Description
Risk Assignment means a driver of a motor vehicle, or a class of such drivers, who would be denied insurance coverage by insurance companies, but are required to be covered under U.S. state law.[1] The term assigned risk is also used in Workers' compensation law.
Risk Management Assignment
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%] ? 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.
Table of Contents
1. Introduction ........................................................................................................................................ 4 2. General Risk Management Process .................................................................................................... 4 2.1 Risk Identification.......................................................................................................................... 4 2.2 Risk Assessment and Evaluation ................................................................................................... 5 2.2.1 Risk Assessment Criteria ........................................................................................................ 6 2.2.2 Risk Register ........................................................................................................................... 6 2.2.3 Risk Map ................................................................................................................................. 7 2.2.4 Probability Impact Index ........................................................................................................ 8 3. Key Risks for Homeless International ................................................................................................. 9 3.1 Funding risks and their Impact...................................................................................................... 9 3.2 Financial risks and their Impact .................................................................................................... 9 3.3 Health and safety risks and their Impact ...................................................................................... 9 4. Risk Response Strategies for Homeless International ...................................................................... 10 4.1 Risk Response to Funding Risks .................................................................................................. 10 4.2 Risk Response to Financial Risks ................................................................................................. 11 4.3 Risk Response to Health and Safety Risks ................................................................................... 12 5. Conclusion ......................................................................................................................................... 13 References ............................................................................................... Error! Bookmark not defined. Appendix I ............................................................................................................................................. 14
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
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.
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
(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
Risk Category
Risk Description
Score = PxI
Probability
Impact
Rank
Risk Impact
R1 R2 R3 R4 R5 R6 R7 R8 R9 R10
Funding Risk Health & Safety Funding Risk Financial Risk Financial Risk Funding Risk Financial Risk Financial Risk Health & Safety Financial Risk
Problems in achieving NGO’s core aim and objectives Reduce international partners Lack of financial resources for support activities Inadequate cash flow and reserves Default on direct loans Inability to support slum dwellers Reliance on few funding sources Insufficient investment policies Accidents or unforeseen events Unsatisfactory insurance cover
4 4 4 4 4 3 4 3 3 2
5 5 4.5 4.5 4 4 3 3 3 3
20 20 18 18 16 12 12 9 9 6
Decline in profit, inevitable growth Funding problems Inability to initiate new projects Unexpected cash flow shortages, expense or losses High liabilities and loans Loss of stakeholders confidence Decline in funding Lack of service provision to slum dwellers Fall in potential investment opportunities Rise in cost of damages i.e. compensations lost-work hours Financial drain, legal problems
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
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
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.
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
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.
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 achieving NGO’s core aim and objectives Funding Risks R3 - Lack of financial resources for support activities R6 - Inability to support slum dwellers R4 - Inadequate cash flow and reserves Financial Risks R5 - Default on direct loans R7 - Reliance on few
Avoid
Arrange funds by attracting international donors SMART Framework Look for other resources or hedge funds Increase fundraising activities locally and internationally Adopt proper cash flow strategies Look for government support Look for international donors Generate alternative sources
Avoid
Avoid
Avoid Avoid Avoid
funding sources R8 - Insufficient investment policies R10 - Unsatisfactory insurance cover R2 -Reduce international partners R9 - Accidents and unforeseen events Reduce/Transfer Reduce/Transfer Avoid Reduce/Transfer
of funding/grants Develop stable policies for investment Adequate insurance policy To comply with current health and safety legislations Workplace safety programs Workplace injury and illness prevention
Health & Safety Risks
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).
Appendix I
Figure A1 – The risk management process
Source: Epstein and Buhovac (2006, p. 7)
Figure A2 – Risk response strategies
doc_305304768.docx
Risk Assignment means a driver of a motor vehicle, or a class of such drivers, who would be denied insurance coverage by insurance companies, but are required to be covered under U.S. state law.[1] The term assigned risk is also used in Workers' compensation law.
Risk Management Assignment
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%] ? 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.
Table of Contents
1. Introduction ........................................................................................................................................ 4 2. General Risk Management Process .................................................................................................... 4 2.1 Risk Identification.......................................................................................................................... 4 2.2 Risk Assessment and Evaluation ................................................................................................... 5 2.2.1 Risk Assessment Criteria ........................................................................................................ 6 2.2.2 Risk Register ........................................................................................................................... 6 2.2.3 Risk Map ................................................................................................................................. 7 2.2.4 Probability Impact Index ........................................................................................................ 8 3. Key Risks for Homeless International ................................................................................................. 9 3.1 Funding risks and their Impact...................................................................................................... 9 3.2 Financial risks and their Impact .................................................................................................... 9 3.3 Health and safety risks and their Impact ...................................................................................... 9 4. Risk Response Strategies for Homeless International ...................................................................... 10 4.1 Risk Response to Funding Risks .................................................................................................. 10 4.2 Risk Response to Financial Risks ................................................................................................. 11 4.3 Risk Response to Health and Safety Risks ................................................................................... 12 5. Conclusion ......................................................................................................................................... 13 References ............................................................................................... Error! Bookmark not defined. Appendix I ............................................................................................................................................. 14
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
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.
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
(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
Risk Category
Risk Description
Score = PxI
Probability
Impact
Rank
Risk Impact
R1 R2 R3 R4 R5 R6 R7 R8 R9 R10
Funding Risk Health & Safety Funding Risk Financial Risk Financial Risk Funding Risk Financial Risk Financial Risk Health & Safety Financial Risk
Problems in achieving NGO’s core aim and objectives Reduce international partners Lack of financial resources for support activities Inadequate cash flow and reserves Default on direct loans Inability to support slum dwellers Reliance on few funding sources Insufficient investment policies Accidents or unforeseen events Unsatisfactory insurance cover
4 4 4 4 4 3 4 3 3 2
5 5 4.5 4.5 4 4 3 3 3 3
20 20 18 18 16 12 12 9 9 6
Decline in profit, inevitable growth Funding problems Inability to initiate new projects Unexpected cash flow shortages, expense or losses High liabilities and loans Loss of stakeholders confidence Decline in funding Lack of service provision to slum dwellers Fall in potential investment opportunities Rise in cost of damages i.e. compensations lost-work hours Financial drain, legal problems
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
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
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.
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
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.
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 achieving NGO’s core aim and objectives Funding Risks R3 - Lack of financial resources for support activities R6 - Inability to support slum dwellers R4 - Inadequate cash flow and reserves Financial Risks R5 - Default on direct loans R7 - Reliance on few
Avoid
Arrange funds by attracting international donors SMART Framework Look for other resources or hedge funds Increase fundraising activities locally and internationally Adopt proper cash flow strategies Look for government support Look for international donors Generate alternative sources
Avoid
Avoid
Avoid Avoid Avoid
funding sources R8 - Insufficient investment policies R10 - Unsatisfactory insurance cover R2 -Reduce international partners R9 - Accidents and unforeseen events Reduce/Transfer Reduce/Transfer Avoid Reduce/Transfer
of funding/grants Develop stable policies for investment Adequate insurance policy To comply with current health and safety legislations Workplace safety programs Workplace injury and illness prevention
Health & Safety Risks
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).
Appendix I
Figure A1 – The risk management process
Source: Epstein and Buhovac (2006, p. 7)
Figure A2 – Risk response strategies
doc_305304768.docx