Timbale Everglades Current Risk Management Practices - Case Study Example

Risk Management Name: Tutor: Course: Date: Executive Summary Risk management plan is a document that identifies, assesses, profiles and reports the risks inherent or external to the organization. The Risk plan is based on a paper manufacturing plant in Brazil, Latin America. The plan provides for documentation of current risk management practices within the organization. The first part B, it is about the risk management scope that defines the boundaries of the risk process. It also highlights the stakeholders and the risks associated with them. The second section of this part, it provides macro-environment of the company by looking into the politics, economy, and technology, socio-cultural and environmental issues. A comprehensive and detailed Risk Register is presented in a separate Excel sheet In part C the plan looks into the risk monitoring and control template. It outlines the arrangements for monitoring the risk management plan. Lastly, it offers a short explanation of the compliance process adopted. The last part D undertakes a review a risk management plan in BHP Billiton. It looks at the strengths and weaknesses of their plan as well as any suggestions for improvements. Table of Contents Executive Summary 2 Table of Contents 3 List of Figures 5 List of Tables 6 1. PART B 7 1.1 Introduction 7 1.2 Timbale Everglades current risk management practices 7 Figure 1: ERM cycle 8 Figure 2: Risk Assessment Process 9 1.3 Risk Management Plan Scope 9 1.4 Stakeholders 9 Table 1: Stakeholders Analysis 9 1.5 PEST Environment 10 1.5.1 Political and Legislative 10 1.5.2 Economic 11 1.5.3 Social-Cultural 11 1.5.4 Technological 11 1.5.5 Environmental 12 1.6 Risk Register 12 2. PART C 12 2.1 Risk Monitoring and control 12 Table 2: Risk Monitoring and Control Template 13 2.2 Monitoring the Risk Management Plan 14 2.3 Compliance Process 14 3. PART D 15 3.1 Review of BHB Billiton Risk Management Plan 15 Figure 3: BHP Billiton Risk matrix 16 3.2 Strengths 16 3.3 Weaknesses 17 3.4 Recommendations 17 Reference list 19 List of Figures Figure 1: ERM cycle 8 Figure 2: Risk Assessment Process 9 Figure 3: BHP Billiton Risk matrix 16 List of Tables Table 1: Stakeholders Analysis 9 Table 2: Risk Monitoring and Control Template 13 1. PART B 1.1 Introduction The Timbale Everglades is a paper packaging and newsprint company based in Latin America. The company has been operational for the last 35 years employing more than 200 people. The production capacity is 25 metric tons per day of packaging paper and 30 metric tons of newsprint. The company has a good relationship with its stakeholders (Borodzicz, 2005). The functions are procurement, finance, corporate governance, and production, marketing and human resource. However, employees have been complaining over continued neglect by the company to address their health and safety concerns. The remuneration package is also low which has posed threat to its productivity. Over the last two years, there have been more than 20 injuries reported and two instances of plant fire originating from the plant. The risk manager was hired by the company to undertake risk documentation, analysis and planning (Roehrig, 2006). The report is as presented below. 1.2 Timbale Everglades current risk management practices Manufacturing is big business but comes with huge risks. The company management board is aware of these challenges but has limited knowledge on the nature and extent of the risks. The board seems not to have identified the risks that demand active oversight and management. The company is now organizing itself and enacting all the necessary activities needed to eliminate the risks (Abrams, 2001). They are expected to be cost prohibitive. The company uses a risk log that identifies the risks, assesses their likelihood and impact. They are then able to make cost effective decisions regarding the suitability of the risk response. The company understands that it has to adopt a mechanism that manages the negative consequences and brings them to acceptable tolerances (Nederpelt, 2012). In the past year, the company employed the Enterprise Risk Management framework (ERM) as a strategic risk analysis cutting through the entire organization. It is an end-to-end process and the organization can identify and profile the risk. Appropriate responses are then provided to profile the risks in line with the business priorities and objectives. The company’s current risk responses are; accept, transfer and mitigate (CICA 2000). The ERM cycle and the risk assessment process are shown below in figure 1 and 2 respectively. Source: Society of Actuaries Figure 1: ERM cycle Figure 2: Risk Assessment Process 1.3 Risk Management Plan Scope This is the essential part of the Risk Management Plan. It defines the agreement between the operations team, organizational management and principal stakeholders. This is a common