Current Risk Management Process in Wal-Mart - Term Paper Example

Current Risk Management Process in Wal-Mart Organization Description Since it was founded in 1962, Wal-Mart has grown into an international retail corporation with branches in 15 countries and 9029 retails units worldwide, serving millions of customers and members. The company employs a total of 2.1 million associates (employees) across the globe. In 2010 alone, Wal-Mart had cumulative sales of $405 billion, making it a formidable retail outlet in the world (Wal-Mart 2011a). As a multinational retailer operating chain stores across the globe, Wal-Mart is constantly susceptible to the some risks in its day-to-operations. The three main management risks that the Company faces are (i) procurement risk; (ii) Human Resources Management risk; (iii) and, accounting risk. These three kinds of risks are common to large chain store like Wal-Mart (Zsidisin, 2008). Wal-Mart has employed improved management strategies to deal with the problems caused by these risks. As an international organization, Wal-Mart constantly faces the challenge of maintaining cohesion among its employees who are multiracial and multicultural employees. This has been a serious issue that Wal-Mart tries its best to grapple with since it began its globalization drive. Similarly, there are perpetual worries about risks inherent in the procurement and the computation of yearly financial accounting. These three operational risks are broadly described below. 2 Current Risk Management Process Since the nature of the risks is dynamic, Wal-Mart has always come up with the appropriate approach to identify, respond, monitor and mitigate or control the three forms of risks highlighted in the foregoing. Through efficient management procedure and principles, Wal-Mart has been able to keep its operational risks under control—some of the approaches utilized by the organization is described as follows: (i) Human Resource Management Risk:-Wal-Mart faces many risks arising from its sometimes inefficient human resources management. A few of human resources problems that have threatened Wal-Mart’s brand in recent years is the odd practice of treating women unequally with their male counterparts, subtle racial discrimination and also the policy of refusing jobs or promotion to employees that have on-the-job life-threatening injury (Spedding and Rose, 2007). This problem has caused the organization millions of dollars in legal damages over the years. As a result of this, Wal-Mart has implemented an effective approach to handle this brand-destroying risk. (ii) Procurement risk:- Wal-Mart also confronts incessant procurement risk like every other chain store that receive supplies from different kinds of suppliers. There are risks associated with the sources and quality of the supplies that are sold to customers. Are they from legal or counterfeit sources? Have the suppliers utilized illegal labor (like in China) to produce the goods? Are the 3 goods of highest quality consumable by people in other countries? Are there any standards that are laid down to encourage suppliers to think about consumers’ delight rather than insane profitability? (McCullough et al., 2008). (iii) Accounting Risk:- Chain stores always experience huge risk in computing all their financial transactions that would be presented in their yearly annual reports due to human errors, market forces and the improper utilization of accounting software. This problem has been recognized as a serious risk an organization must make efforts to mitigate (Chorafas, 2007). Other causes of financial risk include but not restricted to unstable exchange rates (especially for a multinational), volatility in the financial markets, and accounting risks sparked by business risk (Chorafas, 2007). The flowchart below explains how Wal-Mart typically handles the three risks described above. Flowchart: Risk identification, response, monitoring, and control. (a) Identification: Risk managers or officers are distributed to each department to discover any claims of racial or gender inequality among Wal-Mart employees with the view to proffering a quick solution to the problem; accounting staff in the organization are routinely audited for accuracy and to detect any discrepancy; risk officers work closely with the suppliers to discover any breach of standardized agreements in relation to the purchase of goods. (b) Response:- Wal-Mart establishes Diversity and Inclusion Program that aim at creating homogeneity among its workers and discourage racial and gender discrimination (Wal-Mart, 2011b). The company also initiates standards that all its suppliers must abide with while supplying Wal-Mart with various goods. This is to prevent circumstances whereby harmful goods are delivered for customers’ consumption (Wal-Mart, 2011c). The company sets up financial review procedure to make sure that all financial records are properly computed with all the vagaries of market, rates and financial transactions put into consideration (Wal-Mart, 2011d). (c) Monitor:- Wal-Mart sets up Monitoring Group that makes sure every section of the company operates according to the laid-down, standardized procedures that would guarantee quality and operational success. (d) Control:- The organization, through its quality assurance section, controls the activities in Wal-Mart to ascertain that the finance, procurement and human resources management are done in a way that they do not compromise the organizational goals to place customers’ satisfaction above any other issue. 