Corporate Risk Management - Research Paper Example

Corporate Risk Management Abstract This paper discusses the risk which corporations are exposed to. The specific issue discussed regards fire and the course to take in the event of a fire break out. Also, discussed are all of the elements in the risk management cycle associated with that mistake. Some management strategy considers this issue in case of transfer, avoidance, control and retaining the risk. Finally, the paper illustrates how to ensure that no or very few lives are lost and what would result in deaths as a result of the risk. Table of Contents Introduction 3 Disaster background 3 Risk management cycle 4 Risk identification 4 Risk assessment 5 Risk analysis 6 Risk decision 7 Risk implementation 8 Risk Monitor 9 Policy 9 Risk management strategy 10 Conclusion 10 References 11 Introduction Disaster background Fires form one of the most destructive and distressing aspects in the modern times due to their related losses to an individual, organization, and the country as a whole. In the year 2008 alone, the United States fire department indicated having responded to 1,451,500 fires in the country that resulted to 3,320 fatalities and over US $ 5,478,000,000 worth of property loss (Fodor Travel Inc 2008). The most recent fire outbreak was the California fires which resulted to losses of about US $ 1.5 million. Following this consideration, fires pose a risk to corporations and thus fire protection is quite critical in the modern era of highly dynamic consumerism patterns (Huang 2009). The only way to guarantee sustainable growth and development in a country is based on the holistic capacity to address all the incumbent risks factors. It is from this consideration that fire protection becomes very critical in modern risk management as a way of reducing its extended affects. Managing a risk is a cycle not necessarily geared towards eliminating the risk but ensuring that the losses that could be incurred in the event of a disaster are limited. The risk management cycle has been broadly broken down into four classes namely; evaluation of the risk, management of the risk, measurement of the risk and assessment of the risk. These stages determine how best to plan for a risk before it happens and the best course of action a corporation should take incase a disaster struck. Risk management is the process of identifying, assessing and prioritizing risks which is then backed up by a systematic and calculated application of available resources to limit, monitor closely, control and establish how the identified risks can be effectively handled. The plan devised with the available resources should be geared towards minimizing the probability of negative effects that could come with the occurrence of a risk. For this paper, the identified risk is fire since it poses a huge risk to both property and people. Risk management cycle Risk identification A good risk management plan seeks to identify and treat potential risks in an organization, thus increasing the probability of success. It provides a framework which enables the organization to contribute to a more efficient allocation of resources while protecting and enhancing the company's assets and image. Risk identification is not only the most important and time-consuming step, but also crucial. When risks are not correctly identified, their consideration in the management system will lead to incorrect assessment as well as responses. A proper risk identification exercise is one that does not restrict itself to risk events, but makes provisions for uncertainties as well as associated responses. Through the use of a model, one can address risks and uncertainties related to the project life cycle (Bryant 1993). Fire has been identified as a possible risk that corporations are exposed to. Over the years, the ability to address fire problems is based on an organization’s ability to effectively detect it at the earliest incidence possible. According to Hong (2005), it is essential that organizations prepare themselves effectively for emergency cases by establishing the best fire detection systems. Fire detection and suppression over the years have seen great advancement towards more intelligent systems with higher levels of efficiency in detecting and suppressing fire at the earliest stages possible. Fire experts have accredited the last decade reduction in fire outbreak cases and indeed losses to the increased ability to detection and suppression at early stages. Though application of modernistic methods as Damon (2007) indicates have been highly limiting due to their inherent costs especially for small business units and individuals, their efficiency has been cited to be quite high as compared to the traditional methods. Some of the methods employed in the modern systems include, aspirating smoke detectors, vision based real-time early flame and smoke detectors, heat detectors and water-mist systems. All these are effective ways of detecting a fire and a corporation can therefore choose the method that best serves its needs. The necessity of putting into consideration the different sources of risks present in a corporation as well as a classification of the different risks that could be of current interest cannot be wished away (Flanagan & Norman 1993). Risk identification calls for an intimate knowledge of the organization, the field of operation, legal, social, political and cultural environments in which the organization exists, as well as a sound understanding of the strategic and operational objectives of the organization. Through a methodical approach, all the risks flowing in an organization can be identified. Risk assessment