To maneuver a company to success the past, present and the future environment of the business must be reviewed regularly to avoid risks. The management should therefore create a risk management utility to handle possible risks that might affect the operations of the entity.
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The case study company, The International Dentists Insurance Company (IDIC failed to do so and now it has to face the consequences since it is being faced with problems that it could have been solved if they were detected early. The Mega Insurance Company (MIC) has however offered to buy the company so as to save it from the eminent solvency.
This is a dangerous move for MIC and therefore there is need for risk analysis to determine what risks face MIC if it buys IDIC. To begin with, if MIC buys IDIC half of its employees will have to be laid off this is because MIC will be introducing a new system which is not familiar to the IDIC staff, IDIC filling system will also be changed and computer illiteracy is very high hence the IDIC staff will need a lot of training.
Risk Management Process
The Enterprise Risk Management (ERM) management process will be used for this report; it can be defined as the “process of aligning strategy, processes, people, technology and knowledge with a purpose of evaluating and managing the uncertainties the enterprise faces as it creates value” (Dempster, et, al, 2008).
There are processes involved with this such as: risk identification, analysis, evaluation, risk treatment, monitoring and review, communication and content analysis. The approach has been chosen for this report, because it is a structured and comprehensive move towards risk management, instead of the traditional individual or “silo” approach to risk management (Bennett, ET, al, 2000).
ERM also endeavors to establish risk management in all important decisions all over the organization including understanding behavioral risks that can be conducted through a human resource (HR) audit.
Risk Analysis of threats
The first step in risk management is to identify the threats facing the normal operations of a company in order to identify how they will affect efficiency in the routine operations. The above issues create a threat for MIC as the laid-off employees will need compensation while those will stay behind will need new training on the new system.
This will definitely cost MIC a large amount of capital, time and labour. Another threat is handling IDIC clients, MIC has to facilitate the change, and not all stakeholders will be willing to co-operate, IDIC records are kept in files hence MIC will need to access the clients information by reading through the files which is tedious, they will also need to change the data so as to incorporate it into their system and finally they have to contact the clients and explain to them the new policies of the company.
In addition, MIC will need to change their system so as to accommodate the new employees, clients and information; and this therefore requires it to expand and upgrade their system. Integrating the employees into their system will also cause a security threat to MIC hence they will require proper management to prevent this from happening.
IDIC had a broker insurance system therefore clients information could be accessed by other companies hence this posses a threat to MIC security system. All of the above threats make MIC vulnerable since these are complicated issues that require immediate solutions and resources too (Hubbard, 2009).
Laying 50% of IDIC employees will create a problem for MIC and the staff union; in previous occasions this usually created a depressing image for a company due to the negative publicity which reduced the clients trust in it. Training the staff about the EPR system and the computer technology will be very tedious and as indicated above, it will need both human and capital resources.
This will reduce productivity for a while since the employees will obviously be slow and also it will create a financial problem for the company.
The outdated filing systems will be difficult to extract information from; such systems are characterized of missing some data, wrong data entry, and misplaced data among others: MIC will therefore need experts to get the information and arrange for it to be applicable. MLC will therefore have to solve the above issues with much care so that they will not adversely affect its operation which can be bad for business (Frenkel, ET, al, 2002).
|Threats||Impacts of threats||Vulnerability||Risk||Level of risks and recommendations|
|IT systems malfunction||There could be system failures if changes are not well implemented.||Impact on normal operations.||Low production||High-hire experts to install the new system|
|Breach of security systems.||Medium. Sharing databases with IDIC will be very risky because the systems are completely different.||Impact on normal operations||Corruption of databases||Medium-enhance the security system|
|Lack of cooperation from the MIC employees||They highly determine the success of the operation.||Impact normal operations||Low productivity||High-communicate to employees|
|Union unrest and dispute resolution.||The union will raise disputes and argue with MIC leading to legal issues.||Impact MIC||Bad publicity||High|
|Failure to introduce new procedures that fit in with the changes.||The old procedures might work under the new system but not effectively.||Impact normal operations||It will lead to inefficiency||Medium-introduce new procedures|
|Loss of clients to competitors||The bad publicity will cost MIC some clients.||Impact normal operations||Loss of revenues||Medium-ensure that the system doesn’t affect the clients|
|Changes in legislation||There will be slight changes in employment and insurance laws.||Impact on MIC||Not significant||Low-educate stakeholders about the new laws|
|Loss of key personnel and their expertise||IDIC might lose valuable employees to competitors due to the changes.||Impact on operations.||Loss of skilled labor||Medium-give them enticing incentives|
|Threats||Impact of threats||Vulnerability||Risk due to threats||Risk level and recommendations|
|Funds management and liquidity issues.||.MIC will need a lot of financial resources to implement the changes.||Impact on operations.||Financial problems||Medium-borrow loan from banks|
|Change in revenues||Due to loss of some clients revenues will fall.||Business continuity||Encourage clients to stay and acquire others too||Medium-advertise their services and stability|
|Impact of changes in the economy||Low. The changes might affect the general economy but very remotely.||Impact on ability to meet general obligations.||Not significant||Low-acquire more clients|
Risk Management Plan & Control Recommendations
- MIC needs to create some controls to manage these threats; the controls can be general for all or they can also be specialized according to the specific threat. The controls can also be assigned to specific limit or be handled by the company as a whole on the other hand, having specialists to handle them will be much easier faster, and more efficient.