5 (e) Review:- Wal-Mart periodically reviews its processes to maintain conformity with the known standards and encourage continuity of high-quality services to its millions of customers. Risks Management Problems Risk management process has become a vital aspect of any organization’s operations for decades because of the possible negative impacts of risks on organizational successes. Therefore, it has become imperative that organizations should formulate or initiate dynamic risks management process that would help them overcome the threats of risks in their operations. Some of the popular theories about how best to handle organizational risks include (i) handling it as a part of business strategy; (ii) and seeing as a leadership issue that must be tackled in the organizational management. (i) Business strategy:- Many experts believe that organizations need to build risk-averse strategies into their business development in order to counter unexpected problems that may arise from unanticipated risks (Culp, 2001). Having risks management as part of the business strategy would necessitate that risks are constantly measured, quantified, and controlled as every other factor required to achieve optimum performance of the concerned business (Culp, 2001). (ii) Leadership perspective:-Looking at risk management as part of the leadership responsibility in an organization has been regarded as a vital force in stemming the problems ensuing from unforeseen risks (Alston, 2003). This requires that business leaders are expected to perceive themselves as risk-takers, risk-managers or risk-averters, and this would be reflected in the nature of decisions they make in the organizations (Alston, 2001).Many risk management concepts have failed to work, simply because the people at the helms of the organization resist or refuse to wholeheartedly support the risk management initiatives. But in as much as the leadership itself if required to handle the risk in an organization, it becomes easier and more productive to avert risks in that organizations. Part B: Risk Management Plan for Wal-Mart Risk Identification There are three important methods for identifying the risks inherent in the operations of any organization. These include (i) incident reporting—this requires that the incident leading to the risks has to be properly reported for actions to be taken in preventing the risks; (ii) occurrence reporting—it is helpful to provide the details of the occurrence before the nature of the risks can be successfully identified; (iii) and, occurrence screening—this necessitates that screening must be conducted on the occurrence of the risks so as to determine the actual causes of the problems (Cavaler and Spiegel, 2003). Combining the three methods highlighted above, it is possible for risk managers in an organization to identify operational risks in the organization so as to be armed with the appropriate information needed to mitigate 7 the risks (Cavaler and Spiegel, 2003). In case of Wal-Mart, the risk managers should request for the necessary reports about the risk (financial, human resources or procurement) to identify its causes, factors leading to its occurrence and detailed description of its occurrence (Cavaler and Spiegel, 2003). In doing this, it will be easy to recognize all the factors responsible for the occurrence of the risks, categorize them and formulate the best approaches at controlling them for better organizational performance (Kendrick, 2009). Risk Analysis/Assessment Risks in an organization can be analyzed by using two major methodologies: qualitative and quantitative techniques. Quantitative risk analysis has been applied in many organizations as an important tool in presenting the true picture of the extent an organization has been exposed to some risks. Quantitative risk analysis utilizes mainly mathematical or statistical systems to reveal the nature of risks in an organization over a certain period of time (Vose, 2008). Invariably, once the risks have been identified, they would be quantified using mathematical instruments like charts, graphs, tables, equations and other statistical instruments to compute the value of the risks for further analysis and interpretation (Vose, 2008). Qualitative risk analysis emphasizes on probability of occurrence of a particular risk in an organization. Since risks tend to occur periodically, qualitative technique concentrates on how often such risks can emerge during the operations of an organization. Qualitative risk methodology utilizes some techniques to accomplish its purpose; this include the use of historical data, brainstorming, intervewing or the use of questionnaires, Delphi technique, risk rating rates and the application of Strength, Weakness, Opportunities, Threats (SWOT) analysis (Heldman, 2005). Both the quantitative and qualitative analytic methods help Wal-Mart to identify the extent financial, human resources and procurement risks have affected the company operations. And this also gives the company the edge over its competitors as it devises the appropriate responses towards these risks based on the facts revealed in the analyses. At the same time, organizations can use the outcomes of both qualitative and quantitative methodologies to predict future effects of the risks on the organization’s operations (Cox, 2009). There is apparent danger if the data obtained from either qualitative or quantitative analysis methods are misinterpreted: this could lead to incorrect projection on the part of the risk assessment team who might be interested in devising a way to permanently mitigate against the reoccurring risks (Smith et al., 2006). This fact makes the issue of risk analysis to be quite sensitive; errors due to human mistakes must be removed in order to obtain the actual data risk managers would work on to provide the appropriate recommendations to control the risks. Wal-Mart has risk officers that handle all these processes and work in collaboration with the staff in other departments to identify concurrent risks and make appropriate suggestions to the management about the best approach to implement in controlling 9 the risks. This is an ongoing process that may cost the company a lot of money but quite useful for better performance in the end. Risk Response Three main classifications of risks are identified at the Wal-Mart; there should be effective response to each of these operational risks before Wal-Mart could attain its status as a frontline retail outlet in the world. (a) Procurement risk:- Some of the possible responses to deal with the procurement risk at Wal-Mart is to enforce the standards for procuring goods from both domestic and international suppliers. The company could also require that each supplier observer test and grade the quality of their products so as to make sure that Wal-Mart’s customers are provided with harmless goods (Cox and Ricci, 