Tools and techniques that operate on probabilities and consequences have been developed to facilitate risk assessment (Hanson 2004). The use of scoring techniques, that incorporates the judgment of probability as well as consequences of a risk breakdown are common in corporations (Apostolakis 2004). Use of mathematical models and simulations is another way to go. Risk estimation involves quantification of risk, in terms of the probability of occurrence and possible consequences and provision of the necessary information to the employees about what to do incase disaster struck. According to Hong (2005), assessment of the risk of fire in a corporation and the effectiveness of fire protection systems in a country or even in a corporation should be based on the holistic consideration of the entire fire protection capacity to effectively coordinate their detection and initial fire suppression as well as emergency operations to reduce loss of life and property. Another central factor that cuts across the whole process of fire protection, preparedness, and operations is the emergency warning communication system. Albert and Kenneth (2000) record that once fire has been detected, failure to offer the necessary emergency communication may lead to massive losses to life and property. Through assessment all the possible escape routes are identified and ways disseminating information are determined therefore by informing the workers and employees on the presence of fire in building premises, they are able to move away from the scene and therefore escape danger. James (2005) indicates that one of the most important concepts employed by fire fighting protection is preventing loss of life for both the employees and the public. Risk analysis These risks could be both threats and opportunities. In this regard, if a company opens up of a regional office it could be a threat to the competitors already established in that region, and an opportunity for both the management and stakeholders to expand their business empire. Risk response is whereby actions are taken to control risks that have been analyzed thus far. Grading of risk responses involves risk retention, risk reduction, risk transfer and risk avoidance (Flanagan & Norman 1993). By risk retention, it means the acceptance of risks, yet continuing with business as usual. In America the fire department is very vigilant and is able to respond swiftly when there is a fire outbreak. Hong (2005) explains that to the public, emergency warning and communication system informs them on the existence of fire and therefore requires them to clear from the site of incidence and allow fire specialists to operate with minimal struggle in rescuing life and property. Therefore, individuals are able to go to work and feel safe as they are sure the necessary measures have been put in place to safeguard them incase a fire broke out. It is important that corporations retain a risk. The argument is that by retaining a risk, one is attesting to the fact that the estimated probability, consequences, or a combination of these, is low and hence acceptable. These parameters can however be decreased through a risk reduction. One way through which this can be achieved is through sharing of the risk with other parties. An educational training of the personnel of a corporation will also help reduce the risk, by way of increasing their knowledge of possible risks. A corporation should conduct drills to educate people on what should be done incase disaster struck. Information is power and thus all the employees should be equipped with information on the possible risks and how to handle themselves. Risk decision In case of a fire Building evacuation systems put in place should entail removal of the people from the danger sites to regions of safety or hospital for treatments. Fire protection building evacuation systems seeks to ensure that all the people in a building are guided or taken to safety as fire is extinguished. Building evacuation systems require strong planning, organization of the system and careful supervision. Organization of the building evacuation system requires a clear plan that defines the roles and responsibilities of different members of the evacuation team. Jonathan et al (2007) indicate that the participating members’ duties are complemented with respective equipments that are necessary for use in case of a need for evacuation. Besides, effective evacuation policies and plans could be established to enhance better management and coordination with other departments. Diagrams and evacuation routes should be effectively provided in a building. The policy should also provide for imminent danger definitions and determine how the central control should operate during evacuation. Then evacuation should also include an effective detection reporting system on the situation which culminates into the decision of conducting evacuation in the building. At this point, Hong (2005) indicates that the evacuation team should operate in direct conjunction with all the other departments to make them understand their tasks and the expected conduct during fire outbreaks. The involvement of a third party like a professional evacuation team in the case of fire outbreak could act as part of the quality assurance of the exercise to ensure nothing is either overlooked or forgotten as a way of reducing the risk. According to Graham and John (2003), the evacuation team should have a clear outline of their expected movements and operation during their operations. This is perhaps the most critical part of the system as it gives the necessary information of the equipments for suppressing fire especially to keep the exit routes