The Portfolio of Current Issues in Risk Management - Annotated Bibliography Example

The Portfolio of Current Issues in Risk Management Article Culp, S. . Supply chain risk a hidden liability for many companies. Culp discusses how global supply chains can improve efficiency and how they can also increase risk. This was very much apparent when disasters in other parts of the world also impacted on countries halfway around the world, mostly with disruptions in the supply chain. For example, the Japan earthquake affected global electronics and caused disruptions in the automobile industry. The Thai floods also caused shortages in the hard disk drive market and caused losses to electronics companies. The global supply ties in businesses with each other, and what seems to benefit industries also implies significant risks in their activities. Companies however have also sought to establish various steps to manage these risks, including the review of the management of organization risks and the review of the present operating models. Commentary The article above discusses the issue which relates to the global supply chain risk. The normal process of supply and demand in the current context of the globalized economy materializes in the form of the globalized demand and supply process. This means that demand and supply is now governed by a larger market, one which encompasses many countries (Taylor and Brunt, 2001). In the past, the commercial enterprises were mostly based on national activities, with only few multinational corporations venturing into commercial activities outside their home countries. With the eventual spread of globalization however, economic practices soon became significant trends in doing business. This included the globalized supply chains (Taylor and Brunt, 2001). Risks in relation to these supply chains however also impacted significantly on various corporations and business processes. Inasmuch as the global supply chain was able to secure more diverse, cheaper, and more bountiful supplies; it has also been vulnerable to various issues within the supply chain (Rainer and Cegielski, 2010). The globalized nature of the supply chain has made the delivery of supplies subject to the events which are unfolding in the countries included in the supply chain (Rainer and Cegielski, 2010). In effect, the risks experienced by the main lines and countries involved in the supply line are felt by all the countries or corporations within the chain. As was mentioned in the article, the earthquake in Japan may have been an ocean away from the western countries, however, its impact was felt in the US, and as far away as the United Kingdom (Hoover, et.al., 2001). The global supply chain, in effect, is affected by the economic crisis felt by countries or regions involved in the supply chain. Raw materials are usually sourced from one part of the globe, processed by another country, and then manufactured in another. The finished product is then distributed in different parts of the world (Hoover, et.al., 2001). Issues in the mining of copper in the Philippines for example would affect supply for processing companies. These processing companies would have a higher processing cost and therefore demand higher costs for their sales. In turn, the manufacturing companies would also increase their price. Eventually, the end consumer bears the cost of the price increase. Political instability also increases the risk within the global supply chain. This is very much apparent in the case of conflicts in the Middle East and in North Africa where issues in the region are causing difficulties in the oil supply chain (Hoover, et.al., 2001). The Middle East controls significant oil reserves and where the supply from these countries are curtailed or affected by political conflicts, the price of oil is also affected. Once again, within the supply chain, the costs are increased. Oil is a major source of fuel and any increase in its price affects many industries and most human commercial activities (Hoover, et.al., 2001). In the end, the consumer again bears the brunt of the economic costs within the global supply chain. For businesses seeking mass consumerism and greater profitability, many of them struggle to manage these global supply chain risks, especially as any means to manage the risk would have to involve a large undertaking which would seek to impact on the entire chain (Hoover, et.al., 2001). Nevertheless, for companies to survive the risk, some form of contingency involving supply sources have to be secured in order to reduce vulnerability to issues in the global supply chain. Article 2: Sawers, A. (2012). Recession, regulation, returns: the impact on your banks. CFO. The article by Sawers discusses how the overall global financial stability has become very fragile, mostly because of the situation and issue in the European Zone. Based on reports by the IMF, the European crisis has become very much prolonged that it has caused the shrinkage of bank assets. Areas most significantly affected are those within the periphery of the euro-zone where issues of banks leveraging are causing major problems among corporations. As a result of the business risks created by the recession in the euro-zone, not much progress has been seen in the region and various banking institutions have not been able to withstand the stress of their economic state. These banks also do not anymore have the power to decrease funding costs and the capital market revenues are falling sharply. Commentary A global economic recession has been apparent for the past 10 years. This recession has been caused by various factors depending on areas of the world affected (Desai, 2011). For Europe, the recession has been prolonged and for any business seeking to enter the European market, they are faced with significant business risks, mostly those which relate to the impact of recession. Risks which arise for any business during recession mostly refer to the decreased profitability of their activities (Desai, 2011). Such decreased profitability would likely cause layoffs and cutbacks of staff. Remedies being employed by corporations affected by the recession may sometimes cause lawsuits to be filed, especially as employers may be prompted to overwork and underpay their remaining staff. For businesses