Risk Management Assignment

					               Principles of Risk
            Risk Management Assignment




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                                Assignment One: Risk Assessment

Outline Brief

The basis of this assignment is for you to undertake a critical review of key risks as identified
by a case study organisation.

Case Study: Homeless International

In respect of each example case study you are provided with a schedule of key, priority risks
drawn from recent annual reports. Your detailed task is to:

1. Outline and critically reflect upon the general processes and mechanisms for the
   identification and assessment of risk in determining organisational risk
           o Most particularly in developing risk assessment criteria and then translating
               these into a risk map and risk register. Consideration must particularly be
               given to the theory and practice of determining risk probability and impact;


2. In respect of your chosen case study, explain and evaluate the inclusion of three of the
   organisation’s key risks giving consideration as to why the risk has been identified and
   how its overall risk probability and impact may be assessed;


3. For each of the three chosen risk areas, outline appropriate risk management
   approaches (i.e. risk treatment/responses) that may be applied to reduce the overall
   potential risk to an acceptable level. Demonstrate your reasoning and argument for the
   proposed risk management approaches.


It is acceptable to propose an alternative organisation for the purpose of this assignment for
approval by the module leader.

This assignment is worth 50% of the overall module assessment, and for this there is a
maximum word count of 2,500 words. As a guideline, it is expected that the assignment may
require between 2,000-2,500 words.

Assessment of Competence:

In assessing the submission attention will be paid to the following aspects:

    Critical awareness of both theory and practice in the identification and assessment of
     risk in determining organisational risk [30%]
    Evidence of an appreciation of the contextual setting(s) in which risk arises and a
     demonstration of how this interpreted, and the subsequent impact on risk assessment
     and evaluation [25%]
    Application of appropriate and relevant risk management treatment to the identified
     risks [25%]

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     Clarity of explanation of technical and conceptual issues [10%]
     Quality of overall presentation [10%]


Case Study 1: Homeless International

Key risk-management priorities identified in the Directors Report and Financial Statements
to the year ended March 2011were as follows:

   Funding risk – not having the resources available to support planned work
   Expenditure risk – that international partner organisations won’t use grants or financial
    services in the agreed way
   Implementation risk – that the work supported by providing grants or making financial
    services available will not achieve the planned results
   Financial risk - that international partner organisations might default on direct loans or
    loans secured with guarantees provided by Homeless International
   Health and safety risk – that visits to international partner organisations and their
    project sites may put Homeless International staff at risk.




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                                                          Table of Contents

1. Introduction ........................................................................................................................................ 5
2. General Risk Management Process .................................................................................................... 5
   2.1 Risk Identification.......................................................................................................................... 5
   2.2 Risk Assessment and Evaluation ................................................................................................... 6
       2.2.1 Risk Assessment Criteria ........................................................................................................ 7
       2.2.2 Risk Register ........................................................................................................................... 7
       2.2.3 Risk Map ................................................................................................................................. 8
       2.2.4 Probability Impact Index ........................................................................................................ 9
3. Key Risks for Homeless International ............................................................................................... 10
   3.1 Funding risks and their Impact.................................................................................................... 10
   3.2 Financial risks and their Impact .................................................................................................. 10
   3.3 Health and safety risks and their Impact .................................................................................... 10
4. Risk Response Strategies for Homeless International ...................................................................... 11
   4.1 Risk Response to Funding Risks .................................................................................................. 11
   4.2 Risk Response to Financial Risks ................................................................................................. 12
   4.3 Risk Response to Health and Safety Risks ................................................................................... 13
5. Conclusion ......................................................................................................................................... 14
References ............................................................................................................................................ 15
Appendix I ............................................................................................................................................. 17




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1. Introduction

Each organisation has many different kinds of risks that can influence it in many ways.
Organisational risks usually prevent organisations from achieving their core aims and
underlying objectives and often result in financial or reputation losses (Edward and Bowen,
2005). Identifying and addressing probable organisational risks could inform stakeholders
about the hazards before time. The organisational risks can be divided into several kinds
including strategic risks, operational risks, financial risks, compliance risks, reporting risks,
and technological risks (ibid).

