Managing Inter-Organisational Risks by patrickow1

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                    Managing Inter-
                   Organisational Risks
        ALTHOUGH STRATEGIC ALLIANCES ARE AN IMPORTANT BUSINESS TREND, 60%
           OF ALLIANCES FAIL. TO AVOID THE RISK OF FAILURE, ORGANISATIONS
               NEED TO ACTIVELY MANAGE THEIR INTERORGANISATIONAL
                   RISKS THROUGH INNOVATIVE RISK MANAGEMENT
                            TECHNIQUES AND PROCESSES.

                                                               Patrick Ow




O
                rganisations are constantly    parency (openness toward partners) and              Within our context, inter-organisa-
                forming strategic alliances    high mutuality (collaboration of content)       tional risk management are coordinated
                to achieve common objec-       of the sharing organisations.                   activities to direct and control two or
                tives. Unfortunately, the          Unfortunately, 60% of alliances fail1. To   more organisations with regard to inter-
                failure rates of these alli-   avoid such failures, organisations form-        organisational risks. Inter-organisational
ances are also high. Therefore we require      ing alliances must actively manage inter-       risk is defined as risk affecting two or
a dynamic structure, framework and proc-       organisational risks through innovative         more organisations, which may impact
esses to manage inter-organisational risks.    risk management techniques and proc-            on the service delivery of other organisa-
     Over the past several decades, the        esses in order to achieve their common          tions within the alliances thereby affect-
use of inter-organisation and intra-           objectives, especially from an inter-organi-    ing the achievement of the alliance’s
organisation alliances has emerged as an       sational perspective, thus avoiding failures    objectives. An example of an inter-organ-
important business and strategic trend.        that have impacted so many alliances.           isational risk is “poor communication/
Strategic alliances have become principal          At the basic level, risk management         co-ordination between organisations.”
components of many private and pub-            are coordinated activities to direct and            When two or more organisations
lic-sector organisations as they try to        control an organisation with regard to          work together, there are some govern-
achieve competitive advantage by access-       risk2. Risk is defined as the “effect of        ance issues to consider:
ing more dynamic markets through col-          uncertainty on objectives”3. When two or        1
                                                                                                   Alliance management: Five destructive
laboration, compromise and accommo-            more organisations collaborate to form
dation. Strategic alliance is a process        an alliance, grouping or partnership, we        2
                                                                                                 ISO Guide 73:2009 - Risk management –
to create synergies to achieve common          have inter-organisational risks or uncer-       Vocabulary. See also ISO 31000:2009 Risk
objectives by appropriating the competi-       tainties (the known unknowns) that need         management – principles and guidelines.
tive intent (joint knowledge), high trans-     to be managed adequately and effectively.       3
                                                                                                 ISO Guide 73:2009.


40   ACCOUNTANTS TODAY | FEBRUARY 2010
                                                                                                          MANAGING INTERORGANISATIONAL RISKS




                      1                   2                     3                         4                      5        The risk management framework is a
                                                                                                                     set of components that provide the foun-
     MOU: Non-               Legally bind-      Legally bind-            Incorporated            Incorporated        dations and organisational arrangements
      binding, in         ing Partnership     ing Partnership              Association              Company          for designing, implementing, monitoring,
  principle com-               Agreement           Agreement                                                         reviewing and continually improving risk
 mitment to col-           (legal commit-        [plus] formal                                                       management throughout the organisa-
        laborate              ment to col-        governance                                                         tion5.
                                 laborate)                body                                                            Individual organisations within an
                                                                                                                     alliance should therefore have a reason-
                                                                                                                     able level of maturity in its existing risk
                                                                                                                     management framework and process in
Least Formal                                                                                  Most Formal
                                                                                                                     order to effectively manage inter-organi-
                                                Diagram 1                                                            sational risks affecting themselves and
                                                                                                                     the alliance as a whole, and to achieve
     Organisational Risks                                            Alliance Risks                                  the shared objectives. Individual organi-
                                    OVERARCHING INTERORGANISATIONAL RISK MANAGEMENT FRAMEWORK                       sation’s risk management framework
                                                                                                                     must integrate and inter-operate with
                                                                                                                     the alliance’s inter-organisational risk
        Inter-                   Risk                Risk                 Initiating             Organisations
  Organisational                                                         Organisation          Within the Alliance   management framework and process
                             Impacting            Impacting
 Risk Identified by          One Other              >TWO                Escalate Inter-            Develop a         that is encapsulated in the alliance
 an Organisation              Organisa-            Organisa-            Organisational          Common Inter-
    Within the                                                              Risk to             Organisational
                                                                                                                     agreement.
                                tion?               tions?
      Alliance                                                          Governing Body          Treatment Plan            Based on the organisational level
                                                                                                                     definition of risk management frame-
     Individual                                                                                                      work, in
								
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