Risk Management - Essay Example

Section/# Risk Management The arena of risk management is something that nearly every business and/or organization is specifically interested in. The underlying reason behind this has to do with the fact that at some point in the operations, development, expansion, or evolution of a given firm or organization, is invariably true that risk of one form or another will be face. As such, stakeholders within management and leadership have long sought a means of interpreting risk and adjusting the response mechanisms of a given organization or business in an appropriate manner. Invariably, it is true that risk management is more of a process as compared to minute or immediate changes to business operations as a means of addressing potential hardship that could be exhibited in the extant environment. Invariably, risk management has come to play a vital role with respect to the planning and organizational process that businesses in firms around the globe have engaged in. As has been reference previously, the level and extent to which risk management takes place between diverse business entities is naturally quite divergent. However, even within such a level of divergence, key similarities exist between firms or organizations that engage with risk management/risk preparedness/risk planning. As a means of effectively understanding this process and denoting its interval compliments, the following analysis will discuss a basic fishbone diagram for the way in which risk management is necessarily practiced at its most basic level. Naturally, as might readily be inferred, the discussion and review that will be engaged in the following pages will not be an exhaustive and complete review for how risk management can be applied in a specific industry; instead, the discussion will be concentric upon the key commonalities and similarities that exist within risk management/risk planning between nearly each and every sector of the business/professional world. It is the hope of this author that such a level of discussion and analysis will reveal the best practices and core concepts that the reader should take away from the research and apply in their respective field of operations. The first component part of risk management that will be discussed is with respect to the aspect of risk that exists internally. Accordingly, this particular internal risk is with respect to the individuals that are actually employed within the firm or business entity in question. The element of risk that is inherent within this particular group of stakeholders is mostly predicated upon quality, sensitivity of information, and an overall lack of engagement/frustration/satisfaction that might be exhibited within these particular individuals. Firstly, with respect to the issue of quality, risk management should uniquely the aware of the internal input and output mechanisms that contribute to the final product/service that is exhibited within the external environment. As such, a lack of focus upon quality control or customer service could quickly reveal a situation in which the greatest risk that is exhibited to a particular firm or business entity is predicated upon the internal risk of lack of quality control and/or issues related to the morale of the employee base. Although this might be an obvious situation to address, the fact of the matter is that many firms focus upon risk management from a detached or otherwise oblique approach. What is meant by this has to do with the fact that the internal risks that exist within any particular firm or business entity are oftentimes ignored in lieu of focusing upon external risks that exist within the competitive environment. Although it is true that the majority of risk that any firm or business entity faces is necessarily evident within the external environment, forgetting to focus upon internal risk and seeking to address it/ameliorated is one particular shortcoming that contributes to a lack of competitiveness or efficiency within a litany of different firms. Another internal threat with respect to risk management and risk remediation that many companies failed to overlook from the internal perspective has to do with the methodology through which the market is engaged. For instance, regardless of whether or not a given firm or organization seeks to provide a service where the product, market dynamics and the means through which the methodologies of engagement within such a market exists fundamentally create a level of risk and potential profitability for the firm. As has been noted throughout past, organizations and business entities that have a particularly good approach to a given market are invariably those that are able to capitalize upon their particular business idea/services/product. By means of contrast in comparison, those that did not have a resilient methodology or approach in the market invariably engage with a much higher risk as compared to those that have been previously discussed. Additionally, this is classified as an internal risk due to the fact that whatever approach that a given business organization takes to the market is invariably predicated within the entity in question and engaged as a business plan or model. Further inherent level of risk that exists with respect to this has to do with the minute and continual change that takes place within the market and the eventual inability of even an ingenious approach to continue to engage the needs and wants of the customer base. Naturally, this somewhat spills over into the tertiary determinant of risk which will be discussed below; namely that of the external environment. An element of risk that nearly all firms on a daily basis is with respect to managing the risk that is inherently portrayed within the external environment. Changes in the way the competition engages with the market, changes in consumer perception, changes in the political situation, changes in economics, changes in monetary policy, and changes within a litany of different business and financial aspects create a litany of risks that risk management experts denote as contingent upon the external environment. Naturally, many of these risks are even more difficult to ameliorate and/or address as compared to the internal threats that have already been discussed. However, this notwithstanding, a resilient risk management strategy will engage in potential scenarios and seek to identify the means by which the firm or business entity in question can seek to address likely outcomes with existing protocol. Once again, the firms that find themselves at a unique advantage are invariably those that consider these externalities and planned for them accordingly. Likewise, those firms that experienced