The Portfolio of Current Issues in Risk Management - Coursework Example

? Current Issues in Risk Management: A Portfolio BY YOU YOUR SCHOOL INFO HERE INFO HERE HERE Review No Source ofarticle: David Sokol affair will tax Warren Buffet’s legendary sagacity The Guardian Online Author’s Name: D. Rushe Date of Publication: March 31, 2011 Themes: Reputation Risks Commentary: 524 words Brief Summary of Article The article “David Sokol Affair will Tax Warren Buffett’s Legendary Sagacity” describes the reputational damage that can occur in the face of highly-publicised organisations. Warren Buffett is a respected billionaire investor in the United States and major shareholder of Berkshire Hathaway, a multinational conglomerate financials and investment company. According to Buffett, “it takes 20 years to build a positive reputation and only five minutes to destroy it” (Rushe 2011, p.1). The article describes a black eye incident that has potentially damaged the credibility and reputation of Berkshire Hathaway amid a resignation scandal occurring on the back of questionable securities sales by an insider manager. The article insinuates that conversations between Buffett and David Sokol, an executive leader, provided insider trading knowledge to Sokol, leading to public and governmental scrutiny and investigation. Adding more enquiry to this situation is the fact that Sokol suddenly resigned from his position, which could indicate there is something to hide in the securities transactions in question. Personal Commentary Why is this relevant for risk management and ensuring reputational risk management for the organisation? For some organisations, the brand and its reputation in key target markets is one of the most fundamental competitive advantages sustained by the organisation. Especially true in saturated markets where public and private investments are traded in highly-publicised media, businesses require a differentiated brand name that is considered credible and adheres to the principles defined by corporate social responsibility. It is only when consumers become attached and loyal to a brand that they will begin expelling personal and social resources to supporting and defending the brand against negative criticism (Aron, Aron and Smollan 1992; Muniz and O’Guinn 2001). The situation involving Berkshire Hathaway reminds the risk management professional to carefully monitor and control the activities of internal staff members. Since this is an organisation that has much scrutiny by a variety of stakeholders and important shareholders, the organisation cannot afford for representatives of the business to damage brand reputation. According to the lectures, the brand reputation of a business should be considered just as paramount as traditional risk management activities. Farris et al. (2010) reminds us that the use of a customer satisfaction metric is a vital tool in monitoring business reputation and securing brand reputation. This article seems to reinforce the importance of showing transparency and accountability as part of corporate social responsibility especially when the internal activities and investment selections of a major holdings company can be observed by a global mass market audience. Under Kantian deontology, the highest good comes from duty. For example, a merchant attempts to build a good reputation simply to ensure profitability. However, this is not a moral good since it does not stem from social duty toward others (Bowie 1999). When assessing risks or establishing a risk evaluation tool, it is necessary to consider how the stakeholder and customer will view business actions. They will either attribute actions to moral and ethical behaviour or witness trust reduced in the corporate integrity of the business. Corporate social responsibility must be a major factor in setting up a risk management model to keep a positive reputation and avoid public scrutiny. Student’s Name: Review No.: 1 Source of article: Is your culture a risk factor? Business and Society Review 111(3) Author’s Name: David Gebler Date of Publication: 2006 Themes: Culture Risks Commentary: 482 words Brief Summary of Article The article, “Is Your Culture a Risk Factor?”, by David Gebler, describes the importance and risk management priority of ethical business behaviour. Using the Enron scandal as an example of the cultural relevance of risk, the author reminds us of the importance of setting up an ethical culture and then ensuring compliance to ethical guidelines or policies. “It is not enough to have ethical policies and procedures...or good intentions. To succeed, compliance must be embedded in the business culture” (Gebler 2006, p.340-341). This article provides a best practice template for assessing cultural risks by examining communications, social belonging and harmony between employees, accountability and morals (among other criteria). What the article reinforces is that the elements of culture that pose risks for the business touch in multiple areas of business operations. In order to have a fully effective risk management model that ensures cultural compliance, the risk manager must understand how to develop a