Risk Management Analysis

Question: Describe about the internal and external environment of an organisation? Answer: As the internal and external environment of an organisation is becoming increasing dynamic, the number of risks that an organisation faces is also increasing. As a result, risk management has become a vital part of an organisations activities to facilitate achievement of its goals and objectives efficiently (Tchankova, 2002). As per the definition given by the British Government Centre for Information Systems, risk management refers to planning, monitoring and controlling activities which are based on information produced by risk analysis activity (Frosdick, 1997). Most of the scholars are unanimous when the say that risk management is a continuous process and involves managerial skills of decision making, planning, monitoring and controlling (Tchankova, 2002; Frosdick, 1997; Kallman, 2005; Bugalla and Kallman, 2013). But, the success of the risk management process adopted by the organisations not only depends upon the efficiency of its managers and their skills but also on the tools and techniques used by them to understand, identify, measure and monitor risks. Different scholars have proposed different techniques of identifying and managing risks. These techniques have their own characteristics and can be applied depending upon the situation. The following analysis discusses techniques devised by Dr. Kallman in comparison to those given by Steve Frosdick. James Kallman in his work Identifying Risk (2007) talks about understanding the nature of the risk before applying any technique. He posits three types of risks, viz. Strategic risks like that of reputation, brand, quality, etc., Operational risks arising out of operating period variations in outcomes and Economic risks triggered by financial and political factors. Further he talks about setting parameters to define those risks based on the factors that cause them and the conditions that impact such changes. Next he gives seven techniques for identifying risks which include Statistical analysis of internal and industry data, Contract analysis to identify any exposure to legal risks, Surveys and checklists for building an updated list of risks that an organisation may face, Chart analysis to identify risks related to flow of resources though the processes, Expert interviews to identify possible external risks as a result of other firms operations, financial statement analysis to mitig ate financial risks and Personal inspections to identify operational risks. On the contrary, Steve Frosdick in his work The techniques of risk analysis are insufficient in themselves (1997) talks of risk identification techniques as facilitative tools that help in identifying any risk associated with particular facility, system or product. He segregates these techniques into three parts, intuitive, inductive and deductive. He further posits that intuitive technique includes brainstorming to generate issues that the managers think the organisation is facing. Inductive technique includes Hazard and operability studies (HAZOP) including multi-disciplinary teams identifying potential risks in systems and processes, Failure modes and effects criticality analysis (FMECA) involving an individual expert to identify risks related to operations. While deductive techniques include Fault tree analysis to depict the causes of failures, Event tree analysis to identify consequences of the failure and Accident investigation and analysis to identify the cause of failure and provide recommendations to avoid the future occurrence. Post analyzing and understanding the techniques proposed by both the authors, it can be said that while techniques proposed by Kallman tries to identify and manage risks for the organisation as a whole, the techniques proposed by Frosdick are limited to identifying risks related to a particular aspect of the business organisations i.e. operations. Moreover, the techniques given by Kallman are proactive while the ones given by Frosdick are only reactive. An organisation, while functioning faces both technical and social risks. While Kallmans techniques try to address both types of risks by including methods that focus not only on quantitative aspect but also on qualitative aspects, Frosdicks techniques are weaker on qualitative aspects like risks posed by external environment. Though techniques proposed by both the authors are capable of defining the risks explicitly, the purpose of risk management is better served by the techniques proposed by Dr. Kallman, as far as the present busin ess environment is concerned wherein managers try to foresee risk and mitigate them rather than trying to avoid the recurrence of the phenomenon. An important aspect of managing risk also entails the ability of the manager to classify the risks as per the importance or the impact it can have on the organisation. This will help the managers to allocate time and resources to important factors and avoid over-managing of unimportant ones (Barton et al., 2001). Thus, a more holistic approach of understanding and managing risk can be found in Dr. Kallmans risk management techniques that carter to the needs of the present day organisations. References Barton, T., Shenkir, W. and Walker, P. (2001). Managing Risk: An Enterprise-wide Approach, Financial Executive, 17(2), 48-52. Bugalla, J. and Kallman, J. (2013). How to Map Your Risks, CFO. Retrieved from: https://ww2.cfo.com/risk-management/2013/02/how-to-map-your-risks/ Frosdick, S. (1997). The Techniques of Risk Analysis are Insufficient in Themselves, Disaster Prevention and Management: An International Journal, 6(3), 165-177. Kallman, J. (2005). Managing Risk, Risk Management, 52(12), 46. Kallman, J. (2007). Identifying Risk, Risk Management Magazine, 54 (9), 58-59. Tchankova, L. (2002). Risk Identification basic stage in risk management, Environmental Management and Health, 13(3), 290-297.