Risk management is an essential process for all types of businesses, ranging from small organizations to large multinational enterprises to enable them to curb the uncertainties associated with their line of business and business environment. The process allows them to scrutinize their business environment and identify all the factors that may affect their proposed project. The entities use the risk management process to decide whether to launch the new product or venture into a new market if the outcomes of the business outweigh the risk involved.
Risk Management Process
The process majorly involves four steps that begin at identifying all the risks to their treatment. Companies use this process to make the investment decision and monitoring how the business performs. Firstly, the project manager engages a risk expert who assists him in identifying all the factors that could prevent the company from achieving the project's goal. The next step involves identifying the situations and circumstances that contribute to the risks. These may include both human and natural factors. The expert then goes through the controls that the company has put up to cope with the factors identified in the first step. This action helps then in the identification of those factors are covered and those that can affect normal operations. The risks are then rated based on their occurrence frequency and the team comes up with a ranking where the risks with high probability receive a higher priority (Jordao & Sousa 2010). They then analyze the damage likely to occur from each factor and come up with additional controls to ensure that the company will not fall out of business in case they occur. A second analysis of the risks then helps the project team to decide whether to go ahead with the project or not. Finally, the risk analysis team engages in the continuous review of the risks. They monitor the company's risk profile to ensure that they identify new factors that evolve within the business environment.
Roles of Risk Management
Risk management has a role ranging from budgeting to reduced accidents at the workplace. Firstly, risk management helps reduce accidents occurring to staff. In the absence of this process, the company would have no other way of identifying factors that could lead to workplace accidents. Through this role, the company minimizes its liabilities and legal fees and fines, which could result from legal suits filed by workers who are injured while on duty. Secondly, it assists in cost reduction since the company can identify possible losses before they occur. This stage allows them to take insurance cover on property and workers who are likely to be affected where the insurance premiums are less costly when compared to the cost of medical care and replacement of the assets combined with the cost of business lost before their replacement. The mitigation these risks also result in lower staff turnover, which is cost effective since it saves the company on financial expenses and time associated with hiring and training new employees.
Thirdly, risk management plays a budgeting role. This process allows a company to determine the risks that should be insured and those that should be avoided. Many international companies end up paying excessive insurance premiums since they are not conversant with the risks that occur in some countries. By identifying the low level and extremely high risks, they can determine how much premium is worth paying against each risk. They are also able to come up with a consistent budget, which ensures that they are always covered in case the risk occurs (Jordao & Sousa 2010).
The pharmaceutical company is likely to face political risks. Third world countries are highly unstable making them unfit for business. Their legal framework is weak and has loopholes that could lead to political violence. This situation may arise from elections or new laws being implemented by the government. Political coups are likely to succeed in third world nations than as compared to developed countries. These later arise to violence among the citizens which could lead to the closure of businesses causing loss of potential income from sales during that period. Further, their citizens engage in destruction of property and business merchandise which results in massive financial losses. The company may also suffer from reduced availability of merchandise since suppliers do not trade with the affected country during periods of political unrest.
The retail company may also face the risk of the presence of financial distress associated with lawsuits following the sale of counterfeit and generic drugs in the developing country. Such nations have poor controls. Further, the government finds it difficult to implement these laws. Most of the people living in third world countries are in the low-income bracket. As such, they go for the cheaper drugs with no consideration for quality. This has increased the business of counterfeit drugs that are more affordable for the citizens. Being a retail company, the organization could receive a supply of counterfeit drugs and trading with such drugs could lead to substantial penalties and fines that could result in financial distress for the firm (Kelkar & Langer, 2008).
Through mitigation, the company can reduce the occurrence or damage resulting from the risks identified through the process of risk management. The political risk is not avoidable since its chances of occurrence are low. However, it may result in massive financial losses. Therefore, the company should purchase an insurance cover to protect the firm from the loss in case of merchandise, or general property is damaged. The cover should also include its employees who also suffer the risk of injury while at work.
The risk of financial distress arising from the presence of generic drugs should be avoided by developing a strong supply chain. This way, the company ensures that all its drug supplies are original. The firm may also transfer this risk to the supplier in case of lawsuits where the vendor caters for the legal fines and penalties associated with all batches received from them. This risk should not be accepted since it may prevent the firm from making the targeted income in two years affecting its future cash flow.
The risk documentation will be done through a risk register. It will indicate all the risks identified as well as their frequency of occurrence and level of associated damage. It will be continuously updated with additional risks identified in the course of operations to ensure that the firm makes the targeted returns in two years. This document will be substantial since it will be used for future reference while taking the actions that were determined best for risk mitigation.
In conclusion, risk management is important for project managers. Based on its roles, it allows the company to ensure business continuity despite the presence of uncertainties (Jordao & Sousa 2010). If the pharmaceutical company undertakes the actions suggested while venturing into the third world nation, it will ensure stability and profitability in the long-run.
Kelkar, A., & Langer, E. (October 01, 2008). Pharmaceutical distribution in India. Biopharm International, 21, 10, 24-30.
Jordao, B., & Sousa, E. (2010). Risk management. New York: Nova Science Publishers.
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