Presentation
This guide is written for advice on an approach to risk management, dealing with procedures for conducting risk assessments and treatment.
Background to my organization
I intend to focus my attention to the company?s risk management in general. My company is involved in trading of steel products, mainly for construction purposes, as well as sales and agricultural products, such as beans, corn and rice. What comes to these products, letters of credit (LCS) launched at regular intervals of these products to sell abroad. As part of the accounting and financial management, not only my responsibility for the proper accountability for such operations, but also as part of a team involved in the new trade and financing of the project to ensure the smooth opening of shops LCS, financing and delivery of these products. This flow requires the cooperation and activities, and accounting and finance departments.
Risk management
The business risk associated with exposure to events that have a negative impact on business strategies and objectives. Business risk is due to two factors: the probability of an event and the severity of the consequences (Bowden, Lane and Martin, 2001). There are several risks that are more specific to my organization, and are presented as follows:
1. Strategic risks, such as a bad marketing strategy and acquisition strategy poor, because of poor design (Bowden et. Al, 2001). Poor marketing and the acquisition of different grades of steel and agricultural products could be the destruction of the organization.
The second financial risks, such as lack of credit ratings and bad debts and inventory, because of poor financial controls (a Bowden. Al, 2001). Insufficient credit ratings of trade disputes and other claims and accounts receivable turnover low ?may be a poor reflection of corporate strategy and objectives.
The third operational risk as a bad practice and routine operations because of bad deeds of man (a Bowden. Al, 2001). Failure to comply with the safety practices of the organization, or actions by employees, even deliberate can create potential operational and financial losses.
4. The technical risks, such as equipment failures and infrastructure and the destruction by fire, after the failure of physical assets (Bowden et al., 2001). These risks can transmit in my organization, if appropriate measures are not taken to prevent these techniques. Unfortunately, many organizations tend to focus too much on performance and size of the risk premium too technical and manage them (Smith and Reinertsen, year unknown).
5. Market risk, such as inadequate market research, which is a risk that the satisfaction of the needs of the market, assuming that the specification is satisfied (Smith and Reinertsen, unknown year). This risk may be more important than others, but is less controllable, because the risk is less than objective and quantifiable risks than the technical means
As a result of the above risks, combined with technology advances and competitive pressure, risk management has assumed greater importance of the existence of business today (Bowden et. Al, 2001). Risk associated with a logical and systematic way to create a connection with the identification of hazards, risk analysis, risk assessment and, finally, treatment of risks. This approach also involves communication and results of the consultation and to monitor and evaluate the risks of treatment. This approach to risk management method is known as AS 4360 (Bowden et. Al, 2001).
Risk Management
Step 1: Define the context
It is the creation of context in terms of strategy, organization and risk management (Bowden et al., 2001). The strategic context is concerned about the relationship between the organization and its parameters in terms of financial, operating environment, social and competitive (Bowden et al., 2001). In the case of my organization, we are interested in our financial objectives (for example, sales of U.S. $ 20 million with a profit margin of at least 12% annually), high quality products and satisfaction right and good market position of clients (one of the leading suppliers of steel in the regional construction industry). The strategic context also requires the organization to identify stakeholders, including owners, employees, customers, suppliers and the local community (Bowden et al., 2001). Moreover, my organization will be accountable to our shareholders and the media as well, since we are a local company in the list.
Organizational context will be affected by the goals, objectives and strategies of the company as a whole (Bowden et al., 2001). In this context, we must establish and implement appropriate key performance indicators (KPI) and critical success factors (CSF) to suit the different aspects of business. There are a few key performance indicators that are commonly used in my organization:
1. Net sales and profit targets: These are the above.
2nd Customer Satisfaction: Survey is sent quarterly to our suppliers and customers to ensure at least 90% of total customer satisfaction.
3. Deliveries of shares until the date and time of goods: adequate supplies are maintained and retrieved by the suppliers and deliveries to be made in time for customers at least 98% of sales orders.