shared vision and put forth a set of shared values. Without these actions and observation of many different business activities, there are many risks posed by having unethical cultures or the consumer perception of this. Personal Commentary Enron is one of the most publicised cases in which ethical culture breakdowns led to a horrible business reputation and also led to the financial bankruptcy of a major and highly profitable firm. Enron did not ensure compliance to its publicised ethical and moral codes of conduct in which managers were allowed to make risky investment and blatantly fraud investors with bogus earnings data. What this article really reminds us is that there must be consideration of how stakeholders and shareholders view ethical and moral behaviour and then attempting to instil this into the organisational culture. There is a phenomenon in consumer culture referred to as moral relativism, stating that there is no single definition of right versus wrong in a broad culture (Swoyer 2003; Blackford 2010). Therefore, not all stakeholders will share the same cultural values that are held within the organisation. This means that stakeholders can view the ethical or moral behaviour of a business from a very different lens than that held by the organisational leaders. According to Milton Friedman (2003) that goal of business is to ensure profitability as the most important moral good. However, not all stakeholders will abide by this definition of acceptable business practice. To fully assess risk and remove it from the business model, issues of moral relativism must be considered as well as building ethical compliance processes into the cultural model. Enron is a prime example of failing to understand external stakeholder attitudes about morality and ethics, failing to create a control system for ethical behaviour, and lack of knowledge of what really drives ethical programming in the organisational culture. It cannot be stressed enough the importance of cultural development to ensure business sustainability and maintaining a positive market reputation. Student’s Name: Review No.: 1 Source of article: Power and Risk The Public Sector Innovation Journal 14(1) Author’s Name: Alan Waring Date of Publication: 2008 Themes: Power and Risk Commentary: 517 words Brief Summary of Article The article, “Power and Risk” by Alan Waring defines the different conceptions of power in the organisational context and their impact on the organisation. Such power constructs include sanctioning tactics, legitimate authority and influence, decision-making power, and more psycho-social power dimensions such as transformational influence. What the article is attempting to show is that how power is utilised and perceived in the organisation will determine what type of risk management model would be most useful. “Every nation, society, and organisation has its own unobtrusive, ideological backdrop which underpins its culture” (Waring 2008, p.94). What this means is that the external stakeholder or even internal stakeholders will view business behaviours under their own ethnocentric lens when assessing whether the business is acting morally and ethically. At the same time, power use within the organisation determines whether compliance is achieved or resistance to change. According to Grieves (2010), change in an organisation should be considered a negotiated order where consensus is a primary goal of leadership. Weingast (1997) further reminds us that in order for a stable democracy to thrive and flourish, beliefs and values of a culture must be unified under the notion of a civic culture. “If there is no consensus achieved, there is little chance for peaceful resolution of political differences in the organisation” (Weingast 1997, p.249). Personal Commentary Why is this relevant to risk management? Individuals in the organisation that hold legitimate power will often be more tempted to abuse these authorities. At the same time, employees in the organisation will resist change imperatives if the leader or manager does not appeal to inherent characteristics of employees psychologically or sociologically. Attempting sanctions as a control method, as one example, could lead to employee resistance and break down the bonds of cultural unity. Leaders cannot use power logic as a means to gain support from employees (Markey 1999). In an organisation that is highly centralised and requires control systems in place, it will likely be more advantageous to use transformational leadership design rather than transactional leadership where rewards and punishments are established against strict performance criteria. Sanctioning employees, especially in an established culture with much employee tenure, can create risks associated with resistance that could lead to project cost overruns, deadline and scheduling problems, or any other variety of issues that could have been avoided by using less authoritative or autocratic models of management. Additionally, this article reminds us that the many different conceptions of moral and ethical good stemming from different stakeholders give a great deal of legitimate power to external cultural