Business Corporate Engagement Sustainability: Understanding Risk Management

Summarize in a logical manner the process of risk management

Discuss About The Business Corporate Engagement Sustainability.

Proactive risk management is primarily the mitigation of the risks associated with the threat events before they might occur and bring a negative impact upon the organisation. On the contrary, reactive risk management encompasses the responses to risk events as they occur. The primary objective of reactive risk mitigation is to prevent the risk event from causing a large negative impact upon the organisation (Allet and Hudon, 2015). In case of proactive risk management, the management generally tends to protect the critical assets of the projected mission of the organisation. The threat intelligence team of the company should be aware of the threat agents and results of security testing conducted before the launch of a mission. Lastly, the mission organisers should also keep track of the source codes used for the project, and protect those from falling in the hands of the hackers. Again, the CISOs, in reactive risk management, basically focus on events encompassing unplanned risk management (Bromiley et al 2015).

The CSIOs keep focus on the incident responses of the various stakeholders along with remediation of the application vulnerabilities, either prior to the production release or patching applications which have been produced already.

The first step of Risk management is identification and description of the risks. The primary applications involved in this step are development of policy for registering the risks in the mission and conduction of formal risk analysis (Campopiano and De Massis, 2015).

The second step is the realisation of the significance of the risks. Based on the priority level of the risk, the organisation can implement an insurance plan. The insurance company, in this case, would act as a bank account which ensures that if in case the risk incident occurs, the organisation has money to compensate for it. The organisation should be conscious that actual costs of the consequences are anticipated well by the company and the policy covers all such risks (Cavusgil and Knight, 2015). An insurance policy would not directly cover risks like monetary loss due to business interruption and lack of customer confidence. Hence the effective policy would be of value larger than the anticipated risk value.

The third step is a recognition and acknowledgement of the risk control measures already in practice. This practice would help in easy application of reactive risk management.

The last step is the evaluation of the chances of improvement of risk mitigation policies. The evaluation is based on the two parameters, namely the degree of the risks and cost of introducing changes (Falkner and Hiebl, 2015). The organisation needs to evaluate financial, legal as well as moral risks in this way.

Main types of sources of risk in an organization

There are three primary sources that might act as sources of risk in an organisation. They are:

1. Energy, that might account for rise in risk involved with physical damage.
2. Functional failures of the organisation to fulfil the objectives of any mission might give rise to financial risk.

• Liabilities of legal guidelines and from the external stakeholders in a company might also account for risk of heavy financial losses in the company.

The Risk Register is a master document, created during the early phase of any operation of the company. This register is generally shared among all external and internal stakeholders so that they are well aware of the issues and also keep on tracking the responses to counter the issues (Ivanov et al. 2016). The risk register contains details about the project risks, description of the severity of the risks and a detailed evaluation of the ways in which the risks might be mitigated. Most often, these information are arranged on a spreadsheet so that they might be easily found in the register when required.

General risks cover all risks associated with the services and/or products of the company and the strategic decisions taken by the company. A general risk is the decision taken by the company to enter a new business market with the launch of a new product. Again, if a comp any signs a partnership deal with a new company, then again nit is a general business risk (Lodhia, 2015).

Operational risks address the risk of internal decisions and practices of the organisation. In spite of a good and innovative business idea, the organisation might fail to achieve success, owing to poor internal operation.

Operational risks might be mitigated by implementation of control programs, such as identification of the negative events that competitors faced while conducting the same business. Generally risks are hard to map. For evidence, a company has hardly any means of predicting the nature of material costs in future or anticipating the customer trends of the future (Lozano, 2015).

Three needs have to be addressed in order to state that the risk is under control. The first, is a statement from the stakeholders addressing the achievement of their targets. The second is assurance of the company policies that address the mission and third are the means of influencing the system that the company is trying to control (Marcelino-Sádaba et al. 2014).

The systemic approach generally applies to traditional projects that are plan driven. Such projects follow a planned approach of identification and analysis of the risks followed by development of risk responses. Whereas a risk management system is a more flexible approach that has the capability to address risks during the course of progression of the project. In a risk management system, it is not necessary to have a discreet risk management policy for individual risks (Schaltegger and Burritt, 2018).

