BACC 202 Risk Management Corporate Governance and Ethics

Critically discuss the implications, benefits and costs to organisations implementing a risk management and corporate governance strategy.  Please note: ensure you discuss both internal and external audit requirements and procedures.

The given essay describes about the risk management strategy and corporate governance strategy in the organization. Risk management helps the organization in analyzing the risk at earlier phase, and helps the management in forming the policies accordingly. While in case of corporate governance strategy it provides various powers to the corporate managers so that strategy can be implemented in the organization effectively (Woods, 2012).

Risk management is a technique which is used by the management to evaluate the actions performed by them, as whether they has lead the organization to achieve the target profits and reduced the risk of failure. If an organization follows effective risk management strategy it benefits the shareholders, customers, society and employees of the company. In longer run, the risk management strategy can be effective only when the management has also complied with the requirement of corporate governance (Dickson & Gray, 2012).

Risk management is a tool which is required to be followed by all the organizations whether small or large. The company is benefitted in terms of increase the profitability and performance at all the levels of the management. For applying the risk management strategy the management and board requires to continuously monitor the nature and extent of the risk the company is facing and might be facing in future. For this, the management has to comply with sound risk management techniques and corporate governance system (Edwards & Bowen, 2013).

Risk management strategy helps the organization in running smoothly their operations. An organization usually came across with two major risks those are financial risk and operational risk. Risks are of various types, but normally the organization faces these types of risk majorly. Each type of risk has its own way of implications to overcome it. Strategic risks are those risks which arise due to changes in the level of competition in the organization. It leads to affect the organization market share and eventually reduces the profits of the organization (Graham & Kaye, 2015).

While in case of operational risk it is lack of facilities in the organization, such as production processes, equipments, lack of facilities. If an organization faces large percentage of operational risks, it can lead to affect the profitability of the organization in a large percentage. This will allow the company competitors to form strategies a step ahead and would able the competitor company to eaten away the advantages enjoyed by the company in market (Kenett & Raanan, 2011).

Hence to effectively imply the risk management strategy, the organization must conduct various training and programs in which the members would be guided about various risks the company can face in near future and how to deal with them effectively. Small business management comprises of lesser risk due to which they need to form lesser risk management strategies. While in case of large business organizations, due to implications of various rules, regulations and provisions it lays to increase in the level of risk, like change in economic policy or government policy would likely to impact large organizations more as compare to smaller organization. Therefore formation and implication of risk management strategy would be needed more in case of large organizations (Seiro, Oliveira & Schuch, 2011).

Risk management is considered as one of the basic principle of the organization. Risk management helps the organization in prior knowledge of risk in the organization and its effect on the performance on management activity. By this the management can come out with solutions to reduce the impact of risk on the management activity. It promotes organizational structure by making the management capable enough in handling the entire uncertain situation. The earlier assessment of risk in the organization would lead to improve the organizational culture by making plans for unseen risk that can arise in future. It saves time and cost by pro active approach that is making plans for unseen risk that may arise in the future (Davies, 2016).

Risk management strategy is a complex approach. It can save cost by making plans in advance, but it increases the cost of research and development activity. It also poses some complex calculations; this is because to estimate the level of risk is not an easy task without the use of any tool or technique. For determining the risks, the management has to rely majorly on external references. This can lead to increase the level of risk even more than before because of acceptance of unauthorized data. It increase the cost of time, the reason behind this is to assimilate all the information in relation to the strategic plan would take time (Kazmi, 2008).

Corporate governance defines the way in which an organization should run. It provides various rules and regulation under which the management should perform its activities, and how they would be managed effectively. Corporate governance strategy is performed by the board of directors of the company. Corporate governance ensures balance between individual, economic, societal, goals (Vagadia, 2013).

Corporate governance strategies are implemented in the organization by establishing communication between stakeholders of the company. Here stakeholders are the shareholders, company’s internal management and shareholders (Daidj, 2016).

The major benefit the company receives after implementation of corporate governance strategy is by lowering the quarrels between the owner of the company and its management. It measures the gap between the expected performance of owner and management and their actual performance. It helps the management in determining the ways in which strategic decisions can be taken by the management. This would help in estimating the level of risk and return in various investments made by the company. It brings transparency in the working of the organization and helps in better formation of risk management strategies (OECD, 2016).

Corporate governance leads to better formation of strategies to accomplishing the organizational goals and objectives. However it lays some disadvantages also which are as: it separates the management from owner’s view, that is sometimes in the organization, management of the organization are not of the same view as that of owner, this leads to separation between the management and owner of the organization. This problem is usually in case of private organization where, the corporate managers are interested in increasing the personal benefits, while the stakeholders of the organization are working for increasing the wealth of the organization. Corporate managers are the only one which are aware of all the information of the organization, hence there is a possibility that for the sake of personal gain, corporate managers can start insider trading. This would affect the company share price in the market. Corporate governance has allowed various duties and power to the corporate managers; hence this can lead to a situation, where corporate managers can gain undue advantage from the access of such powers (Mandal, 2010).

By analyzing the essay on risk management, corporate governance and ethics, it is concluded that risk management helps an organization in minimizing the threats and vulnerabilities in the organization by planning and forecasting in advance. While in case of corporate governance, the company should form such policies and procedures that can lead to synergy in the views of management and owner. For this the company would be requiring to conduct various meetings, where everyone can share their point of view so that a common strategy can be formed out. This would lead to increase in the operational and financial efficiency of the organization.

References

Daidj, N,. 2016 Strategy, structure and corporate governance: expressing inter-firm networks and group- affiliated companies, CRC press, New York

Davies, A,. 2016 Best practice in corporate governance: building reputation and sustainable success, CRC press, New York

Dickson, T, J & Gray, T, L,. 2012 Risk management in the outdoors: a whole of organisation approach for education, sport and recreation, Cambridge university press, India

Edwards, P & Bowen, P,. 2013 Risk management in project organisation, Routledge, New York

Graham, J & Kaye, D,. 2015  A risk management approach to business continuity: Aligning business continuity and corporate governance, Rothstein publishing, USA

Kazmi, A,. 2008 Strategic mgmt & Bus policy, 3^rd edition, Tata McGraw hill education, India

Kenett, R, S & Raanan, Y,. 2011 Operational risk management: a practical approach to intelligent data analysis, John Wiley & sons, United Kingdom

Mandal, S, K,.2010 Ethics in business & corp governance, Tata McGraw hill education, India

OECD,. 2016 Corporate Governance Improving Corporate Governance in Indonesia Policy Options and Regulatory Strategies for Tackling Backdoor Listings: Policy Options and Regulatory Strategies for Tackling Backdoor Listings, OECD, Paris

Seiro, L, C, D,. Oliveira, L, H, D & Schuch, L, M, S,. 2011 Organizational risk management- a case study in companies that have won the Brazilian quatity award prize, Journal of technology management & innovation, 6(2)

Vagadia, B,. 2013 Enterprise governance: driving enterprise performance through strategic alignment, Springer Sceince & business media, United Kingdom

Woods, M,. 2012 Risk management in organization: an integrated case study approach, Routledge, New York