Managing risks within a corporation involves the process of identifying, assessing and prioritizing any risk that can affect the normal functioning of a company using different methods, processes and tools in order to manage it before it actually occurs. This process entails the formulation of different strategies that can be applied in the prevention of these potential hazards. Risk management is an essential requirement in each firm as it prepares the employees of the firm for a time when the risk actualizes on how to deal with the situation at hand. It also ensures that the firm is not affected to a point where the company is unable to generate any money since their activities are paralyzed. Risks vary from physical risks in the event of a fire hazard or building collapse, to location risks that include natural disasters such as earthquakes and floods, human risks that involve the employees of the firm such as in the event of death or sudden resignation to technology risks that include power outage and surges and failure of computer systems.
Operational consideration is the process of planning and formulating objectives strategically by considering the internal and external environments of a firm by mainly focusing on the employees and competition of the firm. These objectives are set in a bid to assess threats to the company and find ways of overcoming these threats. Operational considerations that are directly linked to employees include enhancing the skills of employees through training. This ensures that they become more knowledgeable on how to handle different situations that may arise in the firm. Improving the current team of employees through the implementation of job sharing or cross training so as to ensure that employees get experience and acquire skills from working in different departments within the same company. Another method is ensuring that the firm is safeguarded so as to guard against illegal activities such as laundering of the firm’s money. This can be solved by installing CCTV cameras in the firm and by having constant survey of any financial records in the company.
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An example of a firm that has received negative publicity due to its poor management of risks is the Toyota Motor Corporation. Toyota is a Japanese automotive manufacturer ranked second-largest in the world, a runner-up to the German Volkswagen Group. The multinational corporation was founded by Kiichiro Toyoda in the 1930s and has its headquarters in Toyota City, Aichi, Japan. The market leader manufactures five brands of automobiles: Toyota, Daihatsu, Hino, Ranz and Lexus. The global conglomerate has seen a steady rise in its sales, production capacity and general value of the firm over the years since its inception with greater strides being observed in the 21 st century. The automaker has made sales of up to $235.83 billion making it the global Goliath in market capitalization, having surpassed General Motors in 2008 (O’Rourke, 2010).
However, in the years 2009 to 2012 the automotive manufacturer managed to effectively turn its stellar reputation of producing high quality vehicles and a loyal customer base into a brand associated with defective automobiles and lack of integrity as they failed to inform their customers of the cars’ life-threatening flaws. This is following a number of natural crises as well as production missteps in these years resulting in nearly 9 million recalls of vehicles worldwide, more than its global sales in the year 2009 (O’Rourke, 2010). The unprecedented flurry of recalls came as a shock to millions of customers as the automobile manufacturer is famous for its lean business process, manufacturing prowess and skill, continuous innovation and strong supplier ties. (Minahan, 2010). Company officials estimated about $2 billion could be spent in expenses and lost sales resulting from the recalls without factoring the legal charges the company is likely to face from customers who were affected with the production slip-ups (O’Rourke, 2010). The massive 2011 earthquake off the coast of Japan which resulted in a huge tsunami striking the country did not do the company any favors since the inflicted havoc continue to impede the functionality of the economic sectors despite efforts to return to normality. Moreover, the company was running out of parts forcing plant shutdowns around the world. (Steinberg, 2011). Consequently, many are left to wonder if the market leader will ever fully recover from the bottom drop because not only was the formidable aura of the once-proud company shattered but also the impact seems to be long-term, far reaching and very expensive.
We are left to wonder whether the company set aside any risk management strategies. Had the company set a risk management action plan in advance, it would have served as a cushion for itself against the occurrence of such like “black swan” events. The risk management plan would have catered for future uncertainties that the company had otherwise anticipated for, and this would have helped to prevent the hindering of production. The company would have taken the relevant actions so as to mitigate the various risks that the plan would have taken into consideration (Steinberg, 2011).
As a risk management plan, the company should have taken into account the following strategies. Commodity risk management would have worked to ensure that the company was protected against external factors that affect the price of their goods and the availability of inputs. This would have prevented the production shutdowns due to shortage of parts. Disruption risk management would have cushioned the company against natural and manmade disasters like tsunamis and plant manufacturing power outages respectively. This would have reduced the effects of the tsunami on the company. Brand risk management would have ensured that the Toyota brand was saved during the recalls. This way, the company would not be undergoing the disaster that it has experienced (Minahan, 2010).
Work Cited
Minahan, T. (2010). Risk Management Lessons from Toyota. Forbes . Retrieved from https://www.forbes.com/2010/05/10/toyota-suppliers-managing-technology-risk.html
O’Rourke, M. (2010, April). Toyota’s Total Recall. Risk Management Magazine . Retrieved from http://www.rmmagazine.com//2010/04/01/toyotas-total-recall/
Steinberg, R. M. (2011, May). Toyota’s Risk Management Failings Emerge. Compliance Week . Retrieved from http://www.complianceweek.com/richard-m-steinberg/toyotas-risk-management--failings-emerge