undue hardship with respect to the elements of the external environment that have thus far been discussed invariably suffer and oftentimes cease to exist as a direct result the fact that they are unable to match the needs, demands, or realities that come to be represented within a relatively brief period of time in the external environment (Holendere et al. 180). Another aspect that will be discussed with regard to the fishbone diagram that has been provided in table 1 has to do with a combination of both the internal and external risk that exists to any given organization/business entity. Ultimately, whether or not a service or product is provided, there is material input that is required in order for the business or entity/organization function properly. Within such an understanding, it is patently obvious that the quality of the material input that is required as a direct level of risk with respect to the overall quality of the product or service that is generated to the external environment. Although it is impossible for any firm or business entity/organization to completely ameliorate the threat to the material input that they might engage within any specific project or service, the need to contract many different suppliers and have readily available substitutes on hand as needed is an essential complement of seeking to reduce the overall risk that might be represented via a situation in which a substandard product or material input is represented to the firm/business entity in question. For this very reason, firms that are impacted negatively with respect to low-quality inputs are invariably those that do not have standing contracts or agreements with secondary and tertiary vendors (Goh et al. 578). By much the same token, those firms that are able to quickly react to substandard inputs by one particular supplier, or group of suppliers, are those that have standing contracts and agreements with alternative suppliers that can quickly fulfill the demands. Once again, proper risk management planning is contingent upon the ability of a firm to have standing agreements, written protocol, and means by which they can quickly react to the way in which products or services are supplied to them as compliments to the final product or service that is provided to the end customer. The final element of risk management which will be discussed within this brief analysis has to do with what will be termed as externalities. Although the fishbone diagram which has been provided above is focused mainly upon internal, external, and internal – external risks that exist within any particular business entity/organization, the fact of the matter is that this brief representation is only part of a much larger picture of how risk management should be affected. Depending upon the size, structure, and scope of the particular business or organization, the means by which it should address issues related to risk management will invariably differ (Pushenko 123). However, one further commonality remains between all businesses that must engage in seeking to ameliorate the risks that are presented to them. This broad and overarching category is with respect to what can be termed as “business externalities”. Within the business externalities label, the stakeholder should engage with an understanding not a specific case or of the way in which situation might be handled; instead, it is evocative of a business approach that seeks to engage risk management via the lens of likely scenarios. Each of the risk management structures that have been exhibited above indicate a level of forethought and prior planning. However, even as these might be engaged within a specific firm or business entity, they are not in and of themselves complete to ensure that risk management will be conducted effectively and efficiently. As an addendum to these, it is necessary for the business or firm in question to seek to engage a level of “business externality planning”. Within this particular form of approach, it is necessary for the business or organization to focus upon possible and likely externalities that they could face which might effect the overall potential to engage with the market and continue to experience a level of profitability/productivity (Yi et al. 414). As this potential for risk is quite broad and envelops a litany of different factors/spheres of the business world, it is impossible to generically denote how such an approach might take place. However, this fact notwithstanding, and overview of the business situation and a careful analysis of likely scenarios would take place in the future, or which might have threatened to take place in the past is an essential starting point through which such an analysis can be conducted. Ultimately, many firms and business organizations are discouraged from performing risk management due to the fact that they believed it is inherently all guesswork. As has been exhibited thus far within this brief analysis, it is clear and apparent that the “guesswork” risk management is ultimately nothing more than seeking to review and analyze the potential scenarios harm that might take place in working to ameliorate them in a way that promotes the best interests of the organization/business entity in question. As such, the reader can come to a clear understanding of the fact that risk management is not merely a process that involves taking an educated guess at what might come to be evidenced in the future; rather, it is contingent upon analyzing the business environment, analyzing the strengths weaknesses and opportunities of the firm in question, in seeking to engage processes and approaches that are effective in addressing these shortcomings so that the firm or business entity can continue to operate into the future without the inherent risks that might otherwise be represented. Works Cited Goh, Cheng Siew, Hamzah Abdul-Rahman, and Zulkiflee Abdul Samad. "Applying Risk Management to Opertions Management." Journal Of Construction Engineering & Management 139.5 (2013): 572-580. Academic Search Complete. Web. 21 June 2014. Holendere, Linda, Aija Dukule, and Inara Jurgena. "Assessment Of The Risk Management Process."Economic Science For Rural Development Conference Proceedings 35 (2014): 172-181. Academic Search Complete. Web. 21 June 2014. Pushenko, S. L. "Risk-Management And Its Integration To The System Of Labor Safety Management. (Russian)." Talent Management 34.53 (2013): 121-128. Academic Search Complete. Web. 21 June 2014. Yi, Li, and Zhang Xiangqian. "Research On The Innovative Talent Management Based On Risk Management Theory." Journal Of Chemical & Pharmaceutical Research 6.4 (2014): 413-419. Academic Search Complete. Web. 21 June 2014. Appendix: Table 1 Read More