The purpose of this report is threefold. First to outline and critically reflect upon the general
processes and mechanisms for the identification and assessment of risk in determining
organisational risk by employing an appropriate risk assessment criteria and then translating
these into a risk map and risk register. Secondly, to explain and evaluate three key risks i.e.
funding, financial, and health and safety risks to NGOs with a special case of Homeless
International which is a British NGO focusing on urban poverty issues including social
housing and slums. Finally, in the third part of the report the author suggests appropriate risk
response and risk treatment strategies for Homeless International to reduce the impact of
potential risks to an acceptable level.

2. General Risk Management Process

A general risk management process to identify and assess organisational risks is illustrated in
figure A1 in Appendix I.

2.1 Risk Identification

Risk identification is a major and significant part of the risk management process which
initiates with recognising and classifying numerous risks associated with the project/
campaign. Hillson (2009) asserts that all possible risks must be recognised before starting a
new project or campaign. However, Webb (2003) believes that risk identification is an
iterative process which starts after the formulation of risk management plan and continues
during all the phases of risk management process. In case of Homeless International which is
a British NGO focuses on urban poverty issues (including social housing and slums), the
managers must recognise all possible risks in the early phases of the campaign. For this
purpose, they can follow six fundamental steps recommended by Bartlett (2004) which

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include understanding the existence of uncertainty, preparing risk checklist, recognising
emerging risks, mapping possible risks, risk categorisation scheme, and making summary
sheet for risk categories. Table 1.1 presents five essential inputs/requirements prior to initiate
the risk identification process. Also, the table shows a list of identification tools that can be
used at the risk identification stage which will allow Homeless managers to prepare a risk
register.

                       Table 1.1 – Risk identification requirements and tools




                                                                Source: Epstein and Buhovac (2006)


2.2 Risk Assessment and Evaluation

After recognising probable risks, the NGO can assess and evaluate the likelihood and
consequence of each risk quantitatively or qualitatively (Garlick, 2007). The hazards can be
assessed qualitatively by ranking each risk factor in terms of its probability of occurrence and
its impact on the project/campaign as a whole. On the other hand, while analysing risk factors
quantitatively, each risk and its impact can be evaluated numerically using various tools and
techniques. Table 1.2 includes prerequisites to start the risk assessment process as well as a
list of qualitative and quantitative risk assessment tools that the NGO can use to analyse
identified risks and consequently can update the risk register.




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                        Table 1.2 – Risk assessment requirements and tools




                                                               Source: Epstein and Buhovac (2006)

       2.2.1 Risk Assessment Criteria

Bartlett (2004) describes the risk assessment criteria to assess probable risks that can be
translated into a risk register and risk map. The criteria illustrated in table 1.3 will be used to
assess risks for Homeless International.

                               Table 1.3 – Risk Assessment Criteria




       2.2.2 Risk Register

A risk register contains the outcomes of qualitative and quantitative risk analysis which
facilitates the organisation to develop the risk response/treatment strategy at the next stage
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(Hillson, 2009). It usually consists of risk categories, risk description, risk probability, risk
impact, and proposed risk treatment. The risk register of Homeless International is prepared
and presented in table 1.4 which highlights three fundamental risks categories i.e. funding
risks, financial risks, health and safety risks, along with the description and impact of each
risk. Total ten risks are identified in the risk register that are ranked according to risk
assessment criteria defined in table 1.3.

                         Table 1.4 – Risk register of Homeless International




                                                                             Score = PxI
                                                      Probability

                                                                    Impact
Rank




         Risk
       Category           Risk Description                                                           Risk Impact



       Funding     Problems in achieving NGO’s                                             Decline in profit, inevitable
R1                                                     4            5        20
       Risk        core aim and objectives                                                 growth
       Health &
R2                 Reduce international partners       4            5        20            Funding problems
       Safety
       Funding     Lack of financial resources for
R3                                                     4            4.5      18            Inability to initiate new projects
       Risk        support activities
       Financial   Inadequate cash flow and                                                Unexpected cash flow
R4                                                     4            4.5      18
       Risk        reserves                                                                shortages, expense or losses
       Financial
R5                 Default on direct loans             4            4        16            High liabilities and loans
       Risk
       Funding     Inability to support slum                                               Loss of stakeholders confidence
R6                                                     3            4        12
       Risk        dwellers                                                                Decline in funding
       Financial                                                                           Lack of service provision to
R7                 Reliance on few funding sources     4            3        12
       Risk                                                                                slum dwellers
       Financial                                                                           Fall in potential investment
R8                 Insufficient investment policies    3            3         9
       Risk                                                                                opportunities
       Health &                                                                            Rise in cost of damages i.e.
R9                 Accidents or unforeseen events      3            3         9
       Safety                                                                              compensations lost-work hours
       Financial
R10                Unsatisfactory insurance cover      2            3         6            Financial drain, legal problems
       Risk



