Mining Site Risk Management - Research Paper Example

CRITICAL ANALYSIS OF A MINING SITE RISK MANAGEMENT SYSTEM By Table of Contents Bibliography ........................................................................................................................ 10 Introduction In definition, a risk management system refers to the application of techniques or measures to identify the total potential financial loss or gain that a company or organization is exposed to when sudden events or changes occur randomly (Rouse 2010, n.p.). These sudden events or changes are collectively defined as risks, and will usually have uncertain expected outcomes and effects on the organization. In seeking to protect the organization from negative effects arising from risks, organizations usually put into place some risk management systems. Risk management systems are important to organizations in that they make them aware of what certain risks are capable of doing to them, and by identifying such, give them the advantage of being ready for them in case they materialize. Concisely, risk management systems are meant to identify potential risks, and create on standby mitigation measures to counter the risks if by any chance they emerge. In a mining context, risk management systems are constructed in adherence to specific risks associated with it, and these include human, environmental, organizational, and economic risks. This study text will conduct an analysis on the nature of the risk management systems incorporated in an engineering context, and thereby evaluate its effectiveness, and give, if any, the appropriate recommendations to better them. Importance of risk management analysis An analysis of a risk management system is important in that it enables an organization to put up with both external and internal environments, thus ensuring that the emergent systems in place are autonomous, complex, and most of all intelligent in sustaining its success. Sustenance of a mining project or infrastructure is crucial in that the processes involved in them are sensitive; say for instance, water systems are connected to energy, communications, and transportation systems. The sensitivity in this arises from the fact that if any of these systems succumbs to a risk, then the entire interconnected network is bound to feel the effects (Modaress 2006, p. 2). It is for this reason that most risk management systems in this context are created in a way they are consistent with the complexity of the field, are dynamic, evolving, integrated, and intelligent. These ensure flexibility when it comes to adjusting to any external or internal fluctuations which manifest themselves as risks (Hong Kong Monetary Authority 1995, p. 43-46). Nature of risks in the mining industry Before conducting an analysis of the risk management system, it is important to understand the types of risks involved herein. In this context, the risks can be categorized into three layers. The first is organization-specific risks, and these are the risk factors directly affecting or arising from the inside of the organization. They can be financial, construction, labour, material, equipment, management, or estimator-related. The second layer is what can be termed as acts of God. These are mainly naturally-occurring events, and which man cannot predict or even control. These include tsunami, flood, earthquake, volcano eruption, or landslide occurrences to mention but a few. The final layer is that of global risks. These are the global trends of events which affect the international level of organizations. They may include project designs, political factors, competition, and economic factors to mention but a few (Baloi 2012, p.115-116). Analysis of risk management systems There exist several techniques or methods of analysing risk management systems. The first one is the probabilistic analysis technique which bases its analysis on human judgement, assumptions and prior experience. The second technique is the certainty theory which on its part bases its analysis of factual statements or the level of belief that one has towards given evidence. These are the major techniques of conducting the analyses, and the most appropriate for the mining context. They may differ in their execution of the analyses, but all in all, they give almost-similar findings and conclusions. Organization-specific risks Organization-specific risks are the factors which relate to the inside (internal) environment of an organization. These risks are the most taken care of all the risks involved in manning an organization (Epstein & Buhovac 2006, p. 8). As such, they are taken care of from day to day under different units such as human resources, finance, logistics, and planning amongst others. To better understand the featured risks, an organization or company conducts regular studies on its constituent operations as a method of coming up with databases which are robust, and in addition, learn systematically from the studies. After such databases have been created, a large quantity of information is obtained and can be used to make estimates. In short, the databases become potential sources usable in