Managing Strategic Risk of Triaton Chemicals - Case Study Example

Managing Strategic Risk Name: Tutor: Course: Date: Table of Contents 1. Introduction 3 1.1 Risk Assessment of Triaton Chemicals 3 1.2 Identification and Documentation of Risks 3 1.2.1 Probability 4 1.2.2 Risk Impact 5 1.2.3 Risk Score 5 2. Risk Evaluation 7 3. Risk documentation 9 RISK Information 9 RISK MITIGATION STRATEGY 10 4. Integrated Risk Management 13 5.Reassessment of the risks 15 1. Introduction 1.1 Risk Assessment of Triaton Chemicals Triaton chemicals Ltd is a medium sized industry producing Formaldehyde for its UK and European customers. It employs more than 1250 people. The risk process involving production and supply of Formaldehyde to the UK and Europe is largely influenced by the positive or negative effects it has on various stakeholders and sustainability of the company. The risks in this respect are identified, assessed, given appropriate response, monitored and control and also reported for documentation purposes. Risk management activities in the company will involve performance, recording and management. 1.2 Identification and Documentation of Risks The risks identified by the company with regard to on-site process and transportation on-site are; 1. Spillage and contamination of water, air and land reduction in the numbers of Salmons and other wildlife species 2. Foul emissions threat to health of 3000 local residents 3. Formaldehyde leakage during transportation 4. Stand-off from employees 5. Fire at the chemical store 6. Transport accident 7. Local community opposition to the presence of the company 8. Threat of relocation from the local authority Fundamentally, these risks have been identified and assessed on the basis of 1) impact of the risk on industrial operations, 2) the occurrence probability 3) the time horizon if at all the risk is not managed or controlled in which the consequences will happen. The identified risks are assessed to allow for provisions of a range of possible operational outcomes (Borodzicz, 2005). Risk qualification will help establish them in a way of prioritizing, offering responses and providing long-term solutions. The assessment techniques employed are largely qualitative analysis which considers the probability and the impact of risk occurrence as listed. The chemical company employees will aid in identifying the risks, escalation and documentation. 1.2.1 Probability In the table below probability of occurrence is defined Probability range Expression of Event Value of Probability Numeric score 0.91-0.99 Very likely 0.95 5 0.61-0.90 Probably 0.76 4 0.41-0.60 May occur half of the time 0.51 3 0.11-0.40 Unlikely 0.26 2 0.1-0.10 Very unlikely 0.05 1 1.2.2 Risk Impact In the table below risk impact is shown the categories and terms. The opposite of impact description are considered positive risks. Impact Description Example Expression Impact value Numeric score Fire at the chemical store or production floor Lives lost and property destroyed Cost impact ≥45% Catastrophic Cost of Damage 10 Formaldehyde leakage and fire during transportation Live loss and damage to water ways and air Cost impact≥25% Serious Cost of Damage 8 Foul emissions from the plant Health risks to locals Cost impact≥10% Moderate Cost of Damage 5 Stand-off from employees Delayed operations Cost impact≥6% Minor Cost of Damage 3 Threat of relocation Feasibility for new sites Cost impact≤5% Negligible Cost of Damage 1 1.2.3 Risk Score Risk score is obtained by computing the impact and probability. The product of impact and probability gives the risk score and allows for the process risk prioritization. The values determined range from 50 (very high exposure) to 1(very low exposure). The specific break points does not show risk exposure ranking but the risk exposure considered ordinarily as low risk is that less than 20 requires attention in three months or more (Roehrig, 2006). The exposure values between 40 and 50 are considered as high risks requiring immediate action while values between 20 and 39 indicate moderate risk requiring corrective action in one month. The definitions of Low (L), Moderate (M) and High (H) are; High Risk: Likely to cause huge reputational/operational and financial loses to the chemical company. This aspect demands an additional action to control acceptable risk and high priority management. The firm needs to conduct in-depth response plans for the mentioned risk. Moderate Risk: Causes moderate operational and financial losses. Special action and management attention is needed to control them to acceptable risk levels. The company will need to carry out response planning (Nederpelt, 2012). Low Risk: Little financial or no potential/ reputational losses. Actions within the scope of the chemical company operations and daily business continuity