groups. This is important for many businesses that are reliant on consumer revenues and investment revenues to ensure business sustainability. Risk-averse cultures might make decisions about business activity that meets with unfavourable outcomes as perceived by the stakeholder who holds legitimate power for brand defection. It would be necessary as part of risk assessment to develop a managerial power system that fits with cultural preferences both internal and external in order to minimise risks of change resistance, corporate reputation, and avoid abuse of legitimate power when it exists with internal managers. Student’s Name: Review No.: 1 Source of article: Logistics, inventory control and supply chain management Choices 20(4). Author’s Name: F. Dooley Date of Publication: 2008 Themes: Operations Risks and Product Life Cycle Commentary: 473 words Brief Summary of Article Many companies must put considerable emphasis on operational risk management, which are those affecting production systems, the competitive environment, and the relevance of the product life cycle to keeping high sales revenues and building customer satisfaction. In the article “Logistics, inventory control and supply chain management”, we are reminded of the importance of assessing the risks of product maturity or decline in the product life cycle in order to maintain competitive advantage. In the growth stage of the product, it is relatively new and interests consumers with a blend of promotional activity and higher demand. Eventually, depending on the sustainability of the product, it will reach a decline stage where it is no longer profitable or considered relevant by the buyer markets. In the final stage of the product, the decline, cash management, market abandonment timing, and inventory control costs are considerable and must be addressed (Dooley 2008). Personal Commentary According to Komninos (2002) it is often difficult to conceptualize when a product will meet its decline stage, where such realisations occur only when revenues begin to drop. When a product meets the decline stage and demand drops due to lack of customer belief in the product or a new disruptive innovation on the market, it now puts much costs back into the operational model. The article about recognising the importance of managing the life cycle of a product is important for cost reduction, effective cost reallocation opportunities, or the development of innovations to replace the new obsolete product. This reminds us of the importance of scanning the external environment as a means of reducing risk and the costs associated with product life cycle decline stages. The leadership of the organisation must fully understand what is driving market preferences and then develop a method of improving demand or launching a new and profitable product. Many companies will develop a lean supply chain or lean distribution system to avoid costs of holding inventory (as one example) as part of total cost management (World Economic Forum 2012). However, it is not always necessary to redesign the operational model to reduce risk, it requires proactive assessment of the external market to stay a step ahead of competition and ensure a longer growth period for the product. Identifying potential threats is one of the most fundamental parts of risk management as identified in the lectures, and this should include external market characteristics and consumer profiling to keep ahead of the decline curve. This can help develop more important and effective promotion to ensure product differentiation and avoid losses associated with high costs of carrying declining merchandise. Deming (2002) says that 85 percent of all failures in a business are attributed directly to management. Evaluation of the product life cycle must be a top managerial action in order to avoid risks of product life cycle reduction. Student’s Name: Review No.: 1 Source of article: Don’t unchain that supply chain melody Security 48(9) Author’s Name: B. Zalud Date of Publication: 2011 Themes: Information technology risks Commentary: 492 words Brief Summary of Article Managing the information technology infrastructure is an important part of risk management activity. Businesses rely on secure networks between internal and external business, free of cyber attacks, and cost effective systems that will provide value for many operational parts of the business model. In the article “Don’t unchain that supply chain melody” we learn about cloud computing that is currently being used at Whole Foods Market to reduce reliance on high expenditures for new software implementation and development. Cloud computing is leasing software or obtaining licensing for already developed software packages that can be pay-per-use or annually depending on contract. Rather than implementing expensive technologies, which also requires establishing a model to control IT personnel activities, the business can rely on cloud computing systems to sustain competitive advantage (especially related to cost) and avoid the risks of self-managed systems internally. “Risk management is the process that allows IT managers to balance the operational and