MANAGING RISK

Introduction to Managing Risk

Introduction to Managing Risk

Introduction

The term organizational risk refers to the prospect on inadequate losses or sometime profits due to uncertainties for instance, preferences of consumers, change in taste, increased competition and change in governmental policies etc. Every business organization encloses a number of risk factors while conducting the business. Organizational risks means uncertainty in threat of loss and the events that could create risk due to some unexpected events in future, which causes business to fail. Organizational risks can be categorized by the influence of two major risks i.e. external risks (risks resulting from outer environment of the organization) and internal risks (risks arising within an organization).

Discussion

Operational Risk

Operational risk is the risk of loss caused by people or systems resulting from inadequate internal processes or external events (Cornalba, & Giudici, 2004). TESCO's exposure to operational risk may arise from error in processing routine or exceptional events such as system failures. Operational risk might include

Delivery, execution, and process management

Discontinuance of system and business failures

Human resource management and safety of workplace

External and internal fraud

Damage to physical assets

TESCO should maintain a complete control structure designed to present a safe environment in order to reduce operational risks. The company's risk management department is responsible for the development and implementation of methodologies, policies, and an official structure for managing operational risk in order to minimize the exposure to this type of risk. According to Hopkin, (2012) operational risk management entails a strong control culture as well as accurate and timely information.

TESCO seek to control their operational risk through:

Supervision, training, and development of their staff

Senior management's active involvement of in the identification and mitigation of major operational risks across the enterprise

Control functions and monitor operational risk on a daily basis and instituted procedures and policies and implementation of control designed to avoid the occurrence of operational risk events

Practical communication between revenue generating units of the organization and its independent areas of support and control, and

An arrangement of systems spread across the organization to assist in the collection of data utilized to evaluate and analyze company's exposure to operational risk.

Political risks

Political risk is the ability of a particular political action to impact the company or the organization. It is a type of financial risk that can affect investors, companies and governments (Henisz, Mansfield, & Von Glinow, 2010).

Generally, political risk refers to the possibility of not achieving the objectives of a particular economic action, or these are affected due to changes and policy decisions of governments. In other words, you can define political risk as the financial risk associated with factors that are not marked themselves as social policies (employment, fiscal policy, monetary policy, development policy, etc.) or events related to political instability (terrorist attacks , civil wars, revolts, etc) (Erb, Harvey, & Viskanta, 1996). The political risk factors might have a direct or indirect impact on the development of an investment or business of TESCO. For example, a change in fiscal policy can result in higher direct ...