The role of risk management Essay
The role of risk management
Abstract: This essay is mainly about the role of risk management in addressing any potential risk to the organisation that may cause a lot of losses. Management’s mission is to predict the risk before disaster strikes, which require to study all the information and the details provided by the risk management team. In addition, what are the mistakes that had been committed in some of the examples mentioned in this essay? and did they learn from their mistakes?.
Finally, development of communication must be promoted between risk management sector and top management and activating the role of participation in making the right decision.
Word Count: 1500 words
Risk management is basically a planning tool to manage risks, by evaluating and understanding the risks and the results of these risks and what are the expected risks that could occur in the near future, whether due to internal factors of the business or by external factors. The risk management is based on carrying out the coordinated planned steps through which to know the risks and the possibility of occurrence. Risk management is mainly focuses on the risks arising from financial or legal reasons (example: natural disasters, fires, accidents, death and lawsuits).
The financial risk management focus on those risks that can be managed by using some analyzes and estimates, which may be a contributing factor to avoid any unexpected accident that may cause a lot of problems. This essay is focusing on the role of risk management when natural disasters occur and how organisations cope with these issues to reduce the amount of losses as possible as it can . The process of reducing the amount of losses when a natural disaster is nearly to occure is a very hard work to do.
Many companies nowadays consider that risk management is one of the most important department that must be existed in any firm due to the job that they do, is to understand and evaluate the performance of a firm and work effectively to increase the succes by avoiding any potential losses through studing and analysing some factors that can be threaten to the organaisation. Nevertheless, some of the natural disasters sometimes can be and can not be predicted.
Hurricanes for instance, can be predicted through the extremely change in weather where winds can be fast and stormy, but the exact area where hurricanes will take place can not be known. In contrast, earthquake can not be predected at all unless if we know the main fault lines and the tempreture of it where any increase in its tempreture for these lines we know that for sure it is going to be an earthquake but it still is very difficult to know where and when it will happen exactly.
A wide range of potential signals have been studied, ranging from increase in radon gas concentrations, changes in electromagnetic activity, foreshoks signalling a large quake to come, wraping or deformation of the earths surface, geochemical changes in groundwater – and even unusual animal in the moments leading up to a major quake. (McKenna 2011)
However, the job of risk management is to make sure that the top managements are aware and understand the possibilities that are linked to the natural disasters and try to reduce the losses by connecting the risk management department directly to the top management where decisions are discussed and made based on studies and analysis provided by the risk management team. Natural disasters is one of these risks which can lead to terrible disastrous consequences. However, these natural disasters can be predicted earlier that it is going to happen.
The clue of predicting these disasters comes through the knowledge of some nature aspects, in terms of weather degree, the way that winds behave and some other external factors, but the difficulty lies on identifying where the disasters will take place. Moreover, these nature aspects might occur but without any disaster actions, so we can say that predecting natural disasters is very difficult and cmplicated. For each of the signals listed above,we have evidence that they may behave erratically leading up to a large earthquake. Unfortunately, these irregularities also occur when no large quake follows. (McKenna 2011)
The best example of explaining what the role of risk management is when a natural disaster occur, is (Fukushima – Japan). On 11 March 2011 a very strong earthquake hit Japan called Fukushima, it was one of the largest earthquakes by magnitued of 9.0 and left behind millions of losses comes as a result of a disproportionate decision that made by the risk management crew ( McKenna 2011). Therefore, Japan still suffers from the effects of the earthquake and tsunami that struck the north-eastern coast in 2011. The disaster caused a major fault at the Fukushima nuclear facility, causing an unexpected crisis threatened the safety of the nuclear energy sector.
Based on that, we can say that the secure future of nuclear energy depends on the need to integrate the lessons learned from the Fukushima disaster in planning for the dangerous operations, and the development of risk analysis capabilities and improving the performance of risk management. After Fukushima, the way that risk management assessing must be changed, and should increase the flexibility of the owners and their ability to respond, as operators must develop enhanced methodologies for risk analysis.
Many things went wrong, a cascade of equipment failures and human errors that continued right up to the first moments of the blowout and that are being rigorously explored in the U.S. Congress, federal investigations, and civil litigation, but it all began well before, in the planning stage. (Houck 2010)
The risk management should enhance methodologies and improve current procedures and tools to help identifing potential risks. It must expand the scope of traditional thinking in the (things are known unknowns) to include (things unknown unknowns) and the useful thing is to expand the leaders thinking when assessing risks and vulnerabilities. Another example of a natural disaster that caused a huge chaos is the Deepwater Horizon Blowout that took place in the U.S in 2010.
The problem centered on the size of the amount of oil leaked into the Pacific Ocean where the number of gallons of oil leaked reached at 2.6 million gallons , which led to a tremendous financial and human losses and that resulted from the oil spill to the ocean , which caused a blowout in the middle of the Pacific Ocean where the oil was leaked. In addition , the number of deaths in this disaster reached to 11 deaths, while there were 17 people have been exposed to serious injuries resulted from the environmental pollution, and this is something which demonstrates that natural disasters might cost countries or institutions large amount of money unless if there is an effective risk management team as they work hard to detect such incidents before it occurs and to reduce the amount of losses caused by any potential disaster could occur in the future.
There is a law. In fact, there are three laws that, jointly and severally, should have anticipated and provided measures to prevent and cope with the explosion of the drilling rig Deepwater Horizon. Instead, we have 11 deaths, 17 serious injuries, the release of an American record 2.6 million gallonsof oil, an equivalent record for chemical dispersants. (Houck 2010)
However, we can say that what happened in Fukushima disaster , as well as what happened from the oil spill in the Gulf of Mexico were generally due to individual errors in terms of decision-making at the wrong time in the wrong place. “the evaluation came from the head of his engineering team, who was later fired for accepting gifts from an oil company and lying on his ethics form” (Houck 2010). Now we can say that the risk management team must be organized and activated effectively and connected directly to top management to enable the communication skill between them, which is likely to deliver all the information and analyzes in anticipation of any disaster or threat to the Country or an institution.
In conclusion, we find that risk management sector is one of the most important sector in an organisation. It can be very helpful to the organisation for continuing success and try to avoid anything possible could causes loss, whether financial or human losses. Nevertheless, communication skills between the risk management sector and the top management must be developed to make sure that all the information that top management needs is in their hands to make the right decision about any threaten to the organisation.
Houck, O.(2010) ‘Worst Case and the Deepwater Horizon Blowout:There Ought to be a Law’, Environmental Law Institute, 40(11), 11033-11040.
McKenna, P. (2011) ‘Why earthquakes are hard to predict’, New Scientist magazine, available: http://www.newscientist.com/article/dn20243-why-earthquakes-are-hard-to-predict.html#.Ule8znb6jIU [accessed 11 Oct 2013].