Corporate Risk Management - Case Study Example

Corporate Risk Management In this research, I will explain the corporate risk management from the perspective of one of the largest companies in Saudi Arabia, Samama group of companies that have been an efficient platform for my personal employment. Since a while, the company was relying exclusively on one sector of operating medical hospitalizations; however, a decision of the Saudi that prohibited private companies from running public hospitals that resulted in a significant risk in the general situation of the company. Thus, I will study this sudden risk management through the application of cycle risk management and analyzing the strategy of company while confronting this risk. Introduction In recent years, and especially after the global economic crisis, it is an observation that some governments are endeavoring to reduce expenses so that they can cope with the crisis in different sectors. The Saudi government has concluded that operating a medical hospital by private companies result in the increment of costs for the government. Therefore, the government decided to begin operation of hospitals publicly to reduce expenses, as well as, to increase the quality of medical services provided to the people. This decision put some companies in big trouble because it was a sudden decision that were relying on only the operation of hospitals as their financial source. Problem background At the end of 2008, experts witnessed anger of the public in Saudi Arabia due to lack of quality services of some companies associated with the field of medical operation of government hospitals. Government, as well as public noted that companies were not able to provide services equivalent to that of the government contracts. Therefore, the Saudi government issued a surprising decision to prohibit companies from running public hospitals, which led to the annoyance of associated companies that caused termination of the employment contracts with huge number of staff. Risk management cycle In this section, I will identify the basis of the problem, as well as determine the extent of the problem and its impact on the specific company. In addition, the paper will attempt to discuss confrontations of this risk and the way company resolved this risk in an efficient manner. For such purpose, graph including factors of the risk management cycle will provide a comprehensive understanding of the issue. Risk management identification The first phase of the cycle of risk management is identification of risk and factors that caused the risk and circumstances that promoted the occurrence of risk. Although the dependence on a specific investment seems a big mistake; however, it has been main source of the company since 25 years. In addition, there are many other investments in the company, but they are not as large as the operating income of medical government hospitals. However, in order to reduce the losses, the company arranged an urgent meeting to focus on other sectors such as construction, operation and maintenance of public utilities, in order to compensate for the loss that occurred in the company. However, development of other sectors requires a long time, as the standards of provision of skilled labor, as well as the provision of equipment and the amounts that were part of the operations in the medical hospitals cannot in anyway be applicable in other sectors of the construction and maintenance. However, it is clear that risk management is to rely on one source of investment and not put multiple investments. The goal of risk identification is to identify the problems that may have an effect on the organisation (Risk Assessment and Allocation, 2007). Risk Measurement The second point is measurement of risk, and there are two types of risk measurement: qualitative and quantitative. If there is a probability of a risk that could happen at any time in the company, it is possible that we call it the qualitative approach. Almost three decades ago, it is unlikely that anyone from the companys management action plan would have developed a strategy to confront the financial crisis, or to prevent risks. Moreover, it is possible that nobody had even anticipated several events, such as global financial crisis, wars, etc during these years in the Gulf region. Experts have indicated that this short-term practice of action plans is the major lacking of decision-making processes, this is one of the most significant parts of the risk management, and a company must develop a plan to confront any risk that may occur in the company in any future. In order to acquire a critical understanding, the paper will now include an example of the quantitative approach that involves putting accurate calculations and possibilities to cope with the threat; however, in this type, it may be difficult to find in accuracy of large accounts. In addition, although the case studies of Saudi government’s decision may be rare, but it happened. As earlier mentioned, this led to the loss of many people’s jobs in addition to the complete alteration of companys activity that resulted in the need of new employment, efforts and a long period in order to market the company’s name in new sectors and associated labor market. One of the significant attributes of risk management is that it considers all the possibilities that may have caused the occurrence of risk in the company that enables the company to confront the risk in an efficient manner. There is a direct correlation between returns and the required degree of risk, the more we have asked, a higher return increased degree of risk that we have, and the greater the degree of risk we ask for, a higher return to compensate for bearing additional risks (Sami, K, 2007). Risk analysis The third phase includes analysis of the risks that means controlling it, avoiding it, and retaining it (Crockford, 1991). In this regard, the company must diversify their investments and may not rely on a single source as medical operating income had been investigating a very large company and this helps the diversity of investment in the company when it happens to such decisions there is a surprise, another investment company may seek to develop at a time fast unlike what happened to the company that I work took a long time to find a place in the local market. The company was to have a section construction, maintenance projects, maintenance of air conditioning, was supposed to determine the budgets for development to be support for operating the medical sector, which had