Risk management involves strategies adopted to counter any unexpected events. The events exposed to businesses vary, ranging from those that have significant severity to those that lead to a windfall. As a result, appropriate design of risk management strategies is vital for survival of the business.
Company X, a multinational, faces several risks that are a danger to its operations. These risks also compromise the company’s ethical integrity if a contingency plan is not formulated and implemented.
Risks exposed to company X
Economic fluctuations
Economic fluctuations refer to the uncertainties experienced in the market caused by the economic cycles. These cycles consist of four phases, which include boom (prosperity), depression, recession and recovery. Any international client has high possibilities to experience the conditions of the market at any particular phase.
In this regard, it is ideal to develop strategic risk management strategies that will cushion one from its repercussions. Initially, the means to identify risks arising from economical instability relates to the nature of currency performance in the international market. Based on previous experience, currency performance follows the pattern of economic cycles (Crouhy et al., 2000).
The variation in interest rates depicts changes in trend of the economy. When the interest rates are low among lenders, it is an indication that there is surplus amount of funds among them. In this case, it hampers the investment activities since funds cannot be maximized. On the other hand, when interest rates are high, it portrays an expansion in economic activities. This is ideal for investment.
Exchange rates indicate the economic performance of different countries. When the exchange rate level of a country begins to decline, this signifies that the country is performing poorly in the international market.
For company X, it is likely to gain in offering its services to international clients in comparison to the international rivals. On the contrary, as the exchange rate appreciates, the company is bound to gain from supply of cheap products to the company.
In spite of the challenges posed by the economic fluctuations, there are means to reduce this exposure. Some of the ways include, hedging mechanism and currency invoicing. The participation of the company in foreign trade is an ideal opportunity for it to utilize derivative products to prevent exposure to the risk. Consequently, clients settle their expenses using their own currency motivating them to engage in business with the company.
Political instability
Political instability refers to challenges exposed to business activities with respect to changes in political structures or wars. Therefore, the company is likely to face the risk in the event of transition of power or emergence of war. Some of the indications of the risks are depicted during closer days to elections.
For most political leadership potentials, they seek support from the business community to boost them to leadership. Thus, this process is likely to interfere with performance of economic activities and relationships between the clients and the company.
In the event of wars or political crumpling, the operation of the business would come to a standstill. This implies that business would lose its clients and experience significant losses. Hence, the fact that the company safeguards vital client information could be a threat for the business to worry about it. In this case, the company has to strategize means of minimizing loss of clients.
Consequently, the company should consider the need of being non-partisan in politics if there are uncertainties. In addition, the need for engaging in multinational business is ideal for the company. Therefore, the company should go for subsidiaries in other countries.
Environmental risks
The conduct of business by the company is subjected to environmental risks. Some of the risks that pose threat could be climatic or natural disasters such as, hurricanes, droughts, and earthquakes.
Based on these events, the profitability of the company may be enormously affected. In the case of climatic changes, forecasting of future weather occurrence prevents dire consequences on the business. However, they also be forecasted by experienced professionals, which will assist to choose the course of action.
In the event of occurrence of these risks, the adversity in the business would be unbearable. Accordingly, the firm has to strategize means of creating multiple subsidiaries to limit their exposure to such risks. Consequently, vital information of the clients will not be at risk.
Employee risks
The main challenge or risk experienced from employees is the ability to retain them. If employees were to move away or the business experiencing a shortage of specific technical capabilities, operations would be in a mess. Moreover, the employees’ safety within the organization is crucial.
Based on the risks of employees, the company could be subjected to lack of labor force. In this regard, the operations within the company would indefinitely stop. However, it is essential for the company to develop plans that would motivate employees to remain in the organization. This could be through remuneration or non-monetary benefits such as insurance and working conditions.
Technological risks
The dynamism in a technological world poses a threat to the firm. Some of the challenges that companies are exposed to include are engagement in outdated business, and utilization of obsolete equipments within the business. This would abundantly influence the success of the business. This can cause loss of data, failure communication systems or decline in operations.
The understanding of the adversity of changes in technology is essential to assess its consequences. In the extreme end, it would automatically remove the business from the industry since its products would be of no value to clients.
As a result, the company has to establish means of controlling it by acquiring the latest technological facilities in the market. In addition, this would provide high returns and maximum output (Holmes, 2002).
Competition
In the global market place, the company is subjected to stiff competition. In this case, multiple companies offer the same customers with substitute products. In addition, there is competition for supplies from suppliers making the whole process complicated. The severity of this risk is devastating since its rivals would win the clients, hence, taking the market position of the company.
For this reason, the company has to formulate means of minimizing the level of competition subjected to it by its rivals. This could be through encouragement of suppliers with lucrative prices. On the hand, clients have to be offered with outstanding products and services that are differentiated from its rivals (Crouhy et al.,2000).
Legal risks
The conduct of business is subject to legal risks based on its legality in the country and the foreign countries. This risk arises from products and services offered to clients by the company. In addition, the manner of conducting business depicts its legality.
