Organisational Risk Management in the Global Economic Downturn - Case Study Example

Introduction G-20 identified the two factors that triggered the global economic downturn as: (1) failure in economic and financial regulation; and (2) the use of economic policies which lead to global economic imbalances (Mohan & Bean, 2009, p. 3). In general, financial management during a global economic crisis is important since the use of effective monetary policy can influence the economic growth of each country. As a consequence of globalization, a lot of business and financial organizations are experiencing the adverse effects of economic downturn. In order to develop a set of actions that can effectively stimulate the global economic growth, world leaders including the Group of Twenty (G-20) Finance Ministers and the Central Bank Governors recently gathered together to discuss the available options that can counteract the negative effects of the current global economy on employment (G-20, 2010). Despite the economic recession that went through the construction industry in the United States, Bechtel (BEK tl) remained the top U.S. construction contractor since 1999. Despite Bechtel’s effort to maintain its position as the top U.S. construction contractor, it was reported that the global economic recession significantly affected the engineering and construction industry which made the company’s profit during 4th quarter of 2008 decreased (Canavan, 2009). Because of Bechtel’s successful risk management strategies, the company was able to earn revenue of US$30.8 billion back in 2009 (Bechtel & Dudley, 2010, p. 5). Within the context of the current global economic condition, the effects of global economic crisis on the business performance of Bechtel will be analyzed and briefly discussed. Upon analyzing the current global market condition, strategic ways on how Bechtel was able to sustain its business growth and profitability despite the global economic downturn will be provided in details. Direct Effects of the Current Economy on Employment in the United States Indirectly, the global economic downturn contributed to the increase in the unemployment rate in U.S. In line with this, the unemployment rate in U.S. was as high as 9.9% as of April 2010 (United States Department of Labor, 2010). The level of unemployment rate in U.S. has significantly increased from 4% back in 2000 (United States Department of Labor, 2010b). (See Appendix II – Labour Force Statistics History of Unemployment Rate in U.S. on page 12) Since there is a high number of Americans who are currently jobless, demands for construction services is expected to go down. Rather than spending their savings on real estate projects, majority of Americans would prefer to hold on to their cash and simply spend on other more important goods like food and education. To counteract the negative economic consequences of high unemployment rate, President Obama recently announced the need to create new jobs by boosting the value of U.S. export and providing financial aid to small and medium enterprises (OECD, 2010). Likewise, President Obama’s plan to separate the core commercial banking from other high-risk investment activities can be useful in avoid the development of a new financial crisis (Gurria, 2010). Effects of Global Economic Crisis on the Business Performance of Bechtel Under the leadership of Riley Bechtel – Chairman and CEO of Bechtel, the company was able to maintain a good business performance despite the global economic downturn. In relation to the law of supply and demand, the company managed to successfully create demand for its construction contractual services despite the slow economic growth in the United States. Based on Bechtel’s 2010 Financial Report, the company managed to earn a total of US$30.8 billion dollars as compared to US$31.4 the previous year (Bechtel & Dudley, 2010, p. 5). Although there was US$600 million difference in total amount of revenue earnings, this figure is still good considering the significant decrease in the demand for construction services in the global market. (See Appendix I – Bechtel’s 2010 Financial Report on page 11) Developing and implementing strategic ways to minimize the risk of losing business opportunities was the key behind the success of Bechtel. The company managed to create a diversified portfolio which increases the demand for its services. In line with this, Bechtel exerted extra effort in providing its customers with good quality projects. Since employees are a significant part of Bechtel’s success, the company stayed focused on providing them a safe working environment through trainings. Through the provision of effective training program, the company was able to extend additional modern construction skills to thousands of its workers. This knowledge is necessary in enabling Bechtel’s workers provide a quality work performance that will meet its customers’ demands. Because of the constant global economic changes that will occur in the future, Bechtel continuously strengthens its existing sustainability program. Basically, strengthening the company’s sustainability program protects the company from any forms of sudden change in the global market of construction industry. Strategic Ways on How Bechtel was able to Sustain its Business Growth and Profitability despite the Global Economic Downturn Despite the global economic downturn, Bechtel was able to sustain its business growth and profitability by maintaining a diversified portfolio, keeping a healthy backlog of work, and its HR manager’s ability to keep skilled workers dedicated with the company (Bechtel, 2009). Importance of Keeping a Diversified Portfolio Maintaining a diversified portfolio enabled Bechtel to have a good business performance despite the global economic downturn. During the times when the U.S. construction industry was really down, the fact that Bechtel was able to expand its business projects in other countries like Europe, the Middle East, and Africa made the company able to withstand the low demand for construction contractor in the United States (Canavan, 2009). In line with this, Bechtel has already expanded its construction services to as much as 45 countries around the world as of 2010 (Bechtel & Dudley, 2010, p. 3). Bechtel was able to close several big modernization contracts in Europe including the West Coast Route Modernization project in the United Kingdom, an LNG receiving terminal in Louisiana, and the Sohar aluminum smelter in Oman among others (Canavan, 2009). Because of the tight global market competition within the construction industry, Bechtel lost some of its big projects when its competitors managed to underbid the contracts (Bechtel & Dudley, 2010, p. 3). Within the domestic market, Bechtel managed to have a diverse portfolio by successfully extending their construction services to various industries including road and railway system construction, oil refineries and gas processing plants, power plants, mines, telecommunication