Risk Analysis
Background- In general terms, risk management is a way to identify, assess and prioritize risks that are associated with a project or organization. The purpose of risk management is to be proactive in improving places or processes within an organization that may have risks that can be mitigated or controlled -- and to do something to minimize those risks and the financial exposure to them. In almost any organization, there are potentials for risk -- within a construction project there may be supply or labor issues; within a small business stock, weather or employee issues; or in other organizations uncertainty in markets, legal issues, credit risks, accidents, natural causes or disasters, deliberate competitive attacks, and a host of other unpredictable cases. So rife are risks for organizations, that standard and have been developed by national and international bodies, insurance agencies, and regulatory agencies to help organizations identify and minimize risk (International Organization for Standardization, 2009).
Basic risk management for any organization encompasses six general parameters" 1) The identification of a risk within the context of the organization or area; 2) Planning some sort of a process to mitigate the situation(s); 3) Mapping, either formally or informally, the scope, objectives, stakeholders, and constraints; 4) Defining a framework for managing the risk(s); 5) Developing a sound analysis of the risks using as many tools as possible; 6) Finding mitigating solutions using all available tools (Wan, 2009; (Frenkel, Hommel, & Rudolf, 2005).
Most experts, in fact, suggest that one look at risk as a simple formula:
Risk Index = Impact of Risk Event(s) X Probability of Occurance
Of course, some of this is subjective in nature; management must decide how risky a credit decision is; weather can be variable (e.g. A 2-hour power outage vs. A week of inclimate weather). However, the point os assessing the severity of the risk is central to being able to find appropriate solutions to chart within a particular situation, and may, in fact, have a postive impact on any insurance claim made. Thus, creating a matrix under risk management allows modification and mitigation to occur easier -- even for smaller organizations (Crockford, 1986, 18).
This type of form can be modified to fit almost any organization, and asks management to consider the probability of something happening vs. The actual impact this might have on the particular organization -- and perhaps move as many risks into more positive categories.
Business Analysis- The core business under analysis is a bakery, in which critical functions are, of course, baking goods and having hem available for sale. Sensitive codes include customer service, ordering, personnel and delivery. Equipment, supplier materials, and adherence to community and area regulations and standards are also critical in the mix. If we take each of the risks for the Bakery, we can then identify where the critical risks are located, what factors share part of that risk, what impact that risk may have on the business, and what back-up plan we might have for those top risks:
Risk Code (H, M, L)
Function
Overall Impact (H, M, L)
H
Baking, Personnel, Customer Service, Delivery, Equipment, Building, Production
H -- Critical functions that impact the business in a way that would cause it not to exist
M
Suppliers, Inventory, Payroll
M -- Functions that are important, but can be sourced or utilized in other ways to ensure continuity
L
Regulatory, Non-Critical Finance
L -- Have an overall impact to the business but are non-critical in nature for immediate impact to the business.
The overall impact is that we need a business continuity plan so that in the even of a disaster or other unplanned event, we are able to continue working the business, even if in an abbreviated state, and are also able to better understand the ways in which we might outsource, hire temporary workers, or service clients appropriately. There are a number of obvious factors that go into this: finding secondary or tertiary suppliers, hiring on-call or emergency employees, purchasing a back-up generator for equipment, investigating a maintenance contract for high potential equipment, etc. However, situations like Hurricane Katrina show that there are times at which even the most detailed contingency planning has limited success because of the nature of disaster, in which case, a financial, insurance, or other income-protection plan is...
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