What Is Risk Management - Assignment Example

? Risk Management Table of Contents Introduction 3 What is Risk? 3 What is risk management? 3 Discussion 4 Key Risk Management Decisions for an Organization Entering a Foreign Market 4 The Ways to Estimate the Direct Costs and benefits of the Key Risk Management Decisions 5 The Ways to Estimate the Indirect Costs and benefits of the Key Risk Management Decisions 6 Conclusion 8 References 9 Introduction What is Risk? A Risk is described as a tentative event for an organization that might cause either positive or negative effects on its operations and functions at the time of entering a foreign market. If the risks present positive outcomes for the organization in that new market, then it might be described as opportunities and if it affects negatively, then it may be stated as threats. Therefore, in order to reduce the effects of risks so as to maintain the functioning of the organization in an effective way, risk management practices are extremely essential. It is because; it is the most synonyms term associated with each and every business organizations. What is risk management? Risk management is recognised as the process to identify, assess and control varied types of business risks by implementing various strategies and policies. However, in spite of implementation of varied types of strategies, some of the risks are entirely unpredictable in nature and so it’s beyond one’s control. Therefore, it might be stated that risks management is one of the most essential requirements of any organization, operating successfully or desiring to enter into a new foreign market. This paper is divided into four parts highlighting the significance of risk management processes. Along with this, it also describes about the most essential risk management decisions of an organization entering a foreign market. Side by side, it also describes the importance of direct costs and its benefits for an organization, while entering a new market. Discussion Key Risk Management Decisions for an Organization Entering a Foreign Market In order to enhance the level of sustainability and competitiveness, every organization desires to expand its reach from domestic to foreign markets. This is done to enhance its range of customers as well as profit margin to a significant extent as compared to others. Side by side, any organization desiring to enter into a foreign market also tries to enhance its brand image and equity in the market among other contenders. However, prior entering any new foreign market, an organization desires to make an evaluation plan to analyse and identify the upcoming risks or challenges. It is done so that the members of the organization might plan for the strategies that might resolve those risks. Therefore, the risks that might be faced by an organization in entering a foreign market are described below- Political risks- this type of risks arises, when the government of a country suddenly changes its policies and strategies. However, such changes in the policies create high level of risks mainly for the new entrants (Khatta, 2008, pp. 457-469). This is because, as the organization newly entering a foreign market is entirely unaware about the policies and regulations so it affects negatively over its operations and functions. As a result, it reduces the total sale and profit margin of the organization among other contenders. Therefore, in order to stabilise the operations, management of the organization tried to implement the strategies according to the rules and regulations of that country (Tarantino, 2010, pp. 467-489). Legal risks- this type of risks arises due to changes in laws of the country such as tariffs and quotas etc. Due to which, it affects significantly on the operations and profit margin of a new entrant thereby declining its brand image and reputation in that market among others. Therefore, in order to cope up with such dilemma, the organization desires to enhance its profit margin and product lines to attract more customers. Social risks- the changes in the customer habits and preferences also considerably affect the profit margin and total sale of the organization. Due to which, the management of the organization always tried to offer innovative types of products so as to retain the customers for a longer period of time. This might help the organization to create a competitive position for its products thereby amplifying its brand value and equity in the new market among other contenders (Hester & Harrison, 1998, pp. 448-490). Technological risks-in order to cope with the changes in technologies, the management of the organization always attempts to implement varied types of inventive machines and techniques within the organization. This might prove effective for the organization to enhance its level of operations and functions in the new market among other rival players (Handlechner, 2008, pp. 241-278). Threat of substitutes- in order to reduce the threats of the substitute products, the organizational management might try to present varied types of innovative product lines so as to satisfy the changing tastes and preferences of the customers. This might help the organization to maintain its dominance and supremacy in a new market among others rivals (Unfcc.Int, 2013). Therefore, it might be stated that the organization might offer higher concentration over research and development process, production and total sales so as to retain its image and revenues. Side by side, the adverse effects of risks due to changes in (development, operation, sales