Security and Risk Management

Task 1

Q.1 Extent to which risk can be controlled by the security manager

Risk is such an aspect that exists in every organization. It is practically not possible that there is no risk in the conduction of any business. In the changing environment, there are so many risks that are required to be taken into consideration for achieving the success of the organization. Risk is the probability of occurrence of loss which means that there are chances that a problem may arise and it is not sure to happen. Risk is related to future periods. It is concerned with the change that occurs in the opinion, actions, or other things as the demand will differ and the choice of the consumers will be uncertain which will be a risk for the business. In risk, there exists both uncertainty and opportunity. If due to any action, there will be any negative impact that will have to be born then that will be the uncertainty but if any positive outcome is experienced then that will be the opportunity for the business. For the person who expects that they will receive failure it proves to be a threat and for those who see the victory it will be a challenge.

In the business, various risks are faced by Unilever and those have been described below...

1. Strategic risk

In the conduction of every business, it is required that a proper business plan should be made for the effective operation of various activities. But it is not possible that all the plans that are made are appropriate and this is due to the reason that things and the environment keep on changing and with that the requirements that are to be met also change. So a plan that is made can not be said to be perfect if it is not updated at the regular interval of time by considering the changes that are taking place. It is possible that the best plan made by you will prove to be a failure and the risk involved with it is known as the strategic risk. It is a risk that Unilever will have to face problems in achieving the targets and objectives that have been set by it as the effectiveness of the strategy made by it has reduced. There are various reasons why it can happen such as if there is a change in the technology then it will have an impact on the plan made earlier and will no longer be treated as appropriate in the changed scenario. A part from it other factors that can make the plan less useful are the entry of any new competitor in the market, increase in raw material cost, change in the demand of customers, and many more. In the case of Unilever, this will be the major risk as it is dealing with consumer products so the economic conditions will play a major role. This is because the purchasing power and consumption demand are directly affected by it and so the sales of the company will be affected. As there is a lot of competition in consumer goods it will have to face many uncertainties.

2. Financial risk

Finance is the most important aspect that is to be taken care of in any business and there is a high risk associated with it. There are chances of a sudden increase in expenses that will lead to financial instability. If there is a change in the rate of interest due to that interest rate risk will arise. With the change in floating interest rate will be a risk that the expenditure about interest will increase and there will be a shortage of funds and that will be met by increased borrowing. If there is an increase in the fixed interest rate the loss in fair value will arise and that will be the risk that the company will have to bear. Together with it as Unilever operates in various parts of the world it will have to deal with the risk that is associated with the exchange rates. As the income will have to be converted so there will be a loss that will be faced due to the fluctuations. The credit rating of the company will be affected as there will be a decrease in the amount of profit and also the cash flow and turnover will be affected adversely. Due to this, there will be problems in raising funds and also the confidence of the investors will be lost as they will fear to invest in the company due to its financial instability.

3. Environmental risk

This is the risk that is associated with the damage that is caused to the environment due to the activities that are undertaken by the company. As Unilever is involved in consumer products so there will be a lot of waste that will be generated. Also, the harmful gases will be discharged and due to that, there will be a lot of environmental damage that will be made. The gases that are discharged cause harm to many people and due to this company will have to face legal consequences because nowadays public has gained awareness and also the government has made many laws in this respect to protect the environment.

4. Operational risk

Various operations are undertaken by any business and not all may be performed in a specified and appropriate manner. So operational risk is the risk that is raised in the company due to the failure of unexpected operations. It can be said that this is the risk that is generated by business internally and it is itself liable for it. The failure of operation can be caused by two reasons which are due to the mistake or fault of a person which is human error or it can be due to some technological mistake. Apart from these, there are certain reasons for the rise in this risk which are not in the control and cannot be controlled. Some examples of such reasons are natural disasters or some problems that arise on the website due to power cuts. The operational risk will cover all the aspects that will affect the core competencies of the company. With this risk, the operations will not be done appropriately so due to that the problem in delivery will arise. Because of it, there will be a loss of sales and also the reputation of the business will be put at stake. As certain aspects are beyond the reach it can be said that this risk cannot be controlled.

5. Compliance risk

Some various laws and regulations are made by the authorities and government that are required to be followed by Unilever. Although it is tried that all of them can be complied with also there are some chances that some of the laws will remain noncompliant. This is because of the reason as many changes or we can say amendments keep on coming in the rules which are made by the government for the benefit of all but it becomes difficult for the organization to keep the knowledge regarding all and then incorporate all of them into the process. So this probability of non-compliance of laws is the compliance risk. There are various laws which include national laws, state and local laws, and meeting with all of them will lead to an increase in the cost for the company. According to Blome and Schoenherr, the compliance risk will arise in both situations when there is some change in the business or some new product line has been added due to which there will be new rules that will be required to be followed. As Unilever is operating in various countries it will have to meet the requirements of all the countries which will be very difficult and there will be a high chance that compliance risk will arise as it is not possible that the changes that are made by different countries can be kept in account and then incorporated or applied.

6. Reputational risk

Reputation is the thing for which everything is done as every business needs to maintain its reputation in the market. If there is no reputation then it will have a direct impact on the company. There are many ways in which the company will be affected by this which include that there will be loss of revenue as customers will not want to trade with it and this will lead to a decline in sales. The employees will also be demoralized and will not be willing to work with the company and may leave and then it will bring more difficulty for Unilever as it will not be easy to hire new personnel in such a situation because all will be are of the reputation decline will not want to join with the organization. Apart from its suppliers will also back off and investors and sponsors may also take their money back which will lead to a financial crisis.

