Mgmt6019 | Risk Management | Assessment Answers
- Critically examine key issues which have a significant impact on risks associated with engineering activities including safety and environmental management systems.
- Effectively employ identification and risk management tools to propose and analyse realistic risk scenarios and develop risk management strategies.
- Critically analyse the usefulness, applicability and limitations of risk assessment as a decision-making tool.
- Critically analyse risk perception and risk communication and effectively develop risk communication plans and skills.
Answer:
Introduction:
Abbe, Khandani and Lo (2014) define risk as the chance of losing resources which are important to organizations and/or individuals. Risks are the results of situations which largely out of the control of business organisations but are capable of having significant impact on them. The business organisations today come under the influence of external environment to such great levels that they are subjected to high levels of risks. For example, a small change in the international foreign exchange rates can have severe impact on the financial transactions of business organisations, thereby causing massive financial losses to them. Nicolas and May (2017) further point out that business organisations have to comply with several laws framed by governments and international organisations. Breaching or failing to comply with laws attract severe actions from the governments and the legal system which tantamount to financial losses. Compliance risks also results in loss of goodwill, thus attracting further losses to the business. McNeil, Frey and Embrechts (2015) in this respect point out though all industries are subject to risks, some industries are more susceptible to risks than others. Olson and Wu (2015) point in manufacturing is an industry which is highly susceptible to risks far more than most other industry. The manufacturing industry involves use of several types of chemicals, many of which are highly inflammable and explosive. The business organisations operating in the manufacturing industry have to comply with several laws regarding location of the factories and warehouses, both of which are extremely prone to explosions. Ju (2016) point out a very important aspect on risk management in these factories and warehouses. He points out that improper risk management techniques can intensify the risks causing accelerating the damages to life and property. The aim report would explore the massive damage one such industrial explosion which took place in a container at the Port of Tianjin, China. The explosion set into mobility several other reactions and even an earthquake of around 2.9 magnitude. As per the leading international daily, The Independent, the accident caused a financial loss of no less a billion and killed a hundred and seventy three people (independent.co.uk, 2018). The paper would also show the devastating impacts faulty risk management strategies can. The researcher would explore study the severe aftermath of such explosions and also point how such explosions can be prevented, or at least minimised or reduced in intensity to limit their catastrophic effects.
Key issues and risks associated with engineering activities:
The following are the key issues which have significant impacts on the engineering activities:
Use of chemicals:
The first factor which results in risks is the use of chemicals which form essential component of the engineering activities. The engineering firms as Starr and Caskey (2016) mention that chemicals are used to manufacture finished products. The engineering firms use chemicals in almost every aspects of manufacturing right from using it as core ingredients of finished products to use them as additives to enhance the appeal of the finished products. The chemicals are mostly inorganic and extremely reactive. Moreover, some of the chemicals acetone peroxide and barium azide. Some chemicals like sulphuric acid and hydrochloric acid give out harmful gases (Nazir, et al., 2014). These acids are capable of causing massive damage to human body and even dissolve the bones. The gases they give out are toxic and are capable of choking the victims even leading to death. It must also be noted that engineering works use a wide variety of these deadly chemicals in herculean quantities in their day to day operations (Manners-Bell, 2017). This analysis shows that this vast amount of dangerous chemicals which are in use in the engineering works require careful handling and stringent risk management strategies in each section of the work system including storage and logistics.
The container storage station at the port of Tianjin housed several harmful chemicals but the management did not take appropriate actions to prevent any accident. The warehouse stored about eight hundred tonnes of ammonium nitrate which is used as an agricultural fertilizer. (nytimes.com, 2018) The cause of the explosion was not known which pointed out that the management of the Tianjin Dongjiang Port Ruihai International Logistics, the logistics company responsible for handling the chemicals (Gross & Birnbaum, 2017). The investigation to dig into the root cause of the explosion showed that the logistics company which possessed the warehouses exposed that the firm did not maintain proper records of the chemicals which were stored. The investigation also revealed that the logistics company in its warehouses stored other corrosive and dangerous chemicals like sodium cyanide. This pointed out that the logistics should have taken stringent risk management to store the vast quality of chemicals of as huge of 500 tonnes (Hohmann, Mikus & Czock, 2014). Thus, it can be inferred from the discussion that the use of immense qualities of chemicals aggravate the risk element in the engineering industry.
