Risk Analysis Background- in General Terms, Risk Research Paper

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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 required (Melton & Trahan, 2009).

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When analyzing our overall risk we find that there are several business needs that, combined with sensitivity codes, are the core issues involved in keeping the business alive during a disaster or unplanned emergency. Our top, most critical items are:

Item

Issue

Importance

Plan

Baking

The primary function of the business is baking, so the act of baking must be the primary function of any planning process.

Key to any contingency plan; bakery must be kept running to satisfy cash flow and client's needs; missing deliveries would cause clients to seek other means of servicing accounts.

Key functional plan: back up personnel, potential work pace, equipment (rental), delviery issues; if disaster is aggregious, customers will also be affected.

Peronnel

While owners have the expertise to bake, the volume of production requires several steps and more than 1-2 personnel; in addition, ordering, customer service, production and delivery require human resources to function well.

Possible to do short-term plan without added employees; but necessary for medium-long-term.

Contact local work source, senior centers, and/or vocational education centers in High Schools. Have double list of potentials (retirees, family, etc.) to call in the event of need.

Customer Service

Orders must be placed correctly, customer orders must be serviced -- especially standing order accounts, follow up with shortages or issues must be apprised.

Customer issues must be managed outside of baking function; any negative issues may cause clients to shun business.

Provide back up manual for other personnel to follow in the even of necessary substitute function.

Delivery

Product must get to customers on a timely basis, usually early enough so they can use the baked goods daily. Most stores operate on a just in time inventory, making daily deliveries a necessity.

Timely deliveries are critical for all events surrounding bakery business. Many other businesses (e.g. restaurant accounts, etc.) count on daily deliveries so they can open as well.

Need a series of back up delivery drivers and/or a delivery service that could potentially help with distribution.

Equipment

Equipment is necessary to perform the basic function of the business -- ovens, mixers, etc.

Back up equipment necessary in the event of failure due to lack of time to get new equipment functioning for daily orders.

After business has been established, when equipment is purchased, keep old equipment for necessary items (e.g. 1 stove, 1 mixer, etc.); other plan might include contracting with local school food service or institutions for rental of their facilities if needed.

Information Technology

Information technology is critical for keeping track of customers, invoicing, routes, payroll, and inventory management.

Critical to manage accounts and cash flow issues.

Manual and back up necessary; off site (Internet back up) recommended daily; hourly hard disk back up.

Utilities

Utilities necessary to provide power for the machines; water for the products, and heating, etc. For the building.

Busiess unable to function without untility.

Public utilities are usually able to prioritize businesses during power loss; but having a back up generator will unsure baking function can continue.

Suppliers

Inventory management necessary to have the goods available to service the needs of the bakery; suppliers necessary to also house larger quantities of inventory management materials (flour, sugar, etc.).

Rotation of inventory important; Best practices scenario would be to keep a 1-2 day inventory supply that is constantly rotated into stock.

Find secondary and even tertiary distributors; make arrangements with other entitites in the even of mutual emergency.

Fiscal

Insurance policies on equipment, key personnel, theft,….....

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