networks, and airport infrastructure among others (Bechtel & Dudley, 2010, p. 4). Maintaining a Safe Working Environment Aside from the negative health consequences of working in a poor working environment, accidents that will occur within the work environment can cost millions of dollars not only on healthcare expenses but also the unforeseen business opportunity loss on the part of the company. Physical injuries and pain caused by accidents or poor body posture are highly preventable. For this reasons, Bechtel stayed focused on improving its employees’ safety at work by extending some training programs to teach its employees on how they can increase their ability to work safety within the construction zones (Bechtel, 2010b). Some of the innovative safety programs that Bechtel is implementing includes: (1) the use of a lighter-weight hard hats; (2) the use of a reliable full-body harness to protect employees from falling when working more than 6 feet height; (3) techniques on how to eliminate unsafe work practices; and (4) innovative programs that are effective in protecting employees when climbing tall towers (Bechtel, 2010c). Innovative safety programs which include the ability of Bechtel to reduce the number of hazardous work environments made the company able to achieve a zero accident record each year (Bechtel, 2010b). Strengthening its Business Relationship with Subcontractors The global economic downturn makes the demand for construction services difficult to predict. Although it is a common knowledge that demands for construction services decreases during a serious economic slowdown, demand for Bechtel’s construction services can still increase because of its strong diversified portfolio. To enable Bechtel maintain a low operational cost without the need to sacrifice business opportunities that will come along the way, the company see to it that they maintain a strong business relationship with their qualified subcontractors (Bechtel & Dudley, 2010, p. 3). This strategy will provide the company the option to easily increase the number of its manpower whenever the need arises without increasing the company’s fixed operational expense. Ensuring a Good Quality Project Bechtel invested US$30 million to implement the Six Sigma which aims to identify and prevent construction rework and defects (Eckhouse, 2010). Although the initial investment for this program was really big, this particular strategic move has contributed to millions of dollar savings each year. As part of cutting down additional expenses, the fact that the company lessens the incidence of having to pay the labour and additional materials to rework on defective projects made the project worth investing. An outstanding quality work significantly affects not only the immediate customer satisfaction but also the customers’ long-term commitment with the company. Despite the fact that most of Bechtel’s big projects had undergone a bidding process, maintaining a good quality work should still be considered as a crucial factor behind the success of each project (Bechtel & Dudley, 2010, p. 3). For this reason, the company has been exerting ways on how they can create new and more effective ways that will allow them to measure quality. In relation to the improvement of the company’s Six Sigma quality improvement program, the company managed to integrate a quality assurance measurement for each of Bechtel’s project (Eckhouse, 2010). Strengthening its Sustainability Program Sustainability program is all about planning for the company’s success in the future. Today, the company sustainable program is not limited on addressing the international standards for public consultation and disclosure and hiring qualified employees from different countries but also the need to design programs that will enable the company to provide the necessary training and development which will empower its employees to meet the demand for each project (Bechtel, 2010d). Bechtel’s decision to strengthen its sustainability program is a good strategic move. Aside from the fact that it creates a positive impression among employees; the company’s sustainability program also encourages its customers to protect the environment and nearby communities (Bechtel & Dudley, 2010, p. 3). Providing Training Programs to Employees Recently, Bechtel & Dudley (2010, p. 3) reported that the company managed to extend a training program related to project safety, work ethics, and additional construction skills to thousands of Angolan workers. At first, the provision of related training programs can be considered as additional expenses on part of the company. However, the long-term positive impact of providing employees the necessary training programs not only improves their work performance and skills but also increases the workers satisfaction with the company. At all times, it is necessary to keep employees satisfied with their job since there is a direct link between employee satisfaction with the increase in employees’ loyalty, customer satisfaction and customer loyalty, and company’s overall business performance (Schneider et al., 2009; Loveman, 1998). Therefore, spending on training and development program can be considered as one of the most important risk management strategy used by Bechtel. Conclusion Despite the global economic downturn, Bechtel was able to sustain the growth and profitability of its business not only by creating new demand for its services, taking care of its customers satisfaction by ensuring that each customer would receive a good quality project, and keeping Bechtel employees satisfied and loyal to the company. Creating a new demand for Bechtel’s construction service is possible by creating a diversified portfolio and expanding its business in the global markets. To keep Bechtel’s employees satisfied with their job, the company invested a portion of its profit on training and development to ensure that its employee has all the necessary skills and knowledge to keep the company competitive in constructing modern infrastructures. Since demand for construction services can be unpredictable, maintaining and strengthening the company’s business relationship with its subcontracting parties is necessary to prevent business opportunity loss whenever there is a need to increase the number of its existing manpower. *** End *** Appendix I – Bechtel’s 2010 Financial Report Source: Bechtel & Dudley, 2010, p. 5 Appendix II – Labour Force Statistics History of Unemployment Rate in U.S. Source: United States Department of Labor, 2010b References Bechtel. (2010b). Retrieved May 19, 2010, from Safety: Our Goal - Zero Accidents: http://www.bechtel.com/safety.html. Bechtel. (2010c). Retrieved May 9, 2010, from Innovative Safety Programs: http://www.bechtel.com/innovative-safety-programs.html. Bechtel. (2010d). Retrieved May 19, 2010, from Sustainability & Environment: http://www.bechtel.com/sustainability_envt.html. Bechtel, R., & Dudley, B. (2010). 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