economic costs of protective measures and achieve gains in mission capability by protecting the IT systems and data that support their organizations’ missions” (Goguen and Feringa 2002, p.4). Personal Commentary Not all companies seem to have well-developed information technology risk models in action, not understanding the potential gains that can come from cloud computing. One of the most primary risk management foci is cost management and managerial accounting to ensure profitability and shareholder equity for investors. Business leaders often believe that developing a systems-wide enterprise management software system will have critical benefits. However, they forget that the project timeline for implementing and training staff to operate these costly systems (such as ERP or Oracle) can seriously increase the operational budget. The article reminds us that managers involved with risk assessment and evaluation should be exploring modernised and alternative methods to reduce costs associated with information technology and support. Cloud computing provides revolutionary methods of reducing IT support staff labour payments and the costs of maintaining installed software and hardware systems. NG (2001) iterates the holistic benefits of information technology selections for total business advantage. However, this cost of capital could have major long-run impacts on opportunity costs that could have been applied to more beneficial systems at less price. Risk managers, it would seem, should always be aware of opportunities to improve the cost allocation for information technology as part of routine organisational and needs assessments. The course lectures remind us that one element of risk management in a respected model should be planning for continuity. Information technology systems are a strategic business asset if they are relevant, cost effective, and provide operational support effectively. The article describing Whole Foods’ cost reduction activities by using cloud computing illustrates that implementation of self-owned and expensive enterprise systems is not always the best method of continuity planning or cost recognition in the organisation. Risk management is not just cybersecurity recognition, but really exploring how a software package or hardware system can provide sustainability to the product and business profitability. . References Aron, A., Aron, E. and Smollan, D. (1992). Inclusion of other in the self-scale and the structure of interpersonal closeness, Journal of Personality and Social Psychology, 63(4), pp.596-612. Blackford, R. (2010). Book Review: Sam Harris’ The Moral Landscape, Journal of Evolution and Technology, 21(2), pp.53-61. Bowie, N.E. (1999). Business Ethics: A Kantian Perspective. Oxford: Blackwell Publishers. Dooley, F. (2008). Logistics, inventory control and supply chain management, Choices, 20(4). Farris, P.W., Bendle, N.T., Pfeifer, P.E. and Reibstein, D.J. (2010). Marketing Metrics: The Definitive Guide to Measuring Marketing Performance. Pearson Education Inc. Friedman, M. (2003). The social responsibility of business is to increase its profits [online] Available at: http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html (accessed 11 November 2012). Gebler, D. (2006). Is your culture a risk factor?, Business and Society Review, 111(3), pp.337-362 Goguen, A. and Feringa, A. (2002). Risk management guide for information technology systems, National Institute of Standards and Technology – US Department of Commerce. [online] Available at: http://csrc.nist.gov/publications/nistpubs/800-30/sp800-30.pdf (accessed 11 November 2012). Grieves, J. (2010). Organisational Change: Themes and Issues. Oxford: Oxford University Press. Komninos, I. (2002). Product life cycle management, Urban and Regional Innovation Research Unit. [online] Available at:http://www.urenio.org/tools/en/Product_Life_Cycle_Management.pdf (accessed 10 November 2012). Markey, D. (1999). Prestige and the origins of war: returning to realism’s roots, Security Studies, 8(4), pp.126-172. Muniz, A. and O’Guinn, T. (2001). Brand community, Journal of Consumer Research, 27(4), pp.412-432. NG, E. (2001). Information technology project management, p.4. [online] Available at: http://www.edvencomm.net/itpm.pdf (accessed 9 November 2012). Rushe, D. (2011). David Sokol affair will tax Warren Buffett’s legendary sagacity, The Guardian. [online] Available at: http://www.guardian.co.uk/business/2011/mar/31/world-of-warren-buffett (accessed 10 November 2012). Swoyer, C. (2003). Relativism, Section 1.2, Stanford University. [online] Available at: http://plato.stanford.edu/entries/relativism/#1.2 (accessed 9 November 2012). Waring, A. (2008). Power and risk, in Fairholm, M. (2009) Leadership and organisational strategy, The Public Sector Innovation Journal, 14(1). Weingast, B. (1997). The political foundations of democracy and the rule of law, Political Science Review, 91(2), pp.245-263. World Economic Forum. (2012). Global Risks, p.47. [online] Available at: http://www.weforum.org/reports/global-risks-2012-seventh-edition Zalud, B. (2011). Don’t unchain that supply chain ‘melody’, Security, 48(9), pp.52-58. Read More