understanding of the company operations to facilitate communication among stakeholders, set authorities and limits for the risk manager and the team (Dorfman, 2007). The scope statement relates the operations to business objectives and defines the boundaries to various dimensions like deliverables, approach, budget and milestones. The company has identified the ERM approach to identify and profile risks. The response time should not exceed one month after identification and assessment. Assessment is through the ERM method while documentation is based on the Fair Mode Effects Analysis (FMEA). The company has set aside $20,000 per year for risks responses such as mitigation and transfers (Alexander & Sheedy, 2005). The scope is divided into two (internal and external environment) in which the internal environment comprises; reputation, safety of employees, ethics and culture, and safeguarding assets. The external environment includes; politics, regulations, economy, competition and natural disasters. 1.4 Stakeholders The stakeholders have key roles and responsibilities to the company. They have a stake in communication, monitoring and reporting of risks. The stakeholders of the company are listed alongside the risks associated (Borodzicz, 2005). Table 1: Stakeholders Analysis Stakeholder Objective/Role Risk Board of Directors Promote shareholders value Excess infrastructure Misplaced strategy Company CEO Maximize net income for the shareholders Underestimation of competitors Declining quality and brand Employees Enhance production of outputs (Packaging paper and newsprint) Sabotage Injuries and accidents Go slow Regulators Conformance to regulation Responsiveness to industry concerns Feedback on the effectiveness of regulation Ban on forest products Tax and levies on environmental clean-up Suppliers Progressive price reductions, innovation and responsiveness Poor quality materials supplied Faulty and obsolete equipment supplied Customers Fair prices and continued purchase with the company Abrupt pullout by customers Damage to the company reputation 1.5 PEST Environment 1.5.1 Political and Legislative Brazil is a Federation that consisting of States, Municipalities and the Federal District that form the spheres of the government. The branches of government are the judiciary, executive and the legislature. The nation is a multiparty democracy with voting compulsory for people between 18 and 70 years (Amann, 2000). The parties that legislate on issues regarding environment and operations of the manufacturing and processing industries are; Workers Party (PT), Brazilian Democratic Movement Party (PMDP), Democrats (DEM) and the Brazilian Social Democratic Party (BSDP). These parties are represented in the congress. Authorities and agencies affiliated to the government exercise the administrative and governmental functions. Brazil is opposed to the idea of rich countries offsetting carbon emissions through tree conservation effort fund to developing countries (Schneider, 2005). The congress in 2012 introduced measures to curb pollution of warm waters and beaches from the Suape industrial complex in Pernambuco. More punitive measures are being imposed on industries to limit illegal logging and destruction of the Brazilian ecosystem. 1.5.2 Economic The country has a GDP of $2.17 trillion and a per capita of $10,773. It is the largest economy in Latin America and seventh largest globally. The active sectors are agriculture, manufacturing, service and mining employing more than 107 million people. Manufacturing contributes 5.1% of the Brazilian GDP. Unemployment rate stands at 6.2% (Furtado, 2012). Major exports are automobiles, aircraft, steel, paper and textiles. Inflation stands at 4.5% as at 2013 with the central bank setting monetary policy measures to regulate interest rates. Corruption costs Brazil about $41 billion annually spread through 70% of the firms. 1.5.3 Social-Cultural Brazil has more than 190 million people concentrated in the south and north eastern regions. The literacy rates as at 2008 was 78% being higher in urban than rural areas (Borodzicz, 2005). The dominant races are white and Pardo (brown) while others are Black, Asian, and Amerindian (Schneider, 2005). There are other un-contacted tribes living in the Amazon forest. The society is marked along social lines defined by income disparities. Appearance marks the social closeness of racial groups. These also define the socio-economic factors. The country is open to immigration. Many people are Roman Catholics. Portuguese is the official language and much of the cultural heritage has Portuguese influence (Amann, 2000). 1.5.4 Technological Public universities and research institutes undertakes technological innovations. The major innovations are in agriculture and aerospace. Research is ongoing on the use of renewable energy and ethanol powered automobiles (Furtado, 2012). The energy to factories emanates from hydropower and is the only country in Latin America with a semi-conductor plant. Most of the paper industries are changing to mechanical pulping to reduce pollution. Plant upgrades are also applied to reduce wastage and increase efficiency. 