and marketing, profit and loss and future growth margins) might also be reduced. The Ways to Estimate the Direct Costs and benefits of the Key Risk Management Decisions In this age of competitiveness, reputation and sustainability are two essential requirements of an organization operating in domestic or entering in a new market. This is because; it takes a huge time-span for an organization to develop its reputation and brand image within the minds of its target customers. But, it might get destroyed just within some minutes due to worse quality of products or high environmental impact. Therefore, in order to save the organization from such types of risks, high level of investment might be done in selecting the raw material suppliers and the ingredients used. Along with this, the organization might also invest high costs at the time of selecting inventive machines to reduce environmental impacts. This might prove effective in enhancing the corporate social responsibility (CSR) of the organization thereby amplifying its reputation and brand image as well in the foreign market. Side by side, due to high loyalty, the range of customers might get enhanced thereby reducing the fear of new entrants (Globe Business Publishing Ltd, 2013). Other than this, varied types of training programs might also be implemented within the organization, so as to enhance the inner skills and talents of the employees to invent new product lines. Only then, the organization might become able to retain the older customers and attract the new ones thereby enhancing its level of sustainability among others (Frenkel, 2005, pp. 135-172). Thus, it might be estimated with the help of cost-benefit analysis (C-BA). It is a process to analyse the amount of revenue invested over the asset of the organization (Employee) and the benefit attained from that. For example if an organization invests about US $ 50,000 over the training and development program of the employees, then it might desire to enhance its profits by approximately US$ 1 million along with a huge customer base as well (Fragniere & Sullivan, 2006, p. 78-89). The Ways to Estimate the Indirect Costs and benefits of the Key Risk Management Decisions At the time of entering a foreign market, an organization needs to bear both direct as well as indirect costs so as to develop its reputation and portfolio in the market among others. Some of the indirect costs that an organization needs to bear are rent of the manufacturing units or production factories used. Along with this, the organization might also need to pay the salaries of the temporary staffs engaged in varied activities within a foreign market. Other than this, the telephone bills also need to be paid by the organization, at the time of entering a new market. All these facilities might help an organization in developing the brand image and equity in the market among other rivals. Side by side, the profit margin and customer bases might also get enhanced thereby developing a distinct position in the market among others (Crouhy & et. al., 2000, pp. 252-259). Apart from this, the indirect costs might also prove effective in enhancing the sustainability and competitiveness in the new market among other contenders. Thus, all these above mentioned indirect costs might be estimated by resource-based view (RBV) of the firm in the market. This means that the rate of competitive advantage attained by the organization in the new market may be easily judged by this method. For example: if the organization becomes successful in attracting a significant range of customers in the new market, then it is highly effective for the organization. Side by side, it might also prove helpful for the organization in enhancing its brand image and profitability in the new market as well (Vinnem, 2007, pp. 234-267). Conclusion Conclusively, it might be stated after analysing the above mentioned points that risk management and profitability are the two opposite sides of a coin. In order to attain profitability, it is extremely essential for any organization operating in any segment to offer high level of concentration over the concept of risk management. Otherwise, an organization might never become able to enhance its reputation and brand image in the market among other rival players. Side by side, it might not be able to enhance its competitiveness and sustainability in a new market among other contenders operating successfully. References Crouhy, M. & et. al. (2000). Risk Management. London: GRIN Verlag. Fragniere, E. & Sullivan, G. (2006). Risk Management: Safeguarding Company Assets. Boston: Thompson Learning. Frenkel, M. (2005). Risk Management: Challenge and Opportunity. London: GRIN Verlag. Globe Business Publishing Ltd. (2013). The link between risk management and compliance. [Online] Available at: http://www.lexology.com/library/detail.aspx?g=0f4cec83-ffdf-41c2-92ac-7567bd09401f [Accessed on 14th November, 2013]. Handlechner, M. (2008). Risk Management. New York: Cengage Learning. Hester, ?R, E. & Harrison, R, E. (1998). Risk Assessment and Risk Management. New York: Cengage Learning. Khatta, R, S. (2008). Risk Management. London: GRIN Verlag. Tarantino, A. (2010). Essentials of Risk Management in Finance. New York: Cengage Learning. Unfcc.Int. (2013). Risk management processes. [Online] Available at: http://unfccc.int/resource/docs/publications/pub_nwp_costs_benefits_adaptation.pdf [Accessed on 14th November, 2013]. Vinnem, J, E. (2007). Risk Management: With Applications from the Offshore Petroleum Industry. Norway: Springer. Read More