making decisions. Key amongst these is the management structure of the organization. This is important in that the way that the relationship between the superiors and their staff determines to a great extent the nature of input and output capacities of the organization. As such, it should support an effective correlation between the two parties. The same applies with the financial factor. The speed and magnitude of achievement in mining are in most cases directly proportional to the financial capacity of an organization. This aspect is particularly crucial in that it affects to a large extent the other determinant factors such as material, labour, construction, and so on. As Groves, Kecojevic & Komljenovic (2007, p. 462) state, equipment on its part should be more of a positive than a negative risk; positive in that it should foster the achievement of an organization’s objectives, and negative in that it should minimize the risks of workers being injured or harmed while using them. Close to this factor are material-related factors. These factors determine to a further extent other factors such as financial and market factors in that say if an unfavourable material is used in a production (mining) process, it may affect the credibility of the end product, thus the market value (finance). In short, risk managers implement systems that are likely to work for, and not against them in the event a risk occurs. Global risk factors Global risk factors are more complex than organization-specific risk factors owing to the fact that they are beyond what an organization can manipulate (control). The environment to which they relate is a more dynamic, erratic, and complex than in the previous level. This therefore means that there is a limitation in the ability to come up with information databases, thus it is harder to make decisions at this level. This is because information and data collection is also limited as such channels are usually widespread and out of a single organization’s reach such as foreign governmental, legal, political, societal, or natural market risks (Canavan & Scott 2012, p. 1). This is largely evident in the instances when there is a global up-scaling or down-scaling of the economy; it is very hard, if not impossible, to estimate to what extent these are bound to affect an organization. In a nutshell, this weakness emerges from the insufficient data available for the process. This does not, however imply that risk managers do not do anything to try and contain these situations. They do, only that they may be insufficient to fully mitigate the risks, but to some extent, they help reduce the effects. The most influential global risk is usually politically-influenced factors. As is the fact, political variables control much of what happens in the world, and this means that not even organizations are spared. The tricky bit about political variables is that in addition to being dynamic and overly complex, they lack a consequence and as such, cannot be predicted. In addition, even if it was possible to predict them, they become more elusive in that they are never repetitive. The other factor, in a more mining industry context, is the design or project rubric. These are the internationally “set trends” or standards which determine the acceptability of a product. In this case, most risk managers can have a bit of prediction or update by establishing international links with other organizations worldwide. This in a way, is effective in mitigating the risk, and can be termed as successful. The final global risk factor which risk management factors largely seek to address is the economic aspect (Stiglitz 2010, p. 118). Similar to political variables, economic variations affect amongst others material prices, stock exchange, inflation, and labour. The observation from an analysis in this context reveals that mitigation is not as effective; rather, organizations will react by adjusting their operations. Acts of God As the name suggests, these factors are attributed to the supernatural, that is, beyond human control or association. An act of God is not managed by any party, and they stem from nature. As the facts are, natural occurrences are unpredictable, and this therefore makes them a tremendously dangerous risk factor. According to Merna & Al-Thani (2011, p. 15), acts of God can manifest themselves as tsunamis, floods, earthquakes, volcanic eruptions, landslides, drought, or other natural catastrophes and as earlier stated, they occur without warning. Natural occurrences can affect an organization either directly or indirectly. The direct effects can be experienced when say, an earthquake strikes without warning, and a building under construction either collapses or the workers have to abandon it for safety. In another example, rainy weather may hamper mining activities or engineers assembling a pylon for the fear of lightning or slipping off. The result is delayed completion time, unnecessary expenses; need to alter designs, destruction of ongoing projects and buildings, amongst others. All attempts to devise means of predicting their occurrence have not borne any significant progress, and this adds