        2.2.3 Risk Map

A risk map helps the organisation to highlight and map hazardous areas that are vulnerable
and may be affected in the near future (Cooper et al., 2004). The risk map of Homeless



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International is depicted in figure 1.2 which illustrates seven high risks and three significant
risks according to the probability and impact of each risk factor.

                         Figure 1.2 – Risk map of Homeless International




       2.2.4 Probability Impact Index

The probability impact index allows managers to rate probable risks in two dimensions where
risk probability occurs on one axis of the chart and risk impact occurs on the other. Table 1.5
presents the probability impact index of Homeless International where each risk is rated
according to the assessment criteria defined in table 1.3.

                  Table 1.5 – Probability impact index of Homeless International




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3. Key Risks for Homeless International

This section briefly illustrates why three risks i.e. funding risks, financial risks, and health
and safety risks have been identified and how they can affect Homeless International and its
future projects/campaigns.

3.1 Funding risks and their Impact

Funding risks are chosen because they are the most significant hazards for any non-profit
organisation. Due to lack of funds and grants, Homeless International may face problems in
achieving its aims and objectives which will affect its growth (Viravaidya and Hayssen,
2001). Similarly, lack of financial resources will hinder the organisation to initiate new
campaigns for supporting slum dwellers and social housing and ultimately the organisation
will lose the confidence of stakeholders including the donors and current partners.

3.2 Financial risks and their Impact

The financial risks are those hazards which may lead the organisation to huge expense or
financial losses and unexpected cash flow shortages (Malevergne and Sornette, 2005). In case
of Homeless International, the financial risks could be: reliance on few funding sources,
unsatisfactory insurance cover, default on direct loans, and insufficient investment policies.
The reliance on few funding sources may lead the NGO to provide limited services to slum
dwellers while an unsatisfactory insurance cover and default on direct loans may result in
legal problems, financial drain, or high liabilities and loans. Moreover, insufficient
investment policies can lead Homeless International to fall in potential investment
opportunities which may affect the long-term planning of the NGO.

3.3 Health and safety risks and their Impact

Health and safety risks are significant for Homeless International because they may cause to
reduce international partners and the NGO may face funding problems. In addition, not
complying with current health and safety regulations, the NGO may face a rise in cost of
damages i.e. compensations or lost-work hours due to accidents or other unforeseen events.




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4. Risk Response Strategies for Homeless International

Once all probable risks are identified, assessed, and evaluated, then the next step is to develop
and implement appropriate risk response strategy for Homeless International. A risk response
strategy refers to developing alternative options and taking corrective actions to increase
opportunities to minimise threats to project aims and objectives (Hillson, 2001). According to
Cooper et al (2004), a risk response strategy must be appropriate, achievable, actionable,
affordable, and accepted to all stakeholders. The Homeless International can adopt different
risk response strategies to mitigate or reduce the impact of risk factors. The risk response
strategies recommended by several experts are: risk acceptance, risk reduce/transfer, and risk
avoidance (Hillson, 2001, 2009; Chapman, 2001; Bartlett, 2004; Garlick, 2007). Risks
emerged due to natural tragedies or unexpected events can be accepted. However, risk
transfer refers to shifting the impact of risk to the third party such as insurance company
while risk reduction or risk mitigation strategy can be adopted to reduce the effect of
common risks. Finally, risk avoidance strategy involves (1) an attempt to avoid the hazard;
(2) engage in alternative activity; or (3) otherwise finish a particular exposure.

Figure A2 in Appendix I shows the priority and severity of these risk strategies.