1990). (b) Financial risk:- Wal-Mart could establish financial accountability procedures that would control all financial computations so as to remove errors caused by human as well as market fluidity (Cox and Ricci, 1990). In this way, it is possible to predict how much the financial market can fluctuate to accommodate the current economic situation at the time the accounts are computed. This also entails using experienced accounting professional who could utilize the risk analysis data to predict and compute the current financial reports for Wal-Mart. (c) Human resources management risk:- The response Wal-Mart has offered to tackle this problem is by setting up a program that encourages diversity and 10 inclusion of multiracial workers into the mainstream workforce of the local stores (Wal-Mart, 2011b). Another helpful response is that the company should establish a constant avenue for its employees to be trained about how to accept people from other races in order to foster peaceful co-existence among all the people working for Wal-Mart (Jackson and Mathis, 2007). Risk Mitigation Wal-Mart can take two main steps to mitigate the risks currently identified in its operations: (i) it could further identify steps, processes and systems that would help it reduce the probability or severity of the procurement, financial and human resources management risks; (ii) Wal-Mart can design a functional Contingency Plan that would contain facts and principles for dealing with the risks that had already been identified. Applying these two procedures will help Wal-Mart to decisively deal with its current risks and other unforeseen risks that may crop up in the course of mitigating the know risks. This step is very important for the company to minimize its losses and inefficiency due to the impacts of these risks (Jackson and Mathis, 2007). Therefore, risk mitigation activities should be constantly reviewed so as to make sure that new risks under the identified categories be highlighted and controlled to discover, if any, failures in the implementation of the risk-mitigating activities, which include the creation of a risk Contingency Plan. All these information could be entered into the Risk Register at the company where risks managers periodically update the 11 information entered into it in relations to the risks caused by poor human resources management, financial and procurement issues. Risk Contingency Planning In order to successfully control the identified risks at Wal-Mart, a Risk Contingency Planning is required. This involves carrying out the following procedures to guarantee that the operations at Wal-Mart are efficient and satisfactory to the customers. The company needs to outline the respective steps it would take to mitigate the three identified risks—though all of these steps have been described in the foregoing, but it is also necessary to include them in the entire contingency plan Wal-Mart should consider all the resources at its disposal for the mitigating activities to be successful—the company would have to consider the money, human capital, infrastructure and other materials in its possession to carry out this exercise. To carry out all the mitigating activities described above, the company needs a schedule of operation—this means a set period of time should be considered for the entire process of risk control to take place. There should be emergency notification avenues so as to convey urgent messages to the leadership of Wal-Mart. 12 Since human capital is vital to achieving a great success in this process, it is important that Wal-Mart lays out the training procedure for indoctrinating its employees that would handle the risk mitigating activities. The contingency plan should be constantly reviewed so as to guarantee that it does not fail due to unforeseen circumstances. The contingency plan should be published and archived for future references. Control and Reporting The entire mitigating efforts/activities described in the contingency plan should be controlled in a way that it would successful. And reporting these activities for documentation purposes are so important for the risk managers to monitor how the mitigating efforts are succeeding (Pritchard, 2004). It is possible for risk managers to make predictions based on the reported instances. And it is true coordinated reporting that risk officers could control the mitigating activities so as to arrive at the plan outlined in the contingency plan. 13 Handling Unforeseen Risks Even though three main operational risks have been identified and categories at Wal-Mart, there are instances that some other risks can still emerge from the same areas. This may occur as a result of the problems risk officers encounter as they try to mitigate the known operational risks at Wal-Mart. Handling unforeseen risks take a great deal of experience; hence, the risk officers are expected to demonstrate a high-level knowledge in risk management, which may have been acquired from training or years of working in that particular field (Practising Law Institute, 2005). Risk managers should always be on the lookout for unexpected risks as they work to mitigate the known ones. This risk management activities are continuous processes; Wal-Mart must be ready to invest in a long-term process that would help the company to prevent the occurrence of risk in the future. 14 References Alston, G. (2003). How safe is safe enough? Leadership, safety, and risk management. London: Ashgate Publishing Ltd. Cavaler, F., and Spiegel, A.D. (2003). Risk management in health care institutions: a strategic approach. Sudbury, MA: Jones and Bartlett Learning. Chorafas, D.N. (2007). Risk accounting and risk management. New York: Elsevier. Cox, L.A. (2009). Risk analysis of complex and uncertain systems. New York: Springer. Cox, L.A., and Ricci, P.F. (1990). New risks: issues and management. New York: Springer. Culp, C.L. (2001). The risk management process: business strategy and tactics. London: John Wiley and Sons. Heldman, K. (2005). Project manager’s spotlight on risk management. London: John Wiley and Sons. Jackson, J.H., and Mathis, R.L. (2007). Human resource management. 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