to the impossibility of estimating the risks. The few systems available are not accurate either. It therefore makes it sufficient to conclude that at this level of risk factors, mining organizations remain overly exposed to the risks, and very little can be done to mitigate such. Recommendations As the above analysis revealed, much needs to be done in improving the stated countermeasures to shield the mining site from risks. The highlighted risks in the organization level can be countered by implementing better methods of authority by establishing a better management structure, this will go a long way in overseeing responsibilities and duties; thus effective management of all organizational tasks (Hussain 2000, p. 105). An effective management will for instance, implement necessary change management systems which have been proven to work positively in coming up with a successful work plan in organizations. Change management is necessary in doing away with say, work cultures which hinder the success of organizations and installing in their place better systems that have been restructured to better suit the output thus returns of the organization. In the global layer, Laudicina (2005, n.p.) states that potential risks such as competition and economic shifts can be countered by improving the company’s competency. In so doing, the organization will be a notch higher than its global competitors and whichever way the economic graph swerves; it will always stand out above the rest and will not suffer any negative effects in case risks emerge. Some risks such as political variables can be to some extent dealt with through observation and recording (Moran & West 2005, p. 5). This can create a rough outline of a pattern which is influenced by global factors. For instance, it can be observed that during the U.S. election year, demand for commodities is less, and that marks a low market. From such recordings, the mining company can schedule its target market, and come up with a stable marketing strategy. Finally, on the issue of natural occurrences, though hard to mitigate, some can be controlled by prioritizing and scheduling as Lambert & Patterson (2002, p. 106). This means that mining activities, for instance, should be scheduled for seasons with minimal or without rainfall. Rainfall is associated with landslides, tsunamis, flooding, and other hindering natural phenomena. However, some, such as earthquakes and volcanic eruptions are much harder to control and will require immediate reaction once they manifest signs of occurrence. Conclusion This mining industry analysis has highlighted several aspects about the risks and countermeasures applied. First of all, the mining industry has specific risks tied to it such as mainly environmental and global variables. In addition, there exist specific countermeasures of controlling risk aftereffects for risks in three categories; organization-specific, global, and acts of God risk factors. The analysis further elaborated the application of the four layer risk assessment model, and how its application works by decreasing the risk levels. From the analysis, it can be concluded that while several risk management systems exist, their effectiveness differs, and that some factors such as natural risks are much harder to counter. Bibliography Baloi, D 2012, “Risk Analysis Techniques in Construction Engineering Projects”, Journal of Risk Analysis and Crisis Response, (2), 2. 115-123. Canavan, D & Scott P 2012, “Risk in International Business” Dubin Institute of Technology, 1-2. Epstein, M & Buhovac 2006, “The Reportingof Organizational Risks for Internal and External Decision-Making” The Society of Management Accountants of Canada & The American Institute of Certified Public Accountants, 1-46. Groves, W, Kecojevic, V, & Komljenovic, D 2007, “Analysis of Fatalities and Injuries Involving Mining Equipment” Journal of Safety Research, 38, 461-470. Hong Kong Monetary Authority 1995, “The Importance of Risk Management”, Hong Kong Monetary Authority, 43-46. Hussain, A 2000, Managing Operational Risk in Financial Markets, Butterworth-Heinemann. Lambert, J & Patterson, C 2002, “Prioritization of Schedule Dependencies in Hurricane Recovery of Transportation Agency” Journal of Infrastructure Systems, (8) 3, 103-111. Laudicina, P 2005, “Managing Global Risk to Seize Competitve Advantage” Ivey Business Journal, Available at http://iveybusinessjournal.com/topics/global-business/managing-global-risk-to-seize-competitive-advantage#.U3ZQokCzncs[16th May, 2014]. Merna, T & Al-Thani, F 2011, Corporate Risk Management, John Wiley & Sons. Modaress, M 2006, Risk Analysis in Engineering: Techniques, Tools, and Trends, CRC Press. Moran, T & West, G 2005, International Political Risk Management: Looking to the Future,The International Bank for Reconstruction and Development/ The World Bank. Rouse, M 2010, “Enterprise Risk Management (ERM)”, SearchCIO, available at http://searchcio.techtarget.com/definition/enterprise-risk-management [16th May, 2014]. Stiglitz, J 2010, “Risk and Global Economic Architecture: Why Full Financial Integration May Be Undesirable”, American Economic Review, 388-392. Read More