4.1 Risk Response to Funding Risks

Funding risks have great significance for non-profit organisations. Thus, Homeless
International needs to adopt the risk avoidance strategy for all funding risks. In addressing the
problems in achieving NGO’s core aim and underlying objectives (R1), the organisation can
acquire funds by attracting international donors. Similarly, the lack of funds may lead
Homeless International to the inability to support slum dwellers (R6). The author
recommends the organisation to increase fundraising activities locally and internationally.
For this purpose, Homeless International needs to develop a sustainable framework driven by
the basic requirements of the community and then use social media to increase fundraising
activities by attracting local and international donors (Ullah et al, 2012). In addition, the
NGO can maintain good financial records and build a solid track record for supporting slums
and carrying out social housing activities.

In order to overcome the issue of lack of financial resources for support activities (R3), the
NGO may look for other funding sources such as individuals, corporations, or federated


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funding. Additionally, to manage funding risk, the Homeless International may hedge funds
by investing in different types of financial instruments and securities.

4.2 Risk Response to Financial Risks

Like funding risks, financial risks are also vital for Homeless International. Among five
financial risks identified by the author, three risks i.e. R4, R5, and R7 have more severe
impact and the NGO can adopt risk avoidance strategy to treat them. For example, to stabilise
inadequate cash flows and reserves, Homeless International can adopt appropriate cash flow
strategies. In this regard, the author recommends NGO to use funds responsibly, periodically
re-evaluate expenses, perform a good monthly forecast, invoice before, or soon after
donation/grant collection, segment donors and slums, and cash disbursements (Helfert, 2001).
The author also recommends Homeless International not to rely on few funding sources (R7)
and look to generate funding from alternative sources such as fundraising from individuals,
federal and local governments, grant-making public charities, multi-year grants, community
foundations, and episodic funding (funding from special events). Similarly, the NGO can
look for the support of government and international donors to avoid default on direct loans
(R5).

On the other hand, two financial risks with moderate impact can be reduced or transferred.
For instance, to reduce the impact of R8 (insufficient investment policies), Homeless
International can develop stable investment policies by involving stakeholders. To develop an
efficient investment policy, the organisation may follow following steps: gain trustees
support, define investment objectives, identify social ethical and environmental standards,
determine positive and negative screening approach, define responsibilities of trustees and
staff, effectively communicate investment policy, reporting on investments to stakeholders,
and finally, periodically reassess the policy (Robert, 1998).

In order to reduce the impact of unsatisfactory insurance cover (R10), and to avoid financial
drain and legal problems, Homeless must adopt adequate insurance policy which must cover
at least statutory and contractual insurances which is required by every country’s laws. Such
insurances may cover property insurance, liability insurance, and insurance to protect
volunteer’s rights.




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4.3 Risk Response to Health and Safety Risks

Among two health and safety risks, reduction in international partners (R2) is more critical.
In the author’s opinion, this risk can be avoided by complying with current health and safety
legislations. Therefore, it is recommended to Homeless International to follow health and
safety checklist which includes different laws regarding cleanliness, first aid, display screen
equipments, fire safety, violence and harassment, and other health and safety regulations
while carrying out support activities.

On the other hand, the NGO can adopt risk reduce/transfer strategy to respond to accidents
and unforeseen events. For this purpose, Homeless International may develop various
workplace safety programs for the prevention of injury and illness during support activities.
In addition, various hazard analyses such as Preliminary Hazard Analysis, Subsystem Hazard
Analysis, System/Integrated Hazard Analysis, and Operating and Support Hazard Analysis
can be performed using numerous tools which include Fault Tree Analysis, Event Tree
Analysis, Cause/Effect Analysis or Human Error Analysis (Ericson, 2005; Hardy, 2010).

Table 1.6 presents the summary of risk response and risk treatment strategies for Homeless
International.