suffered from many complaints from citizens. In addition, the Saudi government has undertaken a study to stop the contracts with private companies and everyone knows about this study. Therefore, company management made a big mistake for not taking this issue seriously. Risk decision The fourth phase is the decision regarding the risk. In this phase, a company avoids and prevents any further mistake that may have negative effects on the company, as well as put efforts to avoid dangers in the future. In this regard, the company analyzed and decided to terminate the services of nearly 12,000 employees working in the medical department operating in the company that was a wrong decision. However, after further analysis of project managers and some executives in the company, the company made a decision to train these employees for a period of two months to get them into intensive courses through which they can work in other sectors of construction, operation and general maintenance that was an efficient decision of the company. In addition, the company put efforts to borrow huge sums from local banks to develop other sectors of the organization and to obtain construction contracts. In addition, the company rented the third procedure for a large number of employments at other companies operating in the same field of employment, in order to benefit from the exchange of expertise, as well as to obtain the amounts of the good through their work with these companies. It is anticipation that this decision of the administrative system will bring profits to the company whereas, the other company will pay the salaries of employment and will analyze the financial aspect of the company as well. Risk Implementation The fifth point is the risk of implementation; this point requires careful implementation during any decision, as it is an observation that lack of careful consideration results in spontaneous and adverse consequences for the company. Since a huge number of companies have already confronted this problem, the risk implementation includes consultation with other companies at a greater extent that will allow the company to benefit from their decisions in a significant manner. For example, a company has considerable experience in the electronics and air-conditioning in hospitals; however, after governmental decision regarding operating medical hospitals, there is no need for labor of that company. At the same time, another company has a special section for electronics and air-conditioning that will require the workforce of that company. Accordingly, the exchange of labor among firms depending on need, will allow them to reduce the impact of the financial crisis, and will allow firms to benefit from each other in an efficient manner. Risk monitor The sixth point of the cycle of risk management is the monitoring that plays a crucial role in the risk management. Although it is difficult to predict date and structure of government decisions in any state, however, the Saudi government was already working on the study of private companies associated with operations of public hospitals. In this regard, monitoring of this study would have allowed the companies to predict the shutdown of the medical private companies that would have been very beneficial for the company. In this regard, the company should create a special committee to monitor the developments of this resolution, as it may result in a number of benefits for the company and may allow the organization to avoid any risk on its investment that may affect the company and perhaps may lead to bankruptcy. In general, monitoring will allow the company to invest in departments that require the investments, in other words, the investment will be based on merit that will provide enormous benefits to the company. In addition, monitoring does not remain limited to inter-departments of the company, and companies should implement it while carrying out collaboration activities with other companies in the market. Policy The last point of the cycle of risk management is the policy, which means dramatically to implement a large proportion of information to avoid risks in the company in the future. However, this phase is not limited to risks discussed in this paper only, and welcomes all the risks that a policy can prevent in the future. In this phase, executives play a crucial role due to their responsibility of creating efficient policies to avoid the risks that may affect the employers, as well as employees of the company. Moreover, besides executives, companys owners should take considerable steps to provide a vision to the executives and managers, so they may not ignore a single phase of the risk management cycle in the future. In addition, it is an assumption that the existence of a special committee will play a significant role in avoiding such crisis and will be beneficial in diversifying investments of the organization, so the company may not confront the risks of bankruptcy. Risk Management strategy During the past three years, there have been many risks in all parts of the world, which led to an economic crisis. From this premise, the company must pay more attention to risk management, in order to manage the internal control within the company and to ensure efficient confrontation with the risks by carrying out comprehensive study on all the risks related to the company in the future. Currently, there is a part of risk management in the majority of financial reports when considering the economic feasibility of any project. Risk management aims to increase transparency to know the risks that may surround any activity and how to deal with risks in a professional manner and knowledge of the precise criteria to assess any risk. Conclusion To sum up, all organizations must develop a risk management committee, as well as identify the objectives of the organization, in order to benefit from the great opportunity of identifying the risks in advance that may impede their adverse effect. In addition to risk assessment, measurement, and analysis, discussion and collection of information pertaining to these points will be very beneficial as well. Also, identify the causes that may lead to a risk in the future. In the end, the application of risk management measures not necessarily is at the corporate level or the private sector or purpose of profit, where even government departments can implement risk management procedures, where the goal is to achieve growth of the organization and by avoid the risks that surround them in professional ways. Read More