4. Timely accounting and monthly sales records in the office: The deadline for submission of these reports is usually the 5th of each month, which must be strictly observed.
A broader base, such as KPIs related to the CSF, in my organization, which includes the following:
1. A sound position in the market: This is the first.
2. Supported by senior management is open to marketing ideas and financial: managers and leaders is a two-week meeting in the bottom row of possible ideas and exchange ideas and possible funding for the banks to certain products.
3. Appropriated funds and resources to place the funds in CSF, that are converted into trust receipts, which must be dealt with a number of mandate, along with adequate staff and technology for the proper functioning of the organization.
These KPI and CSF in mind, the various activities that can be divided into small groups and activities to provide a more logical flow for better analysis (Bowden et al., 2001). In my organization, sales teams are divided into small groups responsible for various aspects of steel products and agriculture. This also applies to the Ministry of Finance, which has the smaller teams in charge of accounts receivable, accounts payable and other administrative functions.
Step 2: Hazards Identification
This process aims to identify all incidents that may affect the organization as a whole. In such a scenario, it is necessary to identify all the causes and possible situations (Bowden one. Al, 2001). Then we?ll move to establish the risks, threats and opportunities, with the main criteria that will have a direct impact on the organization (a Bowden. Al, 2001). There is also a requirement of the approach to these risks with proactive and reactive (a Bowden. Al, 2001). There are several tools that can help identify risks, namely brainstorming, checklists and assessments based on experience.
In my organization, there are several tools to identify risks. For the Department of Finance, there is a quarterly checklist used in the various risks, which may include the amount of tax paid and tax credits have agreed with the tax authorities, the amount of credits and update actions and the effectiveness of their turnovers are. Provisions of these articles were also identified on the basis of previous experience. For the marketing department and the operations are conducted weekly meetings that systems of exchange of ideas and analysis used to identify potential risks in terms of trends in price competition and consumer tastes and trunk edge actions in our facilities. It is further recommended that the production plan with a product manager is created with the classification are the priority of these risks and inputs, processes and outcomes must be studied in more detail (Bowden et al., 2001).
Noted that the market test would be useful if there is a high degree of uncertainty about the final sale date approaches new product launch (Cooper, unknown year). My organization is currently examining the potential of new sales of spirits and diesel to markets abroad. But these potential sales are not considered new products in existing markets. With the speed and the competitive environment are important facts that can be a test market could not be used in our scenario (Cooper, unknown year).
In addition, the potential launch of new products, a number of considerations pitfalls for organizations:
1. Lack of market orientation. These are the possible risks of taking inadequate analysis of the market and customer needs and wants to understand.
2. The poor quality of execution. As for my organization, qualities or quality of flammable materials which may again be full of gaps, therefore, do not meet customer needs.
3. Moving too quickly. Approach is too hasty to launch these products may make too many mistakes in the process and compromise the quality and timing of promotional activities (Cooper, unknown year).
Step 3: Risk Analysis
This step involves estimating the likelihood and consequences of possible risk events. It is often assessed using the existing controls in place (Bowden et al., 2001). These controls are necessary to ensure effective, compliance reporting of reliable and good with the rules and regulations (Bowden et al., 2001). In my organization, the controls are previous records, the market analysis presented by merchants from different countries, the literature published in a revised accounting and marketing and reports of internal and external auditors. ?
There are several techniques used to determine the likelihood and consequences, including structured interviews, a multidisciplinary group of experts, evaluation questionnaires and computer models (Bowden et al., 2001).
The technique of decision tree can also be used when the expected present value (NPV) and cash flows for each of the individual results are shown in (Vlahos, 2001). This technique is useful for the following reasons:
1. It will improve our understanding of each performance and makes assumptions about the future.
2. It is useful to document and communicate the reflections on the uncertainty and also helps to generate alternatives for the improvement of best value.