which are vulnerable to the impact of recession, they are often forced to make concessions which may eventually lead to their bankruptcy (Desai, 2011). Throughout the years of the global recession, various brands and businesses have been closed down and bankrupted. The more resilient businesses however, have managed to stay competitive by portraying qualities which relate to innovation, diversification, cultural sensitivity, corporate social responsibility, as well as the ability to learn from their mistakes. The article indicates that recession has a significant impact on most businesses, however, where businesses fail to make the necessary adjustments before and during recession, they often fail to survive to its end (Hayward, 2012). Strategic operative risk management processes in order to survive the issues involved during periods of recession include the acknowledgment and the mitigation of recession effects. Recession, more often than not, diverts resources away from the continuity of business processes which are necessary for corporate survival. Contracts which involve disaster recovery may remain unused and the staff may have to be redeployed (Desai, 2011). Under these conditions, the risks of recession for any business would actually be significantly disastrous. Other risks like theft, fraud, and failures in supply are also made worse by recession. Strategies which would help any business survive the risks involved during recession include the need to make the tough and often difficult decisions for any business (Jackson, 2010). There is a need under these conditions to assess what is already known about the recession and to check if such knowledge actually represents the actual and current conditions. It is also important to evaluate their situation carefully and understand their situation before they would act. Their decisions must therefore be based on their complete understanding of the recession and how it impacts on their company (Hayward, 2012). Recession is also not a time to be complacent or to relax one’s economic activities. There is a need to be more proactive during these times, perhaps more than any other period in one’s corporate existence. By being proactive, it is possible to anticipate change and make plans accordingly (Hayward, 2012). Most corporations and businesses are at their most vulnerable during an economic downturn or recession. This is a risk which any businessman and corporation is aware of. Ignoring its inevitability would be the downfall of any corporation (Desai, 2011). Making significant adjustments and hard decisions on business activities would help corporations survive recessions and its associated risks. Article 3: Kelly, M. (2012). Living with risks in era of mobile devices, social media. The article basically discusses about the current issues and risks which relate to the use of mobile devices and the social media in business activities. The article discusses how these technological advancements have now become a staple in any business and boardroom. Keeping up with its technologies has become a significant challenge among employees, especially those who are not significantly familiar with its use. A culture clash founded on technological savvy (or lack of it) has become a major consideration for corporations in the contemporary setting. The issue of culture clash within the corporate world has become a significant issue and addressing such issue and its impact seems to be an expected consideration for successful corporations. Commentary Information technology and the social media has become a major corporate tool in the management of businesses. Age and generation gaps among the users of the social media have become apparent since the popularity of its use in the corporate world (Heath, et.al., 2003). Among baby boomers and Gen-X or even Gen-Y users, the application of the social media has differed significantly (Gibson, et.al., 2009). At present, cultural clashes on technology have been seen in terms of how the social media has been used and the reluctance and even refusal of the older generations to embrace social media applications. While the younger generation of social media users may be more technologically savvy, their maturity in the applications and usage of the social media is lacking (Gibson, et.al., 2009). The younger generation is unstable and often self-focused; and cannot be trusted with the management of corporate brands. Moreover, this current generation may also be more focused on their own social media activities. They may be more engaged in their own social networks, not too much on the corporate networks. Under these conditions, although the social media is an engaging marketing tool, its variables may be more difficult to control (Gibson, et.al., 2009). The so-called netizens can use it irresponsibly and can cause significant damage to any corporation and any of its products. The cultural technological clashes are not anymore as significant in the current context because the Baby Boomers have already more or less exited the workplace. Most of them have retired. The Generation X which followed in their wake are being faced with the significant challenges of the online and highly technical workplace (Gibson, et.al., 2009). Generation gaps and clashes among their younger counterparts are mostly based on computer and social media applications, with the younger generation often having a less mature outlook on such applications. In the management of these operation risks, the challenge for most corporations is on how to ensure that gaps in the applications of technology are filled, especially among those who are not schooled in the features of computer technology (Bennett, et.al., 2010). It is also important for these corporations to train their employees to be technologically savvy, focusing on those who are not adept in its usage. Ensuring these processes would help close in the gaps in the use of the social media and related applications (Bennett, et.al., 2010). Corporate risk management for the use of social media involves its proper and strategic application with the end goal of promoting the products of the corporation. Managing the social media applications must therefore be assigned to those who are equipped with the proper tools in media relations and crisis management (Skeels