Risk Management Case Study Assignment
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University Canada West**We aren't endorsed by this school
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ECON MBAF504
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Dec 16, 2024
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1Risk Management Case Study AssignmentNameInstitutionCourseProfessorDate
2IntroductionRisk management is regarded as the systematic procedure that organizations take in orderto identify, assess, and mitigate threats or uncertainties that may impact their processes negatively (Gibson, 2023). Every business competing successfully in a risk faces some level of risk this may be legal, operational, reputational, competitive, financial, or even natural disasters. Thus, it is essential for every business to identify these risks and strategize on how to avoid or mitigate them. Boo Hoo Fashions (BHF) is a fast fashion organization that has a very strong presence in the social media space. This company faces various risks that can negatively impact its business. This paper analyzes and discusses BHF risk management issues and recommends proper risk management process that organizations should take to avoid issues such as those of BHF.Risk Management1.1 Risk Management at BHFRisk management is a process is a proactive approach that involves risk identification, analysis of the risks, and response to the risks (Lande & Mohture, 2021). By taking a proactive approach rather than a reactive approach in risk management the main of this is to minimize the chances of the risk taking place and the impact it results to. When an organization adopts a good risk management system, the system should be able to figure out the various risks that the organization might face and also determine how these risks could impact the business. Based on this an organization will choose whether it wants to avoid these risks or tackle them. For BHF it risk management system has been stated to be underdeveloped and there is no even agenda itemsfor risk management in the Board meetings and despite there been risks from inside and outside BHF the leadership team and Board ignored these.
31.2 Categories of RiskIn order to ensure organizational success it is important to understand the various categories of risks that can impact an organization. Operational risk is one categories that comes from the failed internal processes, people or systems in an organization (Coleman, 2010). Operational risks can come from the employee errors, fraudulent activities, flaws in products, and other internal issues. Most of the organizations tend to accept that operational risk is inevitable since humans are prone to errors which can lead to inefficient operations. Another category of risk is reputational risk. Heil (2018) points out that reputation is the most valuable asset for organizations and that it gives them an edge over their competitors; however, this is the most difficult aspect of the business to protect. In our growing technologically savvy world, whereby there is an increase in social media use, this increases reputational risks for companies. This is because a negative perception of a company can widely reach out to many people much quickly facilitated by the power of social media.Legal risk is another type of risk, which involves legal consequences that may arise as a result of actions that have been undertaken by an organization (Moorhead & Vaughan, 2015). Typically, legal risk arises when an organization does not adhere to the laid out rules and regulations of a state or contractual obligations that they have. An example of a legal risk is when a business breaches its contract agreements with suppliers. This may result to penalties, litigation, or even damages on their reputation.Financial risk is another type of risk that organizations are subjected to. According to Pashchenko et al. (2017), financial risks arise when organizations are dealing with financial institutions or even making a wrong investment decisions. Typically, financial risk arises from aspects such as inflations, changing interests rates, poor cash flow management, and decreasing
4value of investments. In simple terms, this is the risk where a company has a possibility of losingits money.1.3 Risk Management Failings in Each CategoryFocusing on operational risks, there are various failings of BHF under this category. Oneof operational failings of BHF is in regard to is poor pay and working conditions. BHF was notedthat it’s paying its employees very low amount salary that is below the legal minimum wage. Additionally, these employees lacked legal employment contracts, were not provided any holiday or sick days. Another failing was in regard to unsafe working environments whereby the employees were forced to work in buildings that had serious fire risks. Moreover, another operational failing was in regard to poor product quality control. In this case, there were many customer complaints about BHF producing faulty garments that were poorly finished, using poorquality fabrics, and dyes used to wash out.Focusing on the reputational risk failings, one of these failings was negative publicity. In this case, after investigations and publicity of the various failing of BHF such as providing poor pay and others, this led to the company receiving a series on negative comments on its social media channels. Also, it was uncovered that the organization was engaging in greenwashing and this played a critical role towards damaging the company’s credibility and trustworthiness amongits customers.For legal risks failings, one of the failings in relation to this was its non-compliance with the employment laws in New Zealand. Its two department’s seamstress and textile departments which have 550 employees were uncovered that they did not comply with New Zealand pay and working conditions regulations, which may subject the company to large fines and big payouts tothe employees. Additionally, BHF failed in adhering to the building safety regulations. In this