3rd managers can control all phases of the project and make appropriate analysis in respect of decisions taken at each point
4. The results in terms of expected NPV generated can be used as input for the selection of potential projects (Vlahos, 2001).
This technique is highly recommended for my organization in two ways:
1. This can be used for decisions taken by the marketing department on what products to buy market potential.
2. The Department of Finance is also useful in terms of different ways of financing (for example, directly in cash, using the LCS or trust receipts) in exchange for trade finance construction of the project.
There are two types of risk assessments, primarily qualitative and quantitative (a Bowden. Al, 2001).
Qualitative technique
A qualitative approach uses descriptive words or a scale and is presented as a classification structure, alternating between odd and almost certain. Such a method is concerned about the likelihood and consequences raking (Bowden et al., 2001). With respect to construction projects, which may be applicable to my business, the consequences can range from insignificant lesions (in which there are no injuries and economic losses to a minimum), moderate (medical and moderate financial loss) to catastrophic (death of significant financial losses). As image quality with the probability and levels of risk matrix may be useful in the following scenarios:
1. Help preliminary screening to identify potential risks for further analysis.
2. If the level of risk does not justify the time and effort needed further analysis.
3. Insufficient number of data, which obviates the quantitative analysis.
For qualitative analysis, management and staff in relation to the events at the different levels of risk of work through the risk rating matrix. Each criterion of probability and consequences must be considered in order to put the facts in the appropriate category (Bowden et al., 2001).
However, there are several disadvantages of this technique:
First, it can not be too specific that the events in the same category can have significantly different levels of risk.
2. There may be a common basis for comparison on the basis of risk, namely the dollar, and the number of deaths.
3. There are no specific criteria regarding the process of ?weigh? the risk
4. This may be different interpretations regarding the importance of the consequences of different words can mean much more catastrophic for some people, while others may be taken lightly.
5th It can be difficult to translate the results of this technique to match a quantitative method (a Bowden. Al, 2001).
With these difficulties mentioned above in mind, I think it will be preferable to consider the qualitative technique that over a period of initial selection to be used simultaneously with the quantitative technique.
Quantitative technique
This approach has the product of the probability and consequences, with the result expressed as a real variable (Bowden et al., 2001). This technique is more reliable because it relies on numerical values ??of the frequency estimates given in terms of frequency of occurrence (Bowden et al., 2001).
There are several drivers of risk, namely, technology, people, systems, organizational factors and external factors (Bowden et al., 2001). In my organization, some drivers of risk may indicate how to update my computer versions of the accounting and sales, training and education levels of employees, the number of new ideas by lower management and approved by senior management possibly the amount of contamination of our products can cause to the environment.
The quantitative analysis is broken down into the likelihood and importance criteria. Criteria for the likelihood, expressed as a probability instead of frequency, which ensures that risks are compared on a similar basis (Bowden et al., 2001). With other similar events that may occur small, the probability of occurrence may be considered as an event. As for my organization, similar examples of such events could include:
1. 20 deliveries not made on time (more than 30 minutes) to customers resulting in losses of $ 1,000 each for travel expenses
5 second deliveries of poor quality products to customers resulting in a loss of $ 1,500 for transportation and expenses.
For consistency criteria can be given as an event leading to possible death or serious loss to say. financial or reputational loss. For two examples of probability criteria above, the impact criteria associated respectively as follows:
First Free deliveries for the next trip.
Appropriate second Discounts given for these lots of goods sold.
Therefore, the criteria can also be expressed quantitatively in terms of default or failure to achieve certain KPI, which reflects the priorities of the organization by accepting varying degrees of risk. In the case of my organization, free shipping and discounts offered could jeopardize not only the revenue and profitability targets, but also in terms of customer satisfaction (KPI, which are important). As a result of these criteria can be expressed as the mean or expected (Bowden et al., 2001). This is consistent with the Monte Carlo method, which can be used to obtain the distribution of the project or the value of the products associated with the results of operations (Vlahos, 2001).
Step 4: Risk Assessment
Risk assessment is the identification of risks that must be handled and can be calculated by multiplying the likelihood and consequences (Bowden et. Al, 2001). The risks can be compared to previously established criteria. Different software, such as the Monte Carlo approach, sensitivity analysis and probability can be used to show significant effects on risk assessment (Bowden et. Al, 2001).
Step 5: Risk Treatment
There are several ways to address the risks, in particular, avoiding, accepting, reducing and transferring risk (Bowden et. Al, 2001).
1. Avoid risk. In my organization, to avoid these risks may not be the import of highly inflammable products such as alcohol or diesel fuel (which are part of the consideration of new products) as part of the sale and speculation on currency fluctuations.
2nd Assumption of Risk. Some risks may be unavoidable. In my organization is the case, we have great sales to Myanmar, which has just experienced a military coup and government major. Consequently, sales in Myanmar can be volatile. These are potential risks that are already recognized in our commercial considerations.
Third risk reduction. Change is imminent, when dealing with colleagues abroad for my organization. Therefore, LCS and masking are often done to reduce these risks for the products bought and sold to other countries.
4. Risk transfer. For my organization, this is done in terms of insurance coverage for inventories, which are in our facilities.
Some other popular treatments include risk audit compliance programs, contractual obligations and conditions, preventive maintenance, quality assurance and contingency plans (a Bowden. Al, 2001). These treatments may also kept in my organization.
The options for treating risks should be assessed and risk treatment plans should be planned and prepared (Bowden et al., 2001). This plan should consider implementations based assessment risks detailed in terms of threats and opportunities in terms of priorities and recommended proactive and reactive plans. (Bowden et al., 2001).
The time of risk treatment and action plan should include the following:
1. The roles and responsibilities for implementing the plan. Preferably, the plan must include a project manager and the different members in charge of one aspect of the draft report to the leader.
2. Resources can be used.
3. Breakdown Structure activities
4. Budget Allocation
5. Implementation Schedule
6. Details of the mechanism and the frequency of correct compliance with the treatment regimen (Bowden et. Al, 2001).
Step 6: Communication and Counseling
This stage, interested parties should have a common understanding of the project or the product of the situation. Stakeholder consultation and expert advice that requires better communication needed for a better coordination (Bowden et. Al, 2001).
This approach is necessary for several reasons:
1. Shows that the process is a systematic way.
2nd To provide records of hazards and appropriate points of the organization.
3. Policy makers with good risk management and action plan for approval and implementation.
4th To ensure accountability.
5th order to facilitate the continuation of monitoring and evaluation.
6. Provide a track.
7. Sharing information (Bowden et. Al, 2001).
This report should include the following:
First Summary
2. Scope of the project
3. Study Methodology
4. Contextual questions about the project, including restrictions
5. Selected Success Factors
6. KPI for each success factor selected
7th Dimension and tolerance
8th All assumptions
9. Top Ten risks in all CSFs of the project or product plan
Vulnerabilities in the 10th stage of the project
11. Risk management responsibilities in phases
12. Primary and secondary drivers causing each risk
Control existing 13th
14th Tables and figures (a Bowden. Al, 2001)
Step 7: Monitoring and Review
For the last step, you must develop and implement to ensure the ongoing review of the risks of the project manager would be consistent with the updating of current situations (Bowden et. Al, 2001). Effectiveness of risk management process must be constantly monitored and evaluated (Bowden et. Al, 2001).
Conclusion
Risk must be managed actively. Risk management requires the definition of high-risk areas ahead of time, to play as much as possible, the best technical talent, or marketing targeted to the problem, the problem resolved as quickly as possible, and make contingency plans, if something can not be resolved (Smith and Reinertsen, unknown year).
Tags: accounting and financial management, accounts receivable turnover, acquisition strategy, poor reflection, proper accountability
Source: http://www.ituaseconference.com/risk-management-in-an-organization.html
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