The above-mentioned risks are the major risks that will be faced by the company but apart from them also various risks will arise for Unilever. The first one is that there will be a risk of the loss of customers which can be because the company will not meet the quality standards and requirements of the customers. Quality hygiene is also important and it is required that it should be maintained otherwise Unilever will have to face its consequences and has to provide services that are better than what the others are providing and if not then Mers will switch to the other suppliers. The other risk is related to the employees which means that if at any time there is a high turnover rate then there will be a lack of skilled employees which will have a negative impact. As due to this new employees will be required to be hired so it will be needed that proper training should be conducted which will lead to increase in the overall cost of the company and the money which could have been invested in some profitable project is used here so there will be additional loss of income. As Unilever is dealing with consumer products it will be required that it bring new products to deal with the growing competition in the market but it will also bring a certain amount of risk. Many factors can make the new product unsuccessful such as changes in technology market demand or the condition of the customers in terms of finance.

As all these risks will prove to be a hindrance to the growth of the company various measures and strategies are required to be undertaken to control the risk and those will be called risk management strategies. Some of such measures are described below...

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Risk analysis

According to Aebi, Sabato, and Schmid, this is the measure that is required that every business should have an understanding of all the risks that are associated with that business. It should be identified what types of risks may arise and what are the probability that they will occur. It has been stated that this process will start with gaining an understanding of historical precedents that are available and the opinions that have been provided by some experts in this respect together with the other sources will also be studied so that familiarity can be achieved in terms of the various problems and issues that may arise in the coming time. It will be found what will be the effect of all those problems and will it have a positive or negative impact on the company. There will be certain specific risks that will be involved and it is needed that they are ascertained.

With the help of all the data that will be collected by the above process a good and relevant risk management plan will be designed. There are some advantages of it which involve that by performing it the risk will be identified in advance and the plan that will be made will cover all the relevant aspects that should be taken into consideration. But with the advantages there exist disadvantages also as it will require various research and study so the company will have to incur expenses about it which will make the process costly which is not possible to make every time. Also, certain things are not possible to be ascertained in advance and if some important point is left or a wrong conclusion is drawn then it will lead to an adverse impact on the growth of the company. As stated by Quigley and Roy it can be said that Unilever can carry out the research to identify the taste of the customers and to identify the economic factors by which it will be able to meet the needs and requirements of the customers. By this, the risk can never be eliminated and it will be controlled to a certain extent.

Risk avoidance

As provided by De Bakker, Boonstra, and Wortmann it can be said that this is the best control measure that can be used by any company. In this, it is identified that all the steps can be ignored. Certain steps are performed by Unilever in the manufacturing of its products which prove to be hazardous for the environment and some of the material that is used is also not good. So under this measure, it will be tried to avoid those steps in the process by which there are chances that risk may arise or it can be undertaken that some substitute if available can be used. The benefit of this measure is that it is simple and will not require any additional process or cost that will be required to be done. But the main disadvantage of this process is that this risk will be avoided and there are chances that with it some of the benefits that may have been made are also missed. By using this the risk can be avoided to a great extent as in this the process that will lead to the risk will be eliminated.

Loss control

According to Thun and Hoenig, two aspects are involved in it which are loss prevention and loss reduction. In the case of loss prevention, various measures are taken by which the loss or risk can be minimized and this can be done by making changes in the process by identifying the shortcomings that were present in the previous processes. Loss reduction will help in the reduction of the impact that will have due to negative results of any process. By this, the effect can be reduced but cannot be eliminated so it can be said that risk will be controlled to some extent but will not be a major control.

Risk financing

As stated by Bullock, Haddow, and Coppola it can be identified that there are certain circumstances in which it is not possible to control the risk. It means that there are some times when no action can be taken to reduce or eliminate the risk and there is no option left with the company other than using the method or it can opt to close the business. However, according to Rejda, it has been stated that the company may reserve some funds in advance which can be used in such situations and this is known as risk financing. There are some situations in which things are out of our control such as natural disasters and can never be controlled by any means. Insurance can also be used for such situations. But then also the control of this in this is very difficult.
From all the above measures it can be identified that risk can be controlled to some extent and for that proper management is required to be done.

Conclusion

From the above-mentioned report it can be concluded that in the process of business, there exists risk so for that it will be needed that proper risk management should be done so that the risk can be controlled. It has been identified that for the control of risk, it will be needed that proper research is conducted in this respect by which the risk will be identified and measures will be taken for that. The main risks that are involved are identified in this report together with the measures that will be used. The extent to which the risk can be controlled is also identified in this report.

References

• Aebi, V., Sabato, G and Schmid, M., 2012. Risk management, corporate governance, and bank performance in the financial crisis. Journal of Banking & Finance.
• Bessis, J., 2011. Risk management in banking. John Wiley & Sons.
• Blome, C and Schoenherr, T., 2011. Supply chain risk management in financial crises—A multiple case-study approach. International journal of production economics.
• Bodie, Z., 2013. Investments. McGraw-Hill.
• Brender, N and Markov, I., 2013. Risk perception and risk management in cloud computing: Results from a case study of Swiss companies. International journal of information management.
• Bullock, J., Haddow, G. and Coppola, D.P., 2011. Introduction to homeland security: Principles of all-hazards risk management. Butterworth-Heinemann.

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