What is a risk register and what information does it contain?

Intended risk control measures designed in advance might fail during the operation process. It is necessary to carry out a formal risk analysis that would identify, specific practical efforts to mitigate the risk. However the sustenance of these efforts is liable to the proficiency of the management of the company and the continuity of its efforts (Soomro, Shah and Ahmed, 2016).

Many of the Risk mitigation policies and practices are cost incurring. However, installation of the facilities do not help to reduce the risk of threat events in the entire arena of the organisation. Again, as the organisations are becoming more economic and commercially oriented they are gradually leaning towards a high risk yet low operational cost policy. In the organisational context, this means less investment on equipment, investment or training. Many organisations in order to gain short time productivity gains, have resorted to reducing their maintenance costs (Van Der Vegt et al. 2015). Interestingly, many organisations are proud of their low lost time injury frequency rate. Again, at times the organisations also take them to be measure for safety and thus neglect risk mitigation. In 42% of the cases, it has been found that low risk response rate has caused high threat events owing to excess dependency on LTIFR rate. Particularly when a heavy fire breaks out, as it happened in the case of ESSO plant of Australia, low LTIFR does not matter. Lastly, it might be stated that LTIFR is only a perception, it cannot be a standard in reality (Wang et al. 2016).

High LTIFR value in an organisation, often prompts the management to plan risk management with least interest. They do not have a significant blueprint of risk management. They operate with a high total cost of risk management. High safety management is their alternative idea. They believe in reactive risk management. This prompts the management teams to operate with low risk and loss costs along with high risk control costs (Wu, Chen and Olson, 2014).

TCOR is the summation of the cost incurred due to loss along with investment in risk control. However, cost incurred due to loss is uncertain. This is because loss is a dependent factor. Some of the organisations have low cost due to loss along with high investment in risk controlling. Again the reverse is true for some companies (Yawar and Seuring, 2017).

Choose a type of Risk that is of interest to yourself.  Ensure ?rst that you understand what is meant by the phrase “Type of Risk”

Distinguishing between general risks and operational risks

Customer risk is a major risk that many potential companies are exposed to. The companies which do not collect upfront cash payments against their goods and services always face a threat that the customer might not pay the money at all. The factors of non-payment might be negligence, other financial losses, bankruptcy of the customer or mostly fraudulent cases. Again, delivering goods and services at first to the customer and billing the customer later on exposes the company to credit risk throughout the period of the payment terms granted to the customer. The direct impact of the Customer risk might fall on the cash flow and profitability of the company (Zou, Kiviniemi and Jones, 2017).

This is a parameter that is applicable on all risks including customer risk. A comparison of the suppliers risk with the Customer risk can be made. In case if a supplier’s commodity price overshoots highly or a potential supplier signs a monopoly contract with another market peer, the share cost of the change implementation in response to the risk would enhance. Again, if the customers brand loyalty changes, or the target market becomes occupied with a new entrant, the same consequences might occur.

In terms of urgency or sensitivity the Customer risk has equal value as in regard to other risks like share price or production process. The required changes that are urgent or sensitive are applicable in all contexts.

Loss of cash flow due to unavoidable external factors are risks pertaining to operational processes. This is external imposition of the risk. Such as non-payment of customers or misplacement of customer payment an equal external imposition.

The locus of control is internal for customer risk. However, if the payment of the customer do not reach the company owing to unavoidable circumstances like accident or death of the customer then the locus would shift from internal to external.

The risk assessment parameters of customer risk are identification verification of the customer, risk pertaining to the validity of the citizenship of the customer which is associated with the risk of taxation (Falkner and Hiebl, 2015). Again, other major parameters are sources of income of the associated customer, occupation of the customer and the length and track record of the customer’s relationship with the organisation. The last risk is the negative news that might spread against the customer.

One probable situation where customer risk is applicable is insufficient agent liquidity. In Australia, among the risk evoking situations, this is second in severity and frequency. This prevents customers from making transactions or accessing the money of the customer. In case if an agent lacks liquidity, the customer are often forced to carry out separate transactions along with payment of higher total fees as a consequence (Falkner and Hiebl, 2015). In Micro finance model of the South Asian countries, 15% transactions are denied as a result of stringent liquidity. This generally creates problem for recipients of bulk payments. Besides, it may so happen that the recipients of the agency are among the poorest of the civilians.

