Risk is the measure of uncertainties derived from a future event (or events), that would affect the realisation of the organisational goals and objectives.
Risk management is the systematic assessment carried out to identify and prioritize risks through a coordinated use of available resources to monitor, mitigate and control the effect probable harmful future events.
Risk appetite is the degree or level of uncertainty that a given investor is ready to accept in pursuance of its goals and objectives.
Risk capacity is the total amount of risk that investors need to take from their portfolio to achieve the preset financial goals and objectives.
Organisations that fail to plan, plan to fail.
The fundamental reason of many failures in many organizations is the lack of proper planning that weighs the potential risk versus the organization goals and objectives. Planned organizational goals are specific, measurable, achievable, realistic and time bound. For that reason it is very easy to tell when other activities and interests are diverting the attention of more important and agent issues. An attempt to follow the plan and evaluate it periodically would therefore guarantee success at every level of growth. The feedback acquired from such assessments can be used is an important tool in risk management. In the other hand failure to plan would mean that the organization lacks direction and timeline. Activities that deviate the organization from the real issues cannot be detected easily for there is no clear path towards the broader goals. Activities that are urgent and the avoidable risks are not detected in time. For this reason the organization fails to achieve its goals and end up collapsing (Diekmann, 78).
Risk management process for Australian Wide Taxations Solutions
Goals and context
Goals and objectives for Australian wide Taxation solutions
- Manage and Improve taxation procedure and standards
- Involvement of financial institutions in premium remittances
- Staff Involvement in major decision making processes
- Improve on the overall organizational effectiveness
- Education and Research
- Undertake employees regular feedback surveys
- Establish five partnership committees one for each division
- Establish a team based performance appraisal system.
- Develop a five year organizational strategic plan
- Compile annual corporate asset management report and personal wealth creation report to compliment the Annual taxation reports.
- Initiate division based self-assessment review surveys
- Maximize on the compliance with the National taxation standards
- Continuous professional training and development programs for divisional team leaders.
- Participation in governments’ research papers on taxation.
Australian Wide Taxations Solutions Risk management process is laid out in consideration of its wide staff network. The competition especially in personal wealth creation and corporate asset management has been very high, and large amount of money is currently being spent on advertisement in the two divisions. To set full operations for the corporation services division its entire staff is to attend a two weeks conference in Melbourne. Campaigns to promote the wealth creation divisions in the rural areas is scheduled is to be intensified to eliminate the cultural beliefs on technical diverse approaches to wealth generation. Australian Wide Taxations Solutions logistical strengths especially in the number of motor vehicles and motor cycles shall be a great advantage in these campaigns. However the current global recession and the rise of petroleum products have continued to expose the organization to great uncertainties.
In the pursuance to realize the goals and objectives mentioned above Australian Wide Taxations Solutions has identified risks that are likely to adversely affect the outputs. The rigorous process involves source and impact identification.
- Credit risks: Risk of losses caused by clients’ failure to submit tax, this exposes the organization to meeting costs that will never be compