Risk Management and Risk Management Strategy - Case Study Example

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Risk management TABLE OF CONTENTS Executive summary on risk management……………………………………………….3 Part A Case Study on Risk Management Introduction…………………………………………………………………………3 2) Risk management cycle………………………………………………………..……..4 3) Qualitative and quantitative techniques of risk management……………….………..6 4) Conclusion……………………………………………………………………………7 5) References…………………………………………..……………………………........8 Part B Risk management strategy 1) Introduction.............................................................................................................9 2) Qualitative and quantitative techniques.................................................................10 3) Risk identification.................................................................................................10 4) Risk responsibilities...............................................................................................11 5) Risk assessment.......................................................................................................11 6) Risk response.........................................................................................................12 7) Risk mitigation and risk acceptance.........................................................................13 8) Risk contingency planning ......................................................................................14 9) Conclusion.............................................................................................................15 10) References………………………………………………………………….……16 Executive summary on risk management One of the most important aspects of the modern business world is risk management. In accordance with recent researches and studies, risk management should be developed with regards to the needs of employees and managers of the company. In case self-performance and knowledge sharing exists within the company, it would benefit for further development of the company. This research paper consists of two parts. On the example of PowerCo, the company operating in the field of electricity, risk management strategy is correlated with human resource development as one of the crucial and integrative components necessary for company’s competitiveness in the global market. Further on, it is underlined that the steps taken by risk managers of the company are oriented on internal and external trainings development and a constant education of employees. In such a way, PowerCo makes an attempt to fight against its rivals in the global market. Moreover, they try to fight against overall occurrence of electricity campaigns and become global by means of investing and developing their human resources. Part I Case Study on Risk Management Introduction Risk management is one of the most important issues for the modern companies. A successful performance of a small and big company directly depends on the ability to apply risk management strategies correctly. The main objective of risk management is to identify, evaluate and mitigate potential external risks. Very often risk management strategy is applied for global or large companies. Small companies are left outside and very often managers of these companies do not care much about risk management strategy involvement as a possible solution to the company’s problem. The following research consisting of two parts is outlined with regards to a common risk management cycle. The company chosen for further discussion is PowerCo international company producing electricity that has a potential to expand globally. With this respect, numerous challenges may occur. The future is unpredictable for successful companies or those who only start up their businesses. Nevertheless, many researches and studies are focused on how to manage risk that may occur out of uncertainty. Risk management consists of numerous actions and practices taken together by all team members of a certain organization (Crouchy & Mark 2006). Risk management cycle The actions taken by PowerCo are outlined with respect to the risk management cycle presented further on. Thus, the company has identified its risk (an inability to expand globally because of the absence of multicultural and diversified training among employees and managers); then it has measured a possible extent of risk (a local operating with no global expansion); then it has analyzed the potential risk and has worked out risk management strategies relevant to PowerCo. Figure 1. Risk management cycle Therefore, the schematic depiction of risk management can be presented by the Figure 1. The first and very important stage is risk identification, because in accordance with this stage a further development of risk mitigation strategies will be developed. Furthermore, it is often suggested to categorize risk identification or classify it: “by identifying the consequence, type and impact of risk” (Garavan, 1991). Therefore, PowerCo has identified the absence of a sufficient number of employees and managers aware of peculiarities of energetic systems and the like issues in other countries. On the second stage or the stage of risk measurement, it was necessary for PowerCo to evaluate potential effects and consequences of risk that may occur. Therefore, it was measured that personnel training in diversity requires essential investments, but in case PowerCo did not invest, the losses would be hundreds of time greater. Therefore, risk management is of crucial importance for the company during the critical period of strategic development. On the third stage of risk assessment, PowerCo was focused on three main aspects, such as risk seriousness measurement, potential negative impact of risk on business decision making and further facilitative strategies development. On another stage of risk management, risk assessment occurs. This stage implies evaluation of risk measurement evaluation. With respect to this stage, further evaluation of risk seriousness is involved. Further on, risk management decisions implementation is a serious task for PowerCo. On this stage, PowerCo risk management strategy would evaluate effectiveness of potential training of employees in the issues of diversity. Furthermore, managers of PowerCo monitor and evaluate potential benefits of diversity training of their managers. In case of a successful implementation of risk management strategy, a company would expand globally and that would save company’ reputation and image. Qualitative and quantitative techniques of risk management Moreover, risk management strategies in PowerCo are developed with regards to qualitative and quantitative techniques (Priddy, 2010). The former approach implies a proper awareness about potential risks. The latter approach is focused on practical implementation of risk management strategies. PowerCo appeals for information of previous HR problems documented in the company’s electronic files. Though the situation may be different with HR development, it would be seen if implemented strategies were effective or not. Quantitative approach does not have such a broad nature; it is a more subjective approach. It requires professional skills from risk managers and techniques implemented should be developed in accordance with a current situation and be considered in a specific context. Nevertheless, within training of personnel, PowerCo as well as other companies come across numerous challenges. For example, experimental training of employees or outdoor training evokes emotional stress and great troubles among psycho-emotional problems among employees (Owens, 2006). Moreover, violations of employees’ privacies or religious beliefs may also occur. There are two strategies implied by PowerCo: these are “nonpunishing alternatives provision for those who do not wish to participate; consideration about alternative development approaches that result in the same learning and performance outcome” (Priddy, 2010). Another important factor is preservation of a voluntarily participation of employees in external training. Risk management in PowerCo generally concerns staff training with long-term goal setting. This can be explained in terms of a constant development of a positive experience among employees (Fombrun, 1984). Risk occurrence in the area of global market competitiveness is prevented and regulated by PowerCo thus enhancing self-subjectivity and independence of thinking among different employees. Something new to development of human resources would facilitate and improve corporate strategy and culture. Within the company favorable relations among employees and employer is of high importance for PowerCo. The mutual respect is of high importance for PowerCo and is of high importance in the modern business world (Crouchy and Mark, 2006; Hoetmer, 2001). Conclusion A choice of risk management and a direct following of risk management strategy in PowerCo witness a striving of PowerCo to set a favorable place in the niche of the global market. Therefore, risk management strategy in PowerCo implies making important decisions and meeting long-term goals (Krames, 2004; Kundu, 2004). Though the framework of risk management in PowerCo is focused on personnel training, the reduction of fluctuations in company’s value is taken by managers of PowerCo into account. Thus, an individual development of risk management strategy is of high importance to PowerCo. A specific area of the company’s activity, i.e. a sphere of electricity has different nuances. For determination of exact risk management policy of PowerCo, it is relevant to evaluate levels of uncertainty or external hazards. Therefore, critical underpinnings of risk strategy development concern reshaping PowerCo into a globally powerful competitor in the sphere of electricity. PowerCo operates in a changing environment of electric industry. In order to compete within such kind of a hostile environment, personnel should be well-trained and be able to meet the needs of international customers better than their rivals. Therefore, risk management in PowerCo is oriented on human staff development. This approach is relevant to the modern anthropocentric scientific and management paradigm. Works cited 1. Crouchy, M & Mark, R 2006, The essentials of risk management, McGraw-Hill Professional. 2. Fombrun., 1984. Strategic human resource management. New York: Wiley. 3. Garavan, T.N., 1991. Strategic human resource development. Journal of European Industrial Training, 15 (1), pp.17-30. 4. Hoetmer, G., 2001. Risk Management Concerns Are Employee-centred. PM. Public Management, Vol. 83, p. 34. http://www.ehow.com/about_5423111_business-risk-measurement-methods.html 5. ISO 2008, ‘Risk management – principles and guidelines on implementation’, International Organization for Standardization, [online], accessed from http://rmia.org.au/LinkClick.aspx?fileticket=AWkZuS%2BB6Wc%3D&tabid=85&mid=634 6. Krames, J.A., 2004. Performance Culture, Executive Excellence. New Delhi: Sage. 7. Kundu C. et al., 2004. Creating a Talented Workforce for Delivering Service Quality. Human Resource Planning, 27 (2), pp. 40+. 8. Owens, P., 2006. One More Reason Not to Cut Your Training Budget; the Relationship between Training and Organizational Outcomes. Public Personnel Management, Vol. 35, p. 26. 9. Priddy, BD 2010, ‘Business risk measurement methods’, EHow.com, [online], accessed from http://www.ehow.com/about_5423111_business-risk-measurement-methods.html 10. Skills and Training for Business Success. (June 23, 2010). Evening Gazette. Part B Risk management strategy Introduction In order to discuss applicable risk management strategy in PowerCo it is relevant to refer it to a certain situation. The individual development of risk management strategy relevant to every company is of high importance. Therefore, risk management strategy is outlined within the strategic human resource development as possible mitigation of potential risks. External and additional training of employees via modern technologies or e-learning facilitate gaining of diversity knowledge (Adkins, 2003). A common tendency for all employees is the ability to use equal possibilities. The implementation of external training and development programs improve self-development of employees. PowerCo trains not only young employees, but also elder employees. Innovations implementation across different departments is the great benefit of PowerCo. In order to manage the risk of been conquered by rivals, PowerCo develops skills and abilities in various spheres of human activity. For example, engineers are trained as asset managers. Thus, PowerCo intends to be a competitor full of dignity and professionalism. On the background of modern processes of globalization, PowerCo intends to follow the common tendencies and increase professional and creative potential of the employees. With regards to the risk management cycle discussed in the Part A of the research paper, risk management strategy is developed in accordance with common points suggested in the schema (Figure 1). The further implementation and practical application of both strategic steps and qualitative and quantitative techniques would be considered in the context of diversity training of employees in PowerCo. Qualitative and quantitative techniques Therefore, in this case PowerCo would imply qualitative and quantitative techniques. Qualitative techniques enabled risk managers of PowerCo to consider previous problems of HR management and potential risks. There was a case of female oppression in the company. This claim was made by women working in the company and they wanted to set higher positions. The number of males is greater than that of females in PowerCo and thus this problem occurred. Fortunately, risk managers of the company found information applicable for development of diversity knowledge among their employees. Mitigation of gender conflict among employees was correlated with techniques applied for dealing with diversity conflict of PowerCo. The example of gender conflict mitigation, is a good example of risk managers’ ability in PowerCo to deal with internal conflicts. Though their strategy implemented in the abovementioned conflict required internal changes, the problem of diversity training requires both internal and external regulating techniques implementation. With the help of quantitative techniques, PowerCo risk managers could develop risk mitigation strategy on the basis of a previous experience of the company. Risk identification On this stage, PowerCo clearly realizes that human staff should be trained in various issues and not just improve people skills. Thus, training activity of managers as diverse professionals should be outlined in the following terms: employee training should be regulated with regards to the environmental changes (Dessler, 2003); employee should obtain professional skills unavailable in the labour market; corporate philosophy of the organization should be of high respect for the company; organization should provide employees with external support of external training partaking (Harrison, 2001). These main points of potential risk identification are worked out in PowerCo in compliance with Pettigrew et al (2004). Risk responsibilities should be on behalf of the CEO and managers of the higher rank as well as external training personnel. Moreover, risk responsibilities are on behalf on internal training managers. It should be also noted, that “risk managers understand the safety, environmental and other risk control measures that need to be implemented in the organization, but they have limited resources at their disposal. Working cooperatively with human resources and other departments, risk managers can implement a successful, integrated leadership training program” (Dessler, 2003). Therefore, responsibility for risk management strategy development depends on managers of higher and lower ranks, as well as low-rank managers, internal and external training personnel. Risk assessment Potential risk assessment of training of personnel in diversity issues may concern the following factors: cost, scope, schedule and quality. Therefore, “training alone is never sufficient to change the culture of an organization. Hard work and consistent support activities are required to accomplish any organizational culture change”. (Bowen, Lawler, 1992) It is also often underlined, that “although some risk assessments provide only a qualitative indication of whether a hazard may exist, risk assessors often seek to quantify the number of people or resources that might be adversely impacted by a hazard. Risk typically refers to the probability and severity of an adverse event or outcome” (Lang, Wittig-Berman, 2000, p. 34). Thus, the expenses spent by PowerCo on personnel training are huge, but the potential losses from ill-trained personnel would cost to the company much more (Bowen, Lawler, 1992). The scope of employee training ranges from younger to elder employee training and it requires a certain schedule of possible complexities that may occur in the process of training (Lang, Wittig-Berman, 2000). The last, but not the least point is quality of employee training. Unless the high quality of employees is reached, the company would suffer great losses. Risk response In case a potential hazard from external environment occurs, managers of PowerCo would be able to implement one of the following decision making strategies. For PowerCo it is relevant to choose between mitigation and acceptance risk response strategies. In case risk mitigation strategy is chosen, risk management strategy would be developed with the initial supposition that potential risk really exists and potential prevention of destructive risk consequences would be developed further on. It is a kind of a realistic strategy implied by managers of PowerCo. In case of risk acceptance strategy, managers of PowerCo would be focused on development strategies preventing potential risk occurrence (Sims, 1990). With this regard, PowerCo risk managers have taken the following steps: they use their employees as a competitive weapon; their employees are devoted to the company; internal and external trainings are introduced; employees are able to choose trainings they like; delegation of power from executive to line managers improve self-esteem of PowerCo low rank managers (Frayne, 2001); failures during the learning process are facilitated. Thus, risk management during internal and external training of employees is directed on risk mitigation strategies and risk acceptance. Though risk mitigation strategies are considered to be unusual in the risk management, “...it may be desirable to insure against possible future events, but unless it is mandated program management has the option to forego risk mitigation.  In particular, risk mitigation must be viewed as an activity that is outside the normal scope of program activity”. (Pettigrew and Fenton 2000, p. 32).  The relevance of risk acceptance strategy is justified by the following claim: “The conditional nature of risk assessment raises the question of which standard of risk we should accept against which to calibrate human biases” (Pettigrew and Fenton 2000, p. 34). Therefore, PowerCo risk managers have applied techniques of risk mitigation strategies and risk acceptance not independently from the choice made in the works of contemporary researchers and scientists, who underline the necessity of the holistic approach to dealing with challenges that may occur in the organization. Risk mitigation and risk acceptance Before starting our discussion about the relevance of risk management strategies, it should be underlined that: “The question whether to accept or reject risks is the result of decisions made to determine the optimal level of risk for a given situation. In many instances, these decisions will follow as an almost automatic result of the exercise of perceptions and habits acquired from experience and training” (Torp 2005, p. 18). Risk mitigation strategy chosen by risk managers of PowerCo is outlined in terms of employees’ outsourcing. The human resources of the company create a helpful tool of the company helping it to fight against rivals in the global market arena and prove its leading positions. In accordance with the research conducted by Rosenbluth (1991) and Secretan (1996) employees who are satisfied with their work can perform their work successfully and it is beneficial for the company. Zeithaml and Bitner (2000), Krames (2004) underline the necessity to accept potential risk. In this case, PowerCo follows such rules: only professionals are hired; employees are constantly trained and encouraged; every employee is under a scrutinized attention of the company’s managers; experience interchange among employees is present. When risk has already occurred and it is hard for the company to fight against rivals, outsourcing as a risk mitigation strategy is possible. External partners should be able to get acquainted with the experience gained by skilled employees from PowerCo. The latter would be able to get more information from external partners and thus enrich their knowledge and widen their horizon. Outsourcing as a risk mitigation strategy is a very interesting step taken by PowerCo. Thus, external partners (who represent potential rivals of the company) share their accumulated knowledge and working experience with employees from PowerCo (Torp, 2005). An efficient self-performance of employees from PowerCo in combination with skills gained from external partners would result in risk preventive strategies worked out by PowerCo managers. On the professional arena, managers from PowerCo develop their daily professional and communicative skills, which are very important in the modern business world. Moreover, an individual performance of is better revealed in a creative atmosphere of outsourcing. Risk contingency planning Therefore, risk contingency planning in PowerCo is developed in the anthropocentric paradigm. In order to be a competitive strong partner on the international arena, PowerCO is focused on the individual development of its employees, their external and internal trainings etc. The long-term goal set by PowerCo concern global competitiveness in the international arena. This goal can be reached through perfection of employees’ performance, advancing their professionalism and developing their communicative skills. Thus, risk mitigation and risk acceptance are two main strategies chosen by PowerCo for competing on the international electricity market arena. It is better to predict, prevent and develop risk management strategies focused on risk mitigation than be prevented from being an active participant in the international market arena. Conclusion A number of steps taken by PowerCo managers in the risk management strategy are oriented on human resource development. This fact can be explained by the support of the importance of employees for every company underlined by such scientists and researchers as Pettigrew et al. (1988), Zeithaml and Bitner (2000) and others. Moreover, managers of the company are focused on outsourcing as a risk mitigation strategy. This choice is justified in the modern business context, where exists a steady tendency for global knowledge enrichment and self-performance development. As far as we can see, risk managers of PowerCo are focused on development of risk mitigation strategies focused on improvement of human resources development. Moreover, human resources of PowerCo is a strong instrument in fighting against rivals in the international arena. Works cited 1. Adkins, S.S., 2003. The Brave New World of Learning. T+D Magazine, pp. 29-37. 2. Bowen, D.E. & Lawler III, E.E., 1992. The Empowerment of Service Workers: What, Why, How, and When. Sloan Management Review, pp. 31-39. 3. Dessler, G., 2003. Human Resource Management. 2nd edition. Singapore: Pearson Education. 4. Frayne, C. A., 1991. Reducing Employee Absenteeism through Self-Management Training: A Research-Based Analysis and Guide. Quorum Books. 5. Harrison, R., 2002. Employee Development. 3rd ed, London: CIPD. 6. Krames, J.A., 2004. Performance Culture, Executive Excellence. New Delhi: Sage. 7. Lang, D., Wittig-Berman, U., 2000. Managing Work-Related Learning for Employee and Organizational Growth. SAM Advanced Management Journal, 65, p. 21+. 8. Pettigrew, A. Fenton. E., 2000. Business & Economics. 9. Sims, R. R., 1990. An Experiential Learning Approach to Employee Training Systems. Quorum Books. 10. Torp, J., 2005. Training, Controls and Testing: Managing Your Compliance Risk Efficiently. ABA Banking Journal, Vol. 97, p. 25. 11. Wallace, W. M., 1998. Postmodern Management: The Emerging Partnership between Employees and Stockholders. Quorum Books. 12. Zeithaml, V. A. and Bitner, M. J., 2000. Services Marketing. New York: McGraw Hill, second edition. RISK MANAGEMENT PROCESS FLOWCHART Read More