free for all the people. Depending with the nature of a building, evacuation system may require that the group effectively possesses special equipments like parachutes for evacuating people from tall buildings. Risk implementation However, it would be incomplete to talk about an evacuation system without emphasizing on their communication. One critical element that determines the ability of an evacuation unit is its capacity to communicate among them effectively. As indicated earlier, evacuation is done to facilitate faster removal of people from their areas of high danger to safer points. Therefore, coordination is very critical to reduce panic and confusion. Finally, an evacuation system should have an effective inspection and command system that provides the central command for the operations. This becomes very critical especially on tall buildings where coordination has to be effected at different heights. In addition, inspection and evaluation is essential as it offers the evacuation process undertaken with an assessment to determine how effective it was and provide recommendations for improvement in later emergencies (Petrus et. al. 2005). Retaining a risk can also be achieved through work plans, use of time tables and resource allocation. Risk transfer for example to a contractor, through a contractual agreement is yet another way to respond to risks if the corporation is involved in the construction business. One can also transfer the uncertain cost of a potential loss by way of insuring a project. Finally, if the project at hand is too risky to undertake, the corporation can refuse to accept it (Friend and Hickling 1987). Risk Monitor Risk evaluation, following a completion of risk analysis, is akin to comparing the estimated risks against risk criteria already put in place by the corporation. These criteria could involve associated costs and benefits, legal requirements, concerns of the stakeholders, socio-economic as well as environmental factors. On the whole, an effective risk management exercise will call for a reporting as well as a reviewing the corporation to ensure risks are not only effectively identified and assessed, but that appropriate procedures and controls are enacted (Covella and Mumpower 1985). Policy The last stage of the risk management cycle is policy which comes after identifying, measuring, analysing, deciding, and monitoring risk. This is drawn up after process of gathering as much information as possible during the risk management cycle and using that information to avoid further risk by coming up with a set of steps that must be followed by all employees in the corporation. That information is then used to formulate a policy that minimises the risk for instance ensuring that the corporation and its environs are a no smoking zones or designating areas out in the open and far from the buildings are the smoking areas. Such policies will serve to reduce the risk. Risk management strategy The client has vested interest in not only having the job completed, but also within the budget, on time and to a satisfactory quality standard. Financial institutions will normally appoint professional construction mentors to be actively involved in their risk management regime. Therefore, corporations should seek the involvement of professional fire management experts to help design appropriate risk management programs. Subsequently, other risks will be reduced as well. On behalf of the insurance firm, the actuary will be involved in the assessment, evaluation and management of the financial risks faced by the corporation in case of a loss through fire. When the senior management of a company embraces risk management, this is an outward mark of success for the organization. It is thus their role to send the message not only inside the organization, but outside as well on the importance of managing risk (Hanson 2004). The senior management is charged with the responsibility of coordinating, identifying, controlling, evaluating as well as reporting risks. Conclusion From the above discussion, it is clear that risk management is an important aspect of all corporations. It will help reduce the losses that could be incurred incase a fire broke out as fires are real threats to corporations. Fire protection forms one of the most important aspects in the modern risk and disaster management systems. It brings out the need to establish the necessary detectors and suppressors at the earliest possible moment to enhance the capacity to reduce its affects. It also came out clearly that effective fire protection involves careful preparations just like for any emergency with adequate skills and response mechanisms which assists in reducing the overall damage from a fire system. However, it is essential that greater cooperation is established between all the organization’s departments to enhance faster response and therefore reduce loss of life and property. References Albert, T & Kenneth, L 2000, Facilities evaluation handbook: safety, fire protection, and environmental compliance, London, The Fairmont Press, Inc. Apostolakis, G 2004, How useful is quantitative risk assessment? Risk analysis, 24(3). Bryant, J 1993, Supporting management teams, OR insights, 6 (3), 19-27. Covella, V & Mumpower J 1985, Risk assessment and risk management: An historic perspective, Risk analysis, 5(2), 103-119. Damon, P 2007, Introduction to international disaster management, London, Butterworth-Heinemann. Flanagan, R & Norman G 1993, Risk management and construction, Oxford, Blackwell science publication. Fodor Travel Inc., 2008, Fodor's 2008 Northern California. Los Angeles, Fodor's Travel. 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