                            Table 1.6 – Risk response and treatment strategies



 Category            Risk Description           Response Strategy                Risk Treatment


                 R1 - Problems in                   Avoid                Arrange funds by attracting
                 achieving NGO’s core                                    international donors
                 aim and objectives                                      SMART Framework

Funding          R3 - Lack of financial             Avoid                Look for other resources or
Risks            resources for support                                   hedge funds
                 activities
                 R6 - Inability to support          Avoid                Increase fundraising
                 slum dwellers                                           activities locally and
                                                                         internationally
                 R4 - Inadequate cash               Avoid                Adopt proper cash flow
                 flow and reserves                                       strategies
Financial        R5 - Default on direct             Avoid                Look for government support
Risks            loans                                                   Look for international donors
                 R7 - Reliance on few               Avoid                Generate alternative sources

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              funding sources                                     of funding/grants
              R8 - Insufficient               Reduce/Transfer     Develop stable policies for
              investment policies                                 investment
              R10 - Unsatisfactory            Reduce/Transfer     Adequate insurance policy
              insurance cover
              R2 -Reduce international        Avoid               To comply with current
Health &      partners                                            health and safety legislations
Safety        R9 - Accidents and              Reduce/Transfer     Workplace safety programs
Risks         unforeseen events                                   Workplace injury and illness
                                                                  prevention



5. Conclusion

It is concluded from the above discussion that funding, financial, and health and safety risks
are critical for Homeless International and if these risks are not treated properly then the
NGO might face problems in the near future. The author has identified different probable
risks under these risk categories according to the probability and impact of each risk factor
(see table 1.1) and then outlined these risks through risk map and probability impact index
which shows the severity of each risk factor. According to the likelihood and consequence,
the top five risk factors include: problems in achieving NGO’s core aim and objectives,
reduce international partners, lack of financial resources for support activities, inadequate
cash flow and reserves, and inability to support slum dwellers. Finally, the author has
recommended appropriate risk response and treatment strategies to mitigate the impact of the
risk factors (see table 1.6).




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References

Bartlett, J. (2004). Project Risk Analysis and Management Guide. 2nd edition, APM Publishing
         Limited


Burtonshaw-Gunn, S. A. (2009). Risk and financial management in construction. Gower Publishing
       Ltd


Chapman, R. J. (2001). The controlling influences on effective risk identification and assessment for
      project design management. International Journal of Project Management, 19(3), pp. 147-
      160.


Cooper, D.F., Grey, S., Raymond, G. and Walker, P. (2004). Project Risk Management Guidelines:
       Managing Risk in Large Projects and Complex Procurements. John Wiley & Sons


Edwards, P.J. and Bowen, P. (2005). Risk Management in Project Organisations. NewSouth
      Publishing


Ericson, C.A. (2005). Hazard Analysis Techniques for System Safety. Wiley.


Epstein, M.J. and Buhovac, A.R. (2006). The reporting of organisational risks for internal and
        external decision-making. Management Accounting Guideline by CIMA Global. [online].
        Available from:
        http://www1.cimaglobal.com/Documents/ImportedDocuments/Tech_MAG_Reporting_Organ
        isational_Risks_for_Decision_Making_Sept06.pdf (Accessed: 20 November 2012)


Garlick, A. (2007). Estimating risk: a management approach. Aldershot: Gower Publishing Company


Hardy, T. (2010). Hazard analysis types and tools. Great Circle Analytics.


Heldman, K. (2005). Project Manager's Spotlight on Risk Management. John Wiley & Sons


Helfert, E. (2001). Financial Analysis Tools and Techniques: A Guide for Managers. McGraw Hill
         Professional


Hillson, D. (2001). Effective Strategies for Exploiting Opportunities. Proceedings of the Project
        Management Institute Annual Seminars and Symposium. November 1–10, 2001,
        Nashville,Tenn., USA


Hillson, D. (2009). Managing Risk in Projects. Gower Publishing




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Malevergne, Y. and Sornette, D. (2005). Extreme Financial Risks: From Dependence to Risk
       Management. Springer


Robert, P. F. (1998). Nonprofit investment policies: Practical Steps for Growing Charitable Funds.
        New York: Wiley


Ullah, S., Ahmad, A. and Khan, T.F. (2012). Fundraising for Sustainable Community Development
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        2(3), pp. 73-79.


Viravaidya, M. and Hayssen, J. (2001). Strategies to strengthen NGO capacity in resource
        mobilisation through business activities. PDA and UNAIDS Joint Publication. [online].
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        (Accessed: 24 November 2012)


Webb, A. (2003). The Project Manager's Guide to Handling Risk. Gower Publishing


www.homeless-international.org/




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Appendix I

             Figure A1 – The risk management process




                                        Source: Epstein and Buhovac (2006, p. 7)




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Figure A2 – Risk response strategies




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