Managing Risks of a Firm

Question: Discuss about the Managing Risks of a Firm. Answer: Introduction Risk includes the possibility of difference on an actual return on investment from the actual investment made. There is a great possibility of losing out full or partial of the original investment that is made. The extent of risk can be measured by scheming the usual deviation of the regular returns of a specific investment. Risk management is the system of understanding the risk that the organization has to face in order to achieve its common goal or objectives. There are different types of risks such as operational, fiscal, and informational and human resources risks. In the operational risk, factors that arise from the structure, systems, products or processes can be classified in this group. Risks can also arise in a particular country where there is political, economical or regulatory bodies instability. There are environmental risks as well which includes socio-cultural, environmental and officially authorized changes (Barrientos et al. 2013). In order to save one from the risks that arise due to many reasons some guidelines needs to be followed. Firstly informational security, where the employees of the organization openly blurt about their companys information. This gives a chance to the rival companies to come to know about the organizational structure that particular company follows (Delaney and Haworth 2016). The IT department of the companies needs to follows these guidelines especially. Another factor which involves great risk is the weather and change in climate, due to adverse effects of global warming climate changes are taking place all over the world. The amount of rain or sunshine that a country used to experience previously are now getting altered and many perishable products are being manufactured are exposed to high risk. The companies are always on the constant lookout to keep a check on this risk as if it goes unseen then lots of financial damage will be done to the company (Thatcher, Martin and Petrovski 2014). Another factor is the instability that a country faces due to the change in government and the policies. The supplies may be stopped as the policy might decide that the product is harmful and should cease to exist whatever the end result may be. All countries are now at the mercy of the political upheaval that is taking place and all organizations are getting prepared to face this challenge (Neves et al. 2014). Risk may also arise from the third parties where the parties want to gain an upper hand by means of getting hold of the information and their data, which involves the company in some key projects (Cagliano, Grimaldi and Rafele 2015). Another risk is the strategic planning of the employees where the organization needs to employ skilled workforce instead of hiring untalented workforce who delay the production output unnecessarily. The later the product is introduced in the market, the lesser the company thrives in the market because of the stiff competition (Bowers and Khorakian 2014). One of the greatest risks in todays world is the use of online market commonly called digital marketing. However, it helps a lot but slight mistakes in updating the company profile and the products will lead to a foremost reputational damage and hamper the brand image as well (Rutsaert et al. 2013). In order to minimize the risk, certain rules need to be followed as in how to identify the risk, describing the type of risk and then eliminating the entire risk. To identify the type of risk, organizations should conduct workshops on risk, where research methodology such as interviews and surveys needs to be conducted and through the cause and effect analysis the risk needs to be identified properly in the first place. Then the risk has to be described by displaying it in a structured format through an assessment that will describe the risk. Finally, in order to eliminate the risk, the risk needs to be estimated that is it a quantitative or qualitative type of risk. The impact of that risk can be calculated by different methods. The methods that an organization can use are SWOT or PEST analysis, risk mapping or by using the risk benefit analysis (Glendon, Clarke and McKenna 2016). To understand the management of risk in a better way, an organization has been taken into account. One of the largest dairy farms of Australia, Fonterra uses good methods in handling their risks. Due to their perishable products, the risks involved are very high and needs to be properly evaluated. Fonterra has an assessment team that is expert in handling their product risk. The team also offers preventive and crisis management which is very well known amongst the other dairy farms in Australia. They are one of the largest exporters of dairy farming in the world reaching to around 140 countries, so they very well understand how to manage their risk in the product when they get to know about it because they of the trust and confidence the consumer has on them in delivering the right product to them. In order to reduce their risk in product management they have a unique solution to their packaging. The packaging is passed through various chemical plants and pathogen management processe s so that there is no contamination, which can increase the bacterial content in the product thus making it stale. The design of the building is also sanitized in a proper manner so that there is no bacterial growth in and around their organization. The crisis management team is also very efficient in the organization who if in a case of risk, identifies the risk immediately and plans the strategies how to overcome it. Then the preventive measures are communicated to the employees so that the risk can be mitigated (Fonterra.com, 2016). Fonterra also has a quality assurance team who checks the product outcomes thoroughly. The team ensures that the product is up to the mark, the quality of the source that is the milk is inspected carefully before sending it to the line of production. The milk comes from sixteen different countries where Fonterra has helped in installing the plants thus keepinh a track on the quality, the recent one being in Sri Lanka known as the Hanwella Chilling Centre. In 2013 the plant began to operate where the chilling of milk was of high quality. These programs help the organization to procure the products in a systematic manner and ensure that the product that comes through third parties also works in an organized manner (Fonterra.com, 2016). The price risk management team is constantly monitoring the price of milk, which changes due to a slight change in the demand and supply or due to bad weather, which may cause the milk to be of sub standard quality (Fonterra.com, 2016). The team manages the unstable costs tactfully and procures the milk at a rate which will keep their price of the product same without compromising their margin of profit. The team almost accurately forecasts how the changes can affect the prices of the milk and manage their inflow of cash accordingly (Fonterra.com, 2016). In August, Fonterra was suspected that almost thirty eight tones of protein was contaminated with what was known as botulism causing bacteria in New Zealand, by the French company Danone, another well known dairy farm. The Paris based company made this accusation against Fonterra because they had to take back their baby food product, Nutricia that was available in the market due to this botulism bacteria problem. The issue was later found out to be falsified. The French company said that the compensation amount due to the damage caused to Fonterra was to decided in the trial that will be held in a High Court in Auckland but the company hinted that that there was some serious damage in their ongoing business due to the compensation. The financial year of the French company in 2013 saw a loss in their business that was estimated to $300 million, which gives a hint that the compensation proved to be dear to them. Due to this legal battle, the sales of Fonterra dropped in the Asian marke t especially in China because the Chinese people were made to think by the media that they cannot trust the brand as they were completely confused with the bacterial scare that was prevailing in the market (The New Zealand Herald, 2016). The essay helped in understanding that what kinds of risks can an organization be exposed. It is not always the financial risks but also other risks, which includes operational risk, legal risks and reputational risks as well. It also deals with how any organization can reduce their risks through the risk management process, Fonterra being in this case. There is no one rule that can be implied in all the organization. The risks changes with the change in the industry. The complexity, the competitiveness in that industry and also the environmental hazard all constitute as part of risks. The individual risks also should be looked into so that it does not turn out to be a big one in the future and should be immediately mitigated for the smooth functioning of the organization. The small risks if not looked into, can in the long run be aggregated into a very big financial or a non-financial loss in the organization. The right to make decisions in an organization should always be done with utmost care and over a period of time so that the company does not face any problems relating to the change in the future. Reference List Australia, D., 2014. Australian Dairy Industry.Dairy Australia. Available online: www. dairyaustralia. com. au/Industry-information/About-the-industry. aspx. Barrientos, A.K., Chapinal, N., Weary, D.M., Galo, E. and Von Keyserlingk, M.A.G., 2013. Herd-level risk factors for hock injuries in freestall-housed dairy cows in the northeastern United States and California.Journal of dairy science,96(6), pp.3758-3765. Bowers, J. and Khorakian, A., 2014. 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