management need to control them to acceptable risk levels. The firm will manage and monitor the risks as they come though no response plans will be immediately required. The risk score table for the chemical company is as shown below; Impact Probability Negligible (1) Minor (3) Moderate (5) Serious (8) Catastrophic (10) Very likely (5) 5 15 25 40 50 Likely (4) 4 12 20 32 40 50% chance (3) 3 9 15 24 30 Unlikely (2) 2 6 10 16 20 Very unlikely (1) 1 3 5 8 10 The risk level shown in the YELLOW Zone and RED zone needs prompt risk response planning by way of a risk mitigation strategy and risk contingency plan. 2. Risk Evaluation The risk evaluation considers the significance of the activity, amount of control, potential losses and benefits or opportunities tied to the risk (Dorfman, 2007). Evaluation is as shown in the table below; Strategic Category Risk Significance Amount of control Potential losses to the firm Benefits/Opportunities Political Pressure from local community for employment Business depends on the goodwill of the locals to operate Regular hiring and communication on available job vacancies Sabotage and destruction of company property Training to locals and establish deeper relations Economic Lay-offs due to low performance Local unemployment levels increase Expanding markets in UK and Europe No dividends to shareholders Increased research for new markets Social Equal employment opportunities to men and women Tapping on the diversity of workforce Company philosophy on equal employment at all times Reduced customer base Improved rating from customers and acceptance by international human right groups Technological Inefficient process causing wastage Opportunity for process change Incremental change every two years Internal failure costs and compensation for failure Procurement of latest technologies in chemical manufacture and transportation Legislative Local authority threat of relocating the company Determines the operational chance of the company Conduct regular audits and reporting Cost of relocation is high Relocation moves closer to markets and reduces collision with local residents Environmental Contamination of rivers and foul emissions to the air Helps to establish the level of damage Formaldehyde can cause Processes and materials used to be changed and tracked for performance Grave harm to flora and fauna Loss of habitat and tourist earning Recreation of environment through green-engineering Competitive Entry of new competitors Change in the market share in UK and Europe Regular market research and sizeable allocation to marketing budget Loss of potential market share Innovation and transformational leadership ensures market leadership Customer, public or stakeholder Failure to check on externalities Good working relationship Regular stakeholder audits Protest by some stakeholders (Customers) reduces Formaldehyde sales and company profitability Potential opportunity to embrace Six Sigma or Total Quality Management The assessment of risks based on strategic placement is indicated in the risk rating table below; Strategic Category Risk Rating Action Timeframe Environmental Contamination 45-50 Immediate process innovation and regular monitoring of piping Immediate Economic Fire 40-45 Use fire extinguishers. Install fire equipment in production floor, warehouse and transportation trucks Immediate Legislative Unfavorable laws 30-40 Comply with taxation laws, provide required audits 3 months Technological Inefficient process 30-40 Perform process upgrade, embrace Six Sigma for continuous improvement One year Competitive New entrants 20-30 Employ creativity to secure market leadership Two years Customer/public/stakeholders Growing level of externalities 10-20 Engage with stakeholders regularly Two years Social Partisan employment Less than 10 Embrace inclusion in employment Three years 3. Risk documentation The chemical company will require to document risks through the risk information table below; RISK Information Company Name Triaton Chemicals Ltd Risk Name Strategic Risk Operations ID AW54834 Risk ID 123 Submitted By Danielle Cox Date Submitted 23rd March 2014 Description Risks associated with on-site process and transportation of Formaldehyde to the UK and European Markets. The risks have been identified, assessed and monitored. Impact Ranges from High to Low Risk Type Budget Resources  Functional Technical  Other Strategic risks Risk Action Avoidance Mitigate Accept Transfer The actions are also listed on the table elsewhere in the report Supporting Documentation Risk schedule RISK MITIGATION STRATEGY Operations Manager Danielle Cox Risk Matrix is used to determine the Risk Priority Risk Owner Mark Twain, Company Manager Probability  High  Medium Low Impact  High  Medium Low Priority  High  Medium Low Mitigation Plan Description / Key Steps The risks like fire and environmental emissions are best handled through installation of firefighting equipment and use of processes that limits emissions Risk management is applied to in uncertainty definition in the company’s operations. A plan of action is set to address the condition or event if it occurs. Management of risk in the company embodies a methodology that defines the data and tools sources to be employed for management of risk (Morgan & Henrion, 2002). Risk management data sources in this case include the operational scope statement, stakeholder management plan, communications management plan, Operations management plan, and also existing processes and conditions that may impact company operations success. The company’s operations Risk Management Plan involve the following steps; 1. Identification of high level risk 2. Identification of process and transportation risks 3. Assessment of risk impact and probability 4. Prioritization of risks 5. Planning of risk responses 6. Management of risk Assessment of risks will utilize the Risk Priority Matrix shown below. There are always consequences and a measure of risk connected with business decisions. Based on the structure of operations, risks in the company have been identified from on-going risk reviews. The Operations Manager and the risk management team will draft mitigation plans. Operations Manager/Stakeholders/Sponsors/team will identify the impact and probability to the project connected with each risk. The Operations Manager then reviews the Risk Log and assigns the owners of each risk and plan with the risk owners and gain approval from the business Stakeholders (ISO/DIS 31000, 2009). The fundamental steps for assessing risk impact and probabilities are as follows: 1. Identification of risks to be assessed 2. Determination of the risk probability and noted on the matrix (high, medium, or low) 3. Determination and noting on the matrix of the risk impact 4. Noting the points of intersection with impact and probability 5. Higher rating used for points that are adjacent In the case where the points of intersection fall, in high, medium or low shows that action needed. High/red along with the medium/yellow requires a response plan while Low/green may not need a response plan. The final agreement and the review of each risk, and level judgment on the impact and probability of each, requires participation of the entire company team. Tie breaker rules will be used if consensus will not have been reached. Determine the Impact to obtain the Risk priority and the intersection of the Probability (Gorrod, 2004). Higher Priority should be assigned where the Impact and Probability are immediately adjacent to one another on the matrix. The strategy is planned by the operations Manager, entire team and stakeholders for each risk that requires a response. Negative Risk Strategies Positive Risk Strategies (Opportunities) Avoid: Avoid fire and accidents by loading Formaldehyde to acceptable capacity. Road and factory accidents can be avoided by freeing the gangways and monitoring temperatures regularly. Inspect transportation trucks daily. Transfer: The negative impact of fire and sabotage or destruction to be transferred to an insurance company or a consultant. Mitigate: Use more efficient processes that utilize less energy and emissions to the environment Accept: The threat by workers to abstain duty or possible flooding the area will only be addressed once it occurs. The risk is dealt with by the risk team if/when it occurs or contingency identified to tackle the threat should if it happens. Exploit: Building social amenities for locals like hospitals and social halls to increase social cohesiveness with the local community Share: Advertise some of the preference shares to the local investors to reduce the level of risks Enhance: Liaise with more stakeholders and communicate at regular intervals of time Accept: Take advantage of the reduced taxation by the government and export compensation claims for manufactured goods 4. Integrated Risk Management This document will build on the company philosophy regarding emergency response planning that utilizes Integrated Emergency Management (IEM) cycle for constant activity reviews and robust arrangement for preparedness. The cycle essentially entails; anticipate, assess, prevent, prepare, respond, prepare and recover (Crockford, 2006). Anticipation is literally identifying the risks associated with production and distribution of Formaldehyde. The Integrated Risk Management Plan is shown in the table below; Risk prevention and reduction: Before the event Recovery: After the event Risk Identification Mitigation and prevention Risk transfer Preparation Response Recovery Contamination due to leakage and emissions Inspect trucks, production