High costs:
The next factor which contributes to the high amount of risks in the engineering sector is the high costs. Mechler (2016) points out that storing this immense amount of chemicals attract immense storage costs. The firms owing the warehouses and the chemical storage facilities often do not allocate sufficient funds. This insufficient fund allocation result in inadequate risk management measures to handle this immense amount of chemicals in storage. These firms often do not install risk management equipment like cameras and fire extinguishers which results in intensifying any accident even before it can be located. This is evident from the poor risk management standards maintained at the near the port of Tianjin where the explosion took place (nytimes.com, 2018).
Inadequate safety and environmental management systems:
The third factor which result in catastrophic accidents in warehouses and sometimes contribute towards accelerating to mild fires into severe explosions is inadequate safety and environmental management systems. The official website, the State Council, the People’s Republic of China point out that the country putting strong emphasis on workplace health and safety. The website also points out that the country has criminalised malpractices in workplaces which could have tantamount into accidents (english.gov.cn, 2018). The government of the country has formed a risk management mechanism which consist of a three tier system comprising of the Ministry of Health, provincial administration and municipal administration. This triple layered system is responsible for taking steps to manage risks (ncbi.nlm.nih.gov, 2018).
An analysis of the Tienjin explosion show shows that the massive explosions which resulted in the deaths of over a hundred people and causing a loss of more than a billion was the result of inadequate safety measures. As per the article published in the New York Times, the catastrophe was the outcome of negligence in risk management both on the side of the management of Rui Hai International, the logistics firm and the government officials (nytimes.com, 2018). Thus analysis once again points out that inadequate risk management result in massive accidents.
Inappropriate risk management systems:
Fan and Yuan (2016) point out that inappropriate risk management systems are capable of intensifying the risks in the engineering sector. The British Broadcasting Corporation reported that the fire fighters struggling to pacify the flames spread water on some of the chemicals allegedly on calcium carbide. The chemical reacted with water and gave acetylene (bbc.com, 2018). Masood et al. (2017) point out that acetylene is inflammable and is a fuel used in engines of certain types. It can analysed from the discussion that spraying of water on the chemicals released the inflammable gas acetylene which in fact added to the catastrophe by intensifying the fire. Thus, it can inferred from the analysis that inappropriate risk management instead of mitigating risks, contributes towards making them more intense (Korkmaz, Iskender & Babuna, 2016).
Employing risk identification and management tools and development of risk management strategies:
The risk scenario in which engineering projects function are of various types, some within the control while others are beyond the control of the organisations. The risks to the execution of engineering projects due to internal factors like employee conflicts and machine breakdown can be minimised by taking appropriate steps. However, the greatest risks to the engineering projects are external in nature and beyond their control. For example, factors like natural calamities and economic downturns hamper projects but are beyond control.
Risk identification and risk management tools:
The following are the risk identification technique and risk management tools which business organisations can employ. These tools would prove helpful in avoiding or at least reducing the risks to the extent possible:
Documentation review:
The first risk identification and management tools is the review of accident related documents. The business organisations involved in engineering activities maintain documents of all accidents both mild and severe. The managers should report all accidents to the senior management which in turn would report it the relevant authorities like government bodies. Rowlinson, YunyanJia and ChuanjingJu (2014) point out that this documentation would provide references in the future and enable the management take appropriate actions in the event of similar types of accidents. In fact, the managers can also refer to these records to recognise approaching risks and tale appropriate actions which would enable risk more efficient risk management. Dash (2016) further adds to this and mentions that the management or relevant staff members while maintaining documents should not only record the accidents but also the risk management method applied. This would provide guidance to the risk management to mitigate risks (Masood et al., 2017). This analysis clearly shows that maintaining records would function in identification and management of risks.