5case, it ignored the safety standards and this posed significant risks to the employees who were working there.In regard to the financial risk failings, one of the failings is BHF was exposed to substantial fines and compensation claims. This was as a result of not following the New Zealandemployment laws and safety regulations. Another failing is that BHF was exposed to replacement and refund costs of its products. This was as a result of the company using low quality products and as a result it was subjected to costs of replacing and refunding the products that were faulty.Risk Assessment at BHF2.1. Explain What Risk Assessment is at BHFRisk assessment is defined as the thorough evaluation of an organization processes, systems, situations, and other aspects with an aim of identifying aspects that may cause harm to the organization, especially the human personnel (Sinha, 2019). After the identification of the risk, the next step involves the analyzing and evaluation of how likely and severe the risk is. These assessment allows an organization to make decisions of how to handle that risk or control the damage that it may cause. Also, this process allows an organization to determine which risks it should place a priority on. In the case, of BHF failure, the lack of regular risk assessment may be attributed to the current challenges that it is facing. 2.2. Assess the Impact of Each Risk on BHF’s OperationsIMPACTRisk MatrixInsignificantMinorMediumHighExtreme12345
6PROBABILITYRare1LowLowLowModerateModerateUnlikely2LowLowModerateHighHighPossible3LowModerateHighFinancial (ProductCosts)Financial (Liabilities)HighOperational (Safety)Operational (Quality Control)Legal (Building Safety)ExtremeLikely4LowModerateHighExtremeExtremeOperational(Pay/Conditions)Legal (EmploymentLaws)Reputational(Negative Publicity))Reputational (FalseClaims)AlmostCertain5ModerateHighHighExtremeExtreme
7Justification for the identified risk:Operational pay and work condition issues has been classified as a (4, 5) because the probability of this risk undertaking is high given that the issues are systemic to BHF and on-going and it can result to significant legal and financial issues and also harm the reputation of theorganization. The legal risk with a focus on employment Laws has also been classified as (4, 5) because BHF's non-compliance is substantial and has been documented and the impact can resultto severe financial penalties and damage to corporate reputation. The reputation in relation to issues of negative publicity and greenwashing have been classified as a (4, 5) because the organization has been receiving negative comments and the impact of this is that it can lead to long-term damage to brand and customer base.Operational safety and quality control risk have been classified as (3, 4) because unsafe conditions were present but incidents had not yet occurred and quality issue were been reported more often. Also, the impact of these risks is high if an fire accident occurs and the quality issuescan lead to reduced sales and poor reputation. Financial risks as a result of penalties has been classified as (3, 3) because unresolved legal non-compliance issues can lead to fines and penalties and even compensation payments.2.3. Explain What the Risk Management ProcessThe risk management process involves various steps. The first step in risk management isrisk identification which involves determining the risks that may impact the organization. Some of the approaches utilized to identify the various risk are documentation and information gathering through brainstorming, SWOT analysis, the Delhi technique and others (Srinivas, 2019). The next step in risk assessment, which is all about analyzing the risks an determining
8which to focus on that is those that are more likely to occur and those that would have a substantial impact to the organization. The next phase is risk treatment, which involves implementation of mitigation strategies for the risks. According to Srinivas (2019) there are four main strategies that are involved in risk mitigation including “avoidance, risk transfer, reduction, and risk acceptance.” Risk avoidance istaking the necessary steps to eliminate the risk entirely, transfer is about shifting the impact of the risk to another party, reduction is reducing the risk to an acceptable threshold, and acceptanceis taking no action since the risk cannot be eliminated. The last phase involves monitoring which involves the continuous reviewing the risk environment and the effectiveness of the implementedrisk control strategies.2.4. Identify and Describe the Problems Faced by BHFOne of the problems that BHF is facing is in regard to its non-compliance with the employment laws in New Zealand. Based on the case study, BHF employees in the seamstress and textile departments are been paid two times lower that what is considered minimum wage. Also, these employees have not been provided with legal contracts for the work that they are doing. Another problem that the BHF is facing is exposing its employees to unsafe working conditions. BHF employees are working in environments that pose serious fire risks. Another challenge that BHF is facing is in relation to the poor quality of its products. There have been complaints from the customers in regard to the products that BHF is selling and even retailers selling these products have had to refund the customers or provide them with replacements based on the consumer laws. BHF’s damaged reputation is also another challenge. In this case, the company has been subjected to negative publicity by the media and its green washing practices have had a significant impact on its brand image.
92.5. Implementing Risk Management Processes to Avoid Identified ProblemsTo ensure that the organization is able to mitigate the various risks that it is facing its should implement the risk management process involving “risk identification, risk assessment, risk control, and risk monitoring.” As the risks have been identified and assessed in the previous parts in relation to BHF, the next step would involve risk control. In the step there are specific actions that BHF should take to address the identified problems. In relation to the identified operational risks, BHF should increase the employees pay and ensure that they are paid at least the minimum wage as per the New Zealand regulations. Also, it should provide legal contracts that include entitlements to holiday and sick pay. Additionally, to ensure safety of the employees, BHF should conduct regular safety inspections and address any identified risks. More importantly, the organization can implement fire safety drills and training for its employees.In relation to the identified legal risk, BHF should ensure that it complies with all the required regulations in New Zealand including consumer laws, employment laws, and safety regulations. Focusing on the financial risks, there are two actions that BHF can take. One of them is setting aside a portion of funds specifically for addressing any litigation issues that the organization faces. The other action is implementation of product quality processes to ensure thatits products are of high quality and thus there are no issues in relation to refunding and replacement. In relation to the reputational risks, an action that the organization should take is ensuring that it does not engage in greenwashing. ConclusionRisk management is a systematic process that involves looking into the likelihood of the development of the risks, coming up with strategies that can minimize the harm, and monitoring
10the measures effectively. Focusing on BHF, the organization has not placed a focus on risk management; the members of its board tend to overlook this aspect on the business. As a result of this, the business is being faced with various challenges relating to operational, legal, financial, and reputational. Therefore, to ensure that the company is not subjected to such issues and competes successfully in the market place, BHF needs to adopt a risk management process.ReferencesColeman, R. (2010). Operational risk. Wiley encyclopedia of operations research and management science.Gibson, K. (2023, October 24). What is risk management & why is it important? | HBS Online. Business Insights Blog. https://online.hbs.edu/blog/post/risk-management#:~:text=Risk%20management%20is%20the%20systematic,%2C%20and%20monitoring%20measures'%20effectiveness.Heil, D. (2018). Reputation risk. The International Encyclopedia of Strategic Communication, 1–6. https://doi.org/10.1002/9781119010722.iesc0150Lande, G. S., & Mohture, A. (2021) Risk Management: Process and Response.Moorhead, R., & Vaughan, S. (2015). Legal risk: definition, management and ethics. Management and Ethics (March 31, 2015).Pashchenko, S., Pashchenko, N., & Krioni, O. (2017, June). Financial risk management. In International Conference on Trends of Technologies and Innovations in Economic andSocial Studies 2017 (pp. 512-517). Atlantis Press.Sinha, T. (2019). Risk Assessment and Management. Research. https://doi.org/10.13140/RG.2.2.13427.48160
11Srinivas, K. (2019). Process of risk management. In Perspectives on Risk, Assessment and Management Paradigms. IntechOpen.