and Grudin, 2009). There must also be an acknowledgment among corporations of the power of the social media, with netizens and other internet users now having the tools to manipulate patronage and product support. The shift in product usage and reviews has now leaned towards the customer, and for many corporations, they have also recognized that their activities must be client or customer-centred, with matching adjustments made to their employee base with the end goal of minimizing technological gaps (Skeels, and Grudin, 2009). Article 4: Mackintosh, J. (2012). Reliance on central banks poses risks. Financial Times. One of the major issue or risks faced by businesses these days is the fact that they are vulnerable to the issues experienced by banks, especially the Central Bank. Bond investors discuss their issue on government bonds being overpriced even with yields increasing from all-time lows. The equities as well as corporate bonds are also based on bonds bought by central banks. In effect, the bond market is often impacting on deflation, often causing its persistence. Markets are therefore vulnerable to the dictate of central banks. The article cites Alan Greenspan who decreased US interest rates to its lowest rate in 1994. This threw the global market into a frenzy. The equities decreased with lower-term bond yields also heavily sold as 10-year profits soaring from 5.5% to 7.5. Losses in shares and bonds were seen with the dollar plunging to similar levels. Such seemingly insignificant act caused major effects on the economy. This seems to imply that if the area covered by the changes would be more significant, then the impact would be even greater. Central banks involved include the Bank of England, Bank of Japan, Swiss National Bank, and the European Central Bank which are all fallible to the issues in investments and financial risks. Commentary Most of the world’s money is in banks. As such, the control of banks over financial transactions is very much significant. The global recession has taught us that banks play a major role in the direction of our businesses and their profitability (Morgan, 2009). Strategic risk management lies in the management of these central banks, especially with the use of capital and finances. For one, there is a need to secure financial independence for these banks in order to manage the impact of external parties on monetary policies (Morgan, 2009). Long-term profitability must also be considered by these banks in order to ensure that economic circumstances would not have as much influence on the bank. The primary qualities of central banks, including its financial protection through risk control activities is significant to maintain its credibility (Vinals, 2010). Such consideration, together with the values of transparency is needed in order to ensure effective management of public funds. The installation of effective risk management frameworks with effective governance standards must also be at the very core of central bank management. Risks in central banking have to be evaluated based on holistic and comprehensive considerations, with evaluations made on various portfolios and operations (Vinals, 2010). For such purpose, comprehensive risk monitoring and reporting activities are needed, especially those which can provide decision-making bodies with effective risk management processes (Vinals, 2010). As a main element in the risk management of central banks, effective governance processes have to be implemented in relation to reporting activities as well as risk management functions. Central banks have greater access to funds, including current accounts with minimum financial requisites. In effect, during periods of financial stress, these banks may not have the same liquidity issues as other private financial institutions (Morgan, 2009). It is therefore important for central banks to manage their financial activities to the best advantage of their stakeholders. The risks involved in central banks indicate qualities which are very much different from private banks. Based on more dynamic processes, central banks often take in more risks during crisis situations, while private firms have limited exposure to these risks (Morgan, 2009). Issues which relate to these central banks therefore have a more significant impact on the overall turn of businesses that are reliant on these banks. Relying and depending on central banks for financial viability is a risky venture because of their exposure to higher currency risks. For corporate managers, the importance of seeking and applying more effective processes in corporate management must therefore be based on dynamic financial support. Although the central bank can be used to support their ventures, reliance on its management must not be locked in stone. Accepting financially stable parties for credit operations can help limit financial risks. Moreover, managing collateral effectively must be the goal of most financial institutions, including corporations who often pay the price of market instability as well as economic recessions or downturns (Vinals, 2010). Reliance on the central bank is a risky process which makes corporations vulnerable to the issues in the financial market. For risk managers, they must learn to acknowledge and recognize the risks they may be facing under these conditions and under related frameworks of financing (Vinals, 2010). Article 5: Financial Post. (2012). Significant spike in internal fraud over past year, Kroll Global Fraud Report reveals. The article discusses how internal fraud in companies have increased, with about six out of 10 global companies being affected by these incidents for the past year alone. Information theft is one of the most common frauds being encountered by companies with most of those perpetuating such activities acting alone and mostly occupying insider positions as junior employees, senior managers and agents. However, overall fraud has also decreased in the past few years with external threats being managed by corporations. With the significant amount of attention given by managers towards the prevention of fraud, the overall rates of fraud – both internal and external have been decreased. Moreover, firms have also ensured the confidential protection of their electronic data which to some extent has helped