Customer Type	Deposit Account	Unsecured Loans or Customer credit policies (credit card)	Wire Transfer	Private Banking	Trust Services
PEP	Moderate	Moderate	High	Highest	Highest
Customers having higher net worth	Moderate	Moderate	High	Highest	Highest
Customers with nationality of high risk	Moderate	Moderate	High	High	High
Investment in a high risk industry	Moderate	Moderate	Moderate	Moderate	Moderate
Business of cash incentives	Normal	Moderate	High	Moderate	Moderate
Salaried employee (customer)	Normal	Normal	Normal	Normal	Normal
Self Employed	Moderate	Normal	Normal	Normal	Normal
Unemployed	Moderate	Moderate	Moderate	Moderate	Moderate
Charity	Moderate	High	High	High	High

Determining if risk is under successful control

Table 1: Risk Matrix

(Source: Created by the Researcher)

Make use of the Risk Matrix provided in Figure 1, to ‘assess” your chosen Risk in this situation.  Explain what you have done and why you did it.

Read the relevant notes, the paper by Pickering and Cowley and the provided papers by Peace and by Viner et al to provide you with a basis (along with your personal experience of using it) for writing a critical evaluation of the Risk Matrix idea – both the reality of using the matrix and the very idea of the matrix as something that can be used for this purpose.  (Approximately 500 words)    

The ranking scales of the matrix is required to be constructed in a way that would not be ambiguous and comprehensive. It might happen that a high financial loss for one person might be a major monetary loss for another. Again, there are ample ambiguities in the likelihood scale also. This is synonymous with probability (Lozano, 2015). The gap between something that occurs in most circumstances and something else that occurs at some times is marginal in the likelihood scale. Besides, academic or business personnel who apply the matrix are often unaware of the difference between LLC and LWC. It is almost impossible that a risk is defined by a single combination of frequency along with consequence value. The perception of person who applies the matrix with LLC in view is much different from that of a person applying it with LWC in view. Besides the action categories of Extreme, high, moderate or low provide nominal judgement. In the 1970s and 1980s, the matrix became much popular in America. However, in the opinion of Viner et al (2015), it might be opined that criticisms of the model were not properly received. However, now the appliers have been able to locate the inadequacies and ambiguities in the model. The repeatability of the same data for the same survey is low in this matrix. On the other hand, the consistency of the results of application of this matrix on similar cases is also low.

The major focus of this case study is on the accidental death of Flight Lieutenant Sean Cunningham. The ejector seat of the aircraft in which he was in, initiated when it was landed on the ground. However, while coming down towards the Earth, the parachute did not deploy. It was the last chance of his being saved, which also failed. As an outcome, he landed 217 feet away from the landed aircraft still tied to the ejection seat. A prosecution was brought against the Health and safety executive. The charge was that the Seat Firing Handle of the fateful aircraft had been displaced to another plane and later was not reinserted properly. The straps had been loosened and the aircraft was also not in use for a considerable period. These circumstances were not kept into observation by the safety executive and he was fined £1.1 in the end.

Difference between a risk management system and a systemic approach to risk management

Figure 1: Mechanism Analysis (Fish Bone Diagram)

(Source: Schaltegger and Burritt, 2018, p.245)

The major questions that are to be discussed and included in the Outcome analysis structure are as follows

• The fault in the SFH pin and the bolt of the ejector seat strap were detected or not?
• Is there any proper response to the sudden initiation of the ejector pin?
• Was the Lieutenant able to successfully apply the procedure or not?
• What could have happened if the victim had been able to respond during crisis period?
• Why he could not respond?

Figure 2: Outcome analysis diagram of the above discussed plan

However, it is necessary that each of the question gets a positive or negative response. Otherwise an ambiguity might be raised. At a specific stage, the logic diagram stands a chance of becoming more complicated since it reflects the original nature of the detection, recognition or response planning. Probability estimates become part of the Outcome analysis at the branch points in terms of the probability that a successful response gains against each question., only two answers “yes” or “no” are applicable against each answers. Hence the summative always stands to one.

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