processes and materials Involve a chemical and process engineering consultants Monitoring and early warning of leakages communication systems Clean up- Use chemical digester systems to water and land Post-environmental audit to check progress of marine and land habitats Fire Fire control codes and installations Involve Insurance companies to own up fire risks Creation of fire assembly points and using the fire drills to alert the staff in the case of fire outbreaks Ambulances and fire departments staff to put off the fire from premises and trucks Re-establishment of services and critical damage to the infrastructure Unfavorable laws Petition through manufacturers bodies and economic functions Concessions and treaties with the key stakeholders Contingency credits to affected stakeholders so as to all Develop new instruments to engage the regulators, local authorities and governments Incorporate the regulators and government in clean-up and mitigation activities Inefficient process Review of the processes and materials used in the production line Employ independent inspectors and auditors Hire inspectors and outsource the services of auditors Overhaul of the current production system, notification of staff and the local community Conduct post-evaluation of processes, people, materials and suppliers to confirm improved profitability New entrants Change marketing strategies Employ freelance marketers and distributors who will own up for failed transportation or marketing HR recruitment plans and negotiations with suppliers of marketing and transportation services Conduct market research within two weeks Perform after sale services and increase customer service budget Growing level of externalities Economic incentives to the affected stakeholders to promote mitigation measures Use existing financial instruments such as bonds and shares Response plans to involve emergency response networks Re-establishment of services and clean-up and temporary repairs Budgetary and macro-economic management Restoration of the affected sectors Partisan employment Introducing equal opportunities in employment of suppliers, employees and distributors Engaging independent human resource consultants Create new HR policy of equal employment Announce vacancies for diverse employees Involve inclusive human resource plan Perform HR audits in diversity of workers after three years 5. Reassessment of the risks The control levels after recovery will be reduced unlike the initial condition. The probability and impact will hence be reduced. The changes will reflect as shown below; Probability range Expression of Event Value of Probability Numeric score 0.85-0.99 Very likely 0.92 5 0.61-0.84 Probably 0.73 4 0.41-0.60 May occur half of the time 0.51 3 0.20-0.40 Unlikely 0.30 2 0.1-0.19 Very unlikely 0.15 1 The impact range will also be lowered to accommodate risks that were initially regarded as highly risky. Impact Description Example Expression Numeric score Fire explosion at the chemical store or production floor Lives lost and property destroyed Cost impact ≥0.60 Catastrophic 8 Formaldehyde leakage and fire during transportation Live loss and damage to water ways and air Cost impact≥0.30≤0.59 Serious 6 Foul emissions from the plant Health risks to locals Cost impact≥0.15≤0.29 Moderate 4 Partisan employment Feasibility for new sites Cost impact≤5% Negligible 1 The new risk score table will be; The risk score table for the chemical company is as shown below; Impact Probability Minor (1) Moderate (4) Serious (6) Catastrophic (8) Very likely (5) 5 20 30 40 Likely (4) 4 16 24 32 50% chance (3) 3 12 18 18 Unlikely (2) 2 8 12 16 Very unlikely (1) 1 5 6 8 The new risk documentation after controls shows that Integrated Risk Management process is effective. The risks that were earlier regarded as highly risky drops to moderate status while those in the lower high risk (yellow) falls to the medium status. For instance, the leakage which was highly risky at over 40 in risk score rating has dropped to between 18 and 24 indicating that the strategies of controlling leakages within the storage bunds has worked (Alexander & Sheedy, 2005). The movement from high, medium and low has also increased the potential of the company to handle the major risks and provide a long-term recovery plan not only for its shareholders and employees but also customers, suppliers, local community, regulators and government. Reference list Alexander, C & Sheedy, E 2005, The Professional Risk Managers' Handbook: A Comprehensive Guide to Current Theory and Best Practices. PRMIA Publications. Borodzicz, E 2005, Risk, Crisis and Security Management. New York: Wiley. Crockford, N 2006, An Introduction to Risk Management (2 ed.). Cambridge, UK: Woodhead- Faulkner. p. 18. 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