decrease internal and external fraud. The Foreign Corrupt Practices Act has had a considerable impact in preventing and managing fraud and a marked increase in compliance has been seen in the corporate world. Commentary Internal fraud it a major issue in the cut-throat world of business. As various corporations are seeking advantages over the other, some of them are also resorting to the use of both fair and foul means in order to gain leverage over the other. Unfortunately, some employees are also willing to pay the ultimate price for such information (Pickett, 2010). For most corporations, the management of fraud risk can be a difficult undertaking because of the subterfuge involved in the fraudulent activity. Finding out the identity of the fraudster can be a difficult challenge for any corporation; moreover, the extent of the fraud cannot often be completely determined even after the fraud is discovered (Pickett, 2010). In the end, the fraud itself can be significantly costly for corporations. In order to manage its risks, there is a need for corporations to divide their confidential information and data. Not allowing for the entire picture of corporate activity to be revealed to the employee is important in the long run (Turner, 2008). For any employee, transparency is also a prudent choice; and requiring employees to keep detailed bookkeeping accounts and information can be an important consideration for these corporations (Turner, 2008). Corporate managers must also stay vigilant at all times about corporate activities, allowing for regular checks of corporate accounts and other confidential information. Developing a satisfactory work environment for employees is also an effective way of preventing internal fraud. Dissatisfaction with one’s work and work environment decreases the sense of loyalty which employees should ideally have for their employer (Turner, 2008). But for employees who are happy and satisfied in their work place, the motivation to carry out fraudulent activities against their company would be practically non-existent. Internal fraud is very much destructive because it speaks of management failings and incompetence. The stronger and more efficient corporate managers have managed to prevent these incidents, however, the processes involved in the management of internal fraud has not always been effective, especially where high stakes are involved (Goldmann, 2010). Nevertheless, strong and secure accounting systems are still one of the best means by which internal fraud can be effectively managed. Financial management and management of insider information must also be in the hands of the most trusted corporate employees (Goldmann, 2010). These are individuals who must also be committed to the goals of the corporation. Attempts to extend such commitment must also be made by the corporation to the other corporate employees, eventually instilling in them a strong sense of loyalty. As was mentioned in the article, the overall rates of fraud, which includes external fraud has decreased in recent years especially with the installation of legal protective measures against fraud. With the support of international legal measures, fraud has been minimized and has been easier for corporations to prevent and manage (Vona, 2011). This demonstrates the importance of international legal measures in the effective management of illegal corporate activities. History has taught us that as far as international activities are concerned, issues in legal measures can be difficult to legislate and implement because of the independent status of states (Vona, 2011). However, where international legal measures are in place, it is possible for corporations to enjoy full international legal protection. References Bennett, J., Owers, M., Pitt, M. and Tucker, M., 2010. Workplace impact of social networking. Property Management, 28(3), 138 – 148. Culp, S., October 8, 2012. Supply chain risk a hidden liability for many companies [online]. Available at: http://www.forbes.com/sites/steveculp/2012/10/08/supply-chain-risk-a-hidden-liability-for-many-companies/ [Accessed 11 October 2012]. Desai, P., 2011. From financial crisis to global recovery. New York: Columbia University Press. Financial Post., October 16, 2012. Significant spike in internal fraud over past year, Kroll Global Fraud Report reveals [online]. Available at: http://www.financialpost.com/markets/news/Significant+spike+internal+fraud+over+past+year+Kroll+Global+Fraud/7396870/story.html [Accessed 16 October 2012]. Gibson, J., Greenwood, R., and Murphy, Jr., E., 2009. Generational differences in the workplace: personal values, behaviors, and popular beliefs. Journal of Diversity Management, 4(3), pp. 1-8. Goldmann, P., 2010. Financial services anti-fraud risk and control workbook. London: John Wiley & Sons. Hayward, J., 2012. The crisis of representation in Europe. London: Routledge. Heath, C., Knoblauch, H., and Luff, P., 2000. Technology and social interaction: the emergence of ‘workplace studies’. The British Journal of Sociology, 51(2), 299–320. Hoover, W., Eloranta, E., Holmstrom, J., and Huttunen, K., 2001. Managing the demand-supply chain: Value innovations for customer satisfaction. London: John Wiley & Sons. Jackson, J., 2010. Financial crisis: impact on and response by the European Union. California: DIANE Publishing. Kelly, M., October 9, 2012. Living With Risks in Era of Mobile Devices, Social Media. Compliance Week [online]. Available at: http://www.complianceweek.com/living-with-risks-in-era-of-mobile-devices-social-media/article/262813/ [Accessed 12 October 2012]. Mackintosh, J., October 10, 2012. Reliance on central banks poses risks. Financial Times [online]. Available at: http://www.ft.com/intl/cms/s/0/05fe6478-12f6-11e2-bca6-00144feabdc0.html#axzz29LaWHSV4 [Accessed 13 October 2012]. Morgan, J., 2009. The limits of central bank policy: economic crisis and the challenge of effective solutions. Camb. J. Econ., 33 (4), 581-608. Pickett, K., 2010. The internal auditing handbook. London: John Wiley & Sons. Rainer, R., and Cegielski, C., 2010. Introduction to information systems: Enabling and transforming business. London: John Wiley & Sons. Sawers, A., October 10, 2012. Recession, regulation, returns: the impact on your banks. CFO. 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