful planning can also be used to monitor the effectiveness in using the financial resources (Borodzicz 2005). The other resources which are required to manage the risks include the financial resources. The implementation of the risk measures can be successful if there are adequate financial resources that can help to perform the tasks appropriately. The human resources are also required to implement the risk measures and treatment strategies identified (Borodzicz 2005). This is because the risk measures cannot be implemented by the employees who do not possess competent skills in the risk management sector. Time is another resource which is required in taking appropriate measures to manage the risks. This is because all the activities which are undertaken require appropriate time so that the management can implement the activities effectively. This is because through effective time management strategies, it will be possible to prioritize the activities and this will help to improve the achievement of the goals and objectives of managing the risks (Gorrod 2004). The template below indicates the risk action plan template. Risk identified Action By When? Who is responsible? Resources required Financial risks Doing auditing Careful planning and allocation of resources December 2015 Financial manager Human skills Financial resources Political risks Seeking consultation from legal experts. Reviewing the legal policies December 2015 Operations manager Financial manager Legal manager Human skills Financial resources Time resource Compliance risks Following the legal policies. Evaluate the organization if it follows the legal policies December 2015 Legal expert Operations manager Financial Human resources Operational risks Developing organizational policies to be followed. Developing compliance organizational culture March 2016 Legal manager Operations manager Financial resources Human skills Strategic risks Environmental scanning Conducting organizational auditing March 2015 Strategic manager $1,500 for conducting environmental scanning. Adapted from: Australian Standard AS/NZS/ISO31000:2009 Recommendations The risks can be managed by engaging the stakeholders to help in identifying the risks and recommending appropriate measures that can help to solve the risks (Gorrod 2004). In addition, the risks can be managed by engaging the legal experts to ensure that the business operations comply with the legal policies and avoid conflicts that can affect the reputation of the organization. Conclusion Risk principles help to ensure that the strategic operations of an organization have been achieved successfully. The success of an organization depends on the ability to manage the risks facing the organization effectively and taking appropriate measures to manage the risks. Risks can be categorized into various categories and they include financial, political, compliance, strategic and operational risks. On the other hand the risks can be mitigated by avoiding the risks, reducing the risks, transferring the risks and accepting the risk. These strategies can help to reduce and manage the negative effects of the risks facing the organizations. Sources cited ABC Tissue (2015). About Us, retrieved on 13th August 2015 from http://www.abctissue.com/home.html Alberts, C., Audrey, D & Lisa, M. (2008). Mission Diagnostic Protocol, Version 1.0: A Risk- Based Approach for Assessing the Potential for Success. Software Engineering Institute Alexander, C & Sheedy, E. (2005). The Professional Risk Managers' Handbook: A Comprehensive Guide to Current Theory and Best Practices. PRMIA Publications Altemeyer, L. (2004). An Assessment of Texas State Government: Implementation of Enterprise Risk Management, Applied Research Project. Texas State University. Borodzicz, E. (2005) Risk, Crisis and Security Management. New York: Wiley. Gorrod, M. (2004). Risk Management Systems: Technology Trends (Finance and Capital Markets). Basingstoke: Palgrave Macmillan. Hopkin, P 2012, "Fundamentals of Risk Management 2nd Edition" Kogan-Page. Nederpelt, P 2012, Object-oriented Quality and Risk Management (OQRM). A practical and generic method to manage quality and risk. MicroData. Read More