- A team should be formed that should comprise of a team leader and the members. The members should be from all the departments affected: for example there should be an expert on computer systems, information management and data analysis, public relations officer, operations manager, legal issues manager, and human resource manager among others. The above experts will then appoint other people to whom they will delegate various responsibilities to make the work easier. The experts will also ensure that the transition is done in an efficient way and also cost effectively. MIC should also assign resources to the team so that they can be able to execute their responsibilities.
- The computer systems expert will ensure that the security systems are functioning well and if need be, upgrade them. The expert will then organize the IDIC training by hiring the trainers and providing all the necessary resources through the management and then coordinate the activity so that it takes the least time but achieve the required results. The information management expert will co-ordinate the recovery of data from the IDIC systems so that all the data required is achieved.The expert will also ensure that all the data that is missing will be acquired through other methods. The expert will also ensure that all the clients and employees from IDIC confirm that the information pertaining to them is correct.
- The public relation officer or communications manager will communicate to the company’s stakeholders and update them on the new developments in the entity. Any communication inward or outward should be directed to the manager so as to prevent false rumors from spreading. The manager should also ensure that there is a person handling the media because information getting to them should be from the right person due to the fact that the media is a very powerful tool in influencing people as they tend to trust the media more than any other source of information.
The expert should therefore ensure that the media is broadcasting the correct information about the company and the crisis at hand. The supervisor is also responsible for communication in the company since the employees and the clients need information regarding the issue. They should therefore be provided with guidelines on what to do during the crisis to avoid confusion and panic (Knief, 1991). The expert can use written materials to provide the information or call for meetings so that questions raised would be answered.
- The human resource expert will be responsible for the inclusion of the IDIC staff into MIC: the expert should offer guidelines on how the process should be carried out, announce who will be laid off and if there is compensation then the manager should also clearly explain how it will be distributed to the employees.
- The operations expert will ensure that the normal company activities run smoothly without interruption and if they will be affected, the expert should ensure that the interruption is minimal.
- The legal officer will handle all legal issues concerning the change and represent the company in any legal suit filed against it. The officer will also oversee any agreements and contracts agreed upon regarding the acquisition and ensure they are properly documented for future purposes.
- MIC management will be the core players in this: they should ensure that there are enough resources for the change; they should also monitor the activity to ensure that everything is going as planned. They need to create a time frame in which the activity should be done so that the team appointed can plan so as to meet the deadline (Crouhy, et, al, 2001)
Every business will always be faced with risks, what matter is how the risks are mitigated to avoid interruption of the entity’s operations. Companies should ensure that that they are always ready for any possible risk so as to prepare in advance. Despite the risks facing MIC the company can successfully buy IDIC without undergoing major problems once all the risks are taken into consideration and managed.
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Bennett, W, Golub, Leo M, & Tilman. (2000). Risk management: approaches for fixed income markets. NJ: John Wiley & Sons.
Crouhy, M, Galai, D, & Robert M. (2001).Risk management. Canada: McGraw-Hill.
Dempster, M. A. H. Alan, H, D. (2008).Risk management: value at risk and beyond. Paris: CRC Press.
Frenkel, M, Ulrich H, Gunter D, Rudolf. (2002).Risk management: challenge and opportunity. Deutschland: Huschens.
Hubbard D, W. (2009). The failure of risk management.NJ: John Wiley & Sons.
Knief, A. (1991). “Risk management”. Washington, D.C: Hemisphere Pub. Corp.