SWOT analysis:
The engineering firms should conduct a SWOT analysis on regular basis to identify the strengths, weaknesses, opportunities and threats. This analysis on one hand would enlighten the management about the strengths and on the other, it would enable the management recognise the risks which the firm may face (Dash, 2016). The article published in the Guardian mentions that the explosions at the Tianjin resulted in a financial loss of over a billion dollars (theguardian.com, 2018). Moreover, the chemicals used in engineering companies are extremely and have to be acquired by paying immense insurance costs. Wiegmann and Shappell (2017) further point out that these accidents cause loss of human resources which have long term impact on the productivity of the firms. The explosions also attract government probe and stakeholder resent, all of which predict dwindling business returns. It can be pointed out in the light of this discussion that recognise of threats and risk through analysis can enable engineering firms to mitigate risks. This would enable them to prevent other types of losses which can be potential outcomes of accidents (Dekker, 2017).
Risk management strategies:
The risk management strategies of the engineering firms should include all the staff. The staff, contractors and all other employees should be allowed to report any risk they identify to the upper management. The upper management should form risk management strategies to deal with risk which would be communicated to employees of all designations. This would result in taking and execution of appropriate risk management strategies.
Critical analysis of usefulness and application of risk assessment:
The following are the usefulness or applications of risk management:
Prevents loss of resources:
Appropriate risk management techniques enable business organisations to lower their loss of resources and consequently lessen the financial loss they incur due to the loss of the resources. The accident in the warehouses in Tienjin caused loss of expensive chemicals like potassium nitrate which could have been used in the production. The investigation into the case led to the arrest of high officials who take appropriate risk mitigation steps to prevent accidents (bbc.com, 2018). The entire incident resulted in financial losses worth billions along with potential damage to the goodwill. This analysis appropriate risk management can also result in minimising loss of financial resources and goodwill.
High productivity:
Queiroz-Lima and Serranheira (2016) mention that accidents cause loss of human resources and loss of productivity. It can thus be stated other words that risk management results in minimum loss of human resources and consequent loss of productivity. Ibbs and Vaughn (2015) states in the same context that human resources contributes to the productivity in the engineering companies. The engineering companies are able to allocate their human resources to the future business strategies. Thus, it can be mentioned in this light that loss of human resources due to accidents also hinders allocation of human resources towards the future strategies. For example, the explosion caused death of around close to two hundred people (theguardian.com, 2018). Upon deeper analysis it can be pointed out that this loss of human resources must have hit the allocation of human resources towards future plans badly. Thus, it can be inferred that appropriate risk management would minimise loss of productivity.
Limitations of risk assessment
The risk management in the engineering industry in China suffer from several limitations. The following are limitations of risk assessment in the engineering industry in China:
Vast size:
The first limitation of the risk assessment in the Chinese engineering industry is its vast size. The graph below shows that the revenue generation of the construction and engineering industry in China till 2015.
Figure 1. Size of construction and engineering industry in China till 2015($bn)
(Source: statista.com, 2018)
Figure 2. Leading Chinese mechanical engineering companies on the Fortune China 500 ranking in 2018, by revenue (in billion yuan)
(Source: statista.com, 2018)
The figure above (figure 2) shows that revenue of the leading Chinese construction and engineering 211.01 bn Yuan. It can be construed from the two graphs that the vast size of the Chinese construction industry prevents total control of the industry practically impossible. This similarly makes it impossible to assess the total risks. The expanse of the business operations of the top engineering companies are so vast that the management virtually fails to manage the risks in entirety. This leaves scope for risks and accidents like Tianjin explosions which cause losses worth billions (bbc.com, 2018). This it can be inferred from the discussion that the vast size of the engineering industry makes it practically impossible to manage the risks in entirety.
Expensive:
The second limitation of the risk management is the high costs involved in the process. of risk management,. The large companies have contingency funds in place to manage risks. However, small firms do not have sufficient funds to manage risks. This makes them more prone to accidents which hampers their productivity (Queiroz-Lima & Serranheira, 2016).
Critical analysis of risk perception and risk communication:
The business organisations must report the risks to the stakeholders using proper channels of communication. The stakeholders like government should be informed using formal letters addressed to the relevant departments (Dekker, 2017). The customers who are also important should informed about the dangers by using the digital space and the official website of the company. The risk communication should encourage the stakeholders to participate in the risk management.
Conclusion:
The engineering firms must take appropriate risk management methods. They should gain involvement of the stakeholders in management of risks. This would enable them to form more formidable risk management strategies.
References:
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