1.5.5 Environmental There have been concerns over wanton pollution especially among the shellfishing communities. The Suape industrial complex is slowly decimating the Crane numbers at the Pernambuco state tower next to the mangrove swamps (Amann, 2000). Deforestation is the major source of pollution followed by sewerage waste release. Rapid urbanization has caused widespread air pollution also affecting the Rio’s waters. Brazil has instituted measures to curb pollution and destruction of the Amazon through congressional legislations in 2011. 1.6 Risk Register Failure mode Effects Analysis (More details in Excel sheet attached) Failure Mode: Outlines what may go wrong in the operations Effects of failure: The impacts of the failure happening Cause of failure: Lists the potential causes of the failure Hide ability: Identifies the procedures or controls exist to prevent or detect the cause or failure mode 2. PART C 2.1 Risk Monitoring and control Risk monitoring and control is implementing the risk management plan while ensuring its validity of its assumptions. The operations manager reviews the original plan for cases of alterations. This is done at the concept phase of the project and at the close out phase (CICA 2000). This is included consistently in the project communication process. Risk control is undertaken before and during the risk event. The risk monitoring and control for Timbale Everglades Mills is as shown below; Table 2: Risk Monitoring and Control Template ID Risk Probability Impact Status Control 1 Machine Guards open H H Five of the ten machines have been installed with auto guards Project schedule in place 2 Machine Injuries M H 50% of the injured persons have been treated and discharged Install first aid kits in all the departments 3 Death of Employee L H Family of the two employees who died in the line of duty have been compensated Contingency budget: Company arranges and meets all the funeral costs 4 Fire from the plant M H All the fire exit points and extinguishers installed Work breakdown structure of activities 5 Air and water pollution H M Testing and inspection is 60% complete Project resource list and plan 6 High Employee Turnover M L Training program have been implemented to start in early September 2014 Project schedule and resource list 7 Poor perception of the brand L M A PR company hired to conduct marketing research WBS provided, budgetary estimates of supplied 8 Threat by locals to close the factory L M A school and a dispensary is being constructed WBS and project resource list included 9 Increased taxes and levies L M N/A N/A 10 Stringent laws on logging H H Negotiated agreement with the government scheduled for Mid June 2014 Program schedule 2.2 Monitoring the Risk Management Plan The project will set up a schedule during the weekly reviews to compel itself into reviewing the risk management plans. Reviews will include looking and checking what went well and what was mitigated. All the outstanding risks are reviewed to find out if they are still valid while collating new risks that have occurred since the last review (Morgan & Henrion, 2002). The risk will be reviewed regularly and involving many people in the company. These are the team members and the principal stakeholders so as to get prepared in cases of eventualities. The monitoring and control aspect must utilize the risk metrics such as risk events, value, impact, and probability. Others in the list must include the timeframe, status, type and priority. The tools to be provided are Work Breakdown Structure, Budget estimates and actual, schedule, earned value of activities and the project resource list and plan (CICA 2000). Change log frames and forms must also be included. The risk manager needs to identify all the triggers and ensure visibility of the triggers to the team. Frequent monitoring of the triggers is important. The risk manager must provide a window of time to monitor the risks. If possible review the budget, schedule and change the control for probable risks. Risk plan (probability and impact) is reassessed each time of risk occurrence. All the operational status meetings should include risk management (Roehrig, 2006). Finally, the risk manager and his or her team should capture and document facts immediately. Risk event analysis must be prepared and kept in a lessons learned file. Results of risk management should be communicated to the entire organization. 2.3 Compliance Process Implementing compliance risk management in the company will require prioritization of activities. High risk areas are identified while consolidating compliance required in the risk assessment. Common evaluation criteria are used and a score is used to quantify business impact and vulnerability of non-compliance. This allows for business activities to be prioritized. Regulatory updates and alerts should be actionable by working towards clearer executive summary (Morgan & Henrion, 2002). This interprets key action items, identifies activities, impacted business areas, deadline for action, and approvals required for policy changes. Regarding the business impact, there must be connection between related resources, policies and impacted business processes. Internal policies must relate to internal control procedures while integrating regulatory changes to quickly bring out the impacted business areas and actions needed (ISO/DIS 31000 2009). 3. PART D 3.1 Review of BHB Billiton Risk Management Plan The company headquartered in Australia has interest in mining and drilling (On and off-shore exploration). The company profile risks depending on probability and impact based on quantitative measures. It begins with prioritizing the risk and identifying its status and ID. It is also identified by date and the phase of the project. The functional assignment is noted such environmental analysis involving external stakeholders (Gorrod, 2004). Technical description of the desires by the stakeholder is provided. The risk trigger is stated. This is followed by quantitative analysis to the constraints such as quality, cost and schedule. Quantitative analysis helps in rating and grading the risk. This is essentially probability and impact of the risk (Morgan & Henrion, 2002). A risk matrix is prepared indicated by colors to represent the risk score. The matrix used is a standard 5×5 risk matrix. Very Low (Green color), Low (Yellow to Green), Medium (Red, Yellow, Green), High (Yellow to Red), and Very High (Red). The Matrix is shown below; Figure 3: BHP Billiton Risk matrix The risk response strategy range from avoidance, mitigation, and transfer and used based on their advantages and disadvantages. The strategy is measured on how it affects the WBS and the tasks in place (Borodzicz, 2005). Monitoring and control involving assigning responsibility to the task manager, recording the status interval or milestone check. Date of the review with its comments is finally made. The assumptions to the project are taken by simulating or calculating the individual risk event expected value (Crockford, 2006). Possible effects of correlations with other risks or components are not accounted. Escalation effects are also not considered. Testing components are accepted into the project. The company reviews the risks weekly and every time the risk event occurs. 3.2 Strengths The risk plan is reviewed monthly which is able to capture and document some of the critical risks 1. Adequate budgetary allocation has been provided to most of the risks identified 2. Their 5×5 risk matrix used is sufficient and more advanced the ordinary 3×3 matrix 3. The entire staff is notified of the risk and new risks. The status is updated and communicated using e-mails and memos 4. The company has response measures especially through transfers and mitigation of risks. The effect will be low since they have reduced their severity and frequency of occurrence 5. The risk policy is integrated to the business goals and objectives hence stakeholders know their roles and responsibilities in mitigating risks. 3.3 Weaknesses 1. New risks keep emerging in the work environment which may require an entire overhaul of the previous risks 2. More employees are falling into accident traps to gain on workmanship compensation claims 3. Risks more oriented to technical and performance instead of strategic analysis of the company’s external environment 4. No annual communication is made regarding the contribution of risks into the annual financial analyses 3.4 Recommendations 1. Documentation of risks to adopt the Fair Mode Effects Analysis (FMEA) as it shows the current control and the potential areas of change 2. Monitoring, control and reporting should be synchronized and kept in mediums that can be accessed by all the employees 3. Strategic analysis should be conducted to help the company in repositioning with their competitors within Australia and beyond. 4. Risks identification, assessment, reporting and control should allow for change management 5. The Enterprise Risk Management (ERM) software should be used to document variety of risks exposing the company in all its global operations. 6. Review risks each time they occur Reference list Abrams, H K 2001, A Short History of Occupational Health, Journal of Public Health Policy, 22 (1): 34–80.  Alexander, C & Sheedy, E 2005, The Professional Risk Managers' Handbook: A Comprehensive Guide to Current Theory and Best Practices. PRMIA Publications. Amann, E 2000, The Illusion of Stability: The Brazilian Economy under Cardoso. World Development (pp. 1805–1819) Borodzicz, E 2005, Risk, Crisis and Security Management. New York: Wiley. 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