For this reason, the company should comply with all legal requirements of the country with respect to business operations. At the same time, products and services offered to the people should be acceptable. In this case, failure to comply with the legal consideration would significantly hamper the process of business.
Health and safety risks
The conduct of business is subject to health and safety risks. These risks are directed to the external environment or the stakeholders of the organization. Therefore, the establishment of risks sources is essential. Some of the sources emanates from the production process instruments and disposed wastes.
This risk is hazardous to the surrounding people, and proper means should be adopted to curb it. One of the ways is to recycle waste materials. Another crucial element is by undertaking insurance cover for third parties within the business process in case of any accidents. This would limit the adversity of the risk.
Business contingency plan
Business contingency plan refers to the plan developed to counter unexpected occurrence of risks. Since the company is vulnerable to diversified risks, a quality program should be established that would guarantee the operation of the business.
This should consider the vital risks, such as hurricanes, terrorist attack, technological failures, collapse of financial markets or other catastrophic event. As a result, appropriate strategies to counter the consequences emerging from all the risks (Gleason, 2000).
The collection and retention of sensitive data of clients implies that the company should be ethical and guarantee security. The first step in protection of data involves establishment of a data protection system that can be audited. When the system is audited, parties involved in the data protection requirements can be assessed for compliance.
The organization itself, business associates, or an independent auditing contractor can carry out the compliance audit. Auditing begins with identification of areas of operations to be audited. An assessment of compliance to data handling policies by various parties is done. The auditor identifies and records complying and non-complying parties.
It is the obligation of the auditor to determine the reason for non-compliance by some of the parties. Finally, the auditor prepares a list of recommendations and a feasible plan for their implementation.
In order for the auditing process to be effective in protecting the data, appropriate data protection policies must exist for a significant period prior to the auditing process. In this case, various data handling parties are evaluated against these pre-existing guidelines (Holmes, 2002).
An ethical conduct of handling customer’s records should not violate one’s privacy. The customer determines aspects of the records, which should be exclusively accessible to the particular customer. In addition, customers should have the ability to control and monitor the use of their data records. These provisions ensure that the organization executes its ethical duty towards the customer.
To protect customer records, an organization should seal an agreement with individual customers defining the extent to which the records can be used or accessed. A storage system can be implemented such that the data is only accessible to the authorized parties, and is used for the appropriate purpose. An audit should be carried out periodically to ensure that the authorized parties do not misuse customers’ records.
The communication plan appropriate in the event of disruption should consist both of vertical and horizontal communication. Fast temporary channels of communication and a general response plan should be established for use during a disaster. An organization should keep contact records of all its employees, business, associates and customers. This is meant for initiating contingency action in case of a disaster.
The records may include the probable locations of the owners at different times. Actions to be taken by each party should be predetermined and kept as records. Communication channels for contingency action should be in place at all times as a precaution. A communication channel consists of a list of parties through which the information should flow to the intended recipient.
When a probable occurrence of a disaster is identified, the management is the first party to be notified. It may be important to consult an authority in legal matters at this point. The last action involves the use of the communication channel to instruct each party on the immediate course of action. Furthermore, it may be necessary to issue a press statement prepared in readiness for any disaster.
The restoration operations plan involves the development of a recovery plan. A recovery plan begins with the identification of the major assets of the organization that are at risk. These are assets necessary for stability and continuity of the business. Consequently, the magnitude of the threat to these assets is determined. All possible situations are considered in the plan, and the possible responses are determined and recorded.
Since it is not possible to secure all assets at the same instance in a period of crisis, the sequence of actions to be taken is determined in the most appropriate order. The management should mobilize resources necessary to implement the predetermined contingency actions. A recovery plan should be documented and assessed to ensure it is feasible.
Implementation plan
The implementation plan established under the business contingency plan demands the efforts of all parties in the organization. While undertaking business activities, the manager in charge of disaster recovery should identify changes in the risks and importance of assets. It is necessary to prioritize the recovery of the most important assets at the time of the occurrence of the disaster.
Adjustments are made in the recovery plan to suit the probable situation at any particular moment. In the event of a disaster itself, a disaster recovery manager monitors the progress of the recovery process and makes adjustments in the priorities to make sure that there is a balance in the recovery process.
It is important to ensure that no essential asset is completely lost while others are fully recovered. Monitoring and adjustment also helps avoid wastage of resources (Gleason, 2000).
Another way of adjusting and monitoring a business plan is to study the effectiveness of responses to past disasters. Weaknesses in the contingency plans are identified and corrected. This requires data to be collected after every disaster recovery process. However, this is essential in ensuring that the business contingency plan is the most appropriate for futures disaster recovery processes.
Finally, the process of risk management is vital to the organization since it eliminates the uncertainties of operations. Based on this knowledge, the organization would gain maximum return from its investments. In addition, clients’ loyalty would be promoted leading to greater market share.
References
Crouhy, M., Galai, D., & Mark, R. (2000). Risk management. New York: McGraw Hill.
Gleason, J. T. (2000). Risk: the new management imperative in finance. Princeton, N.J.: Bloomberg Press.
Holmes, A. (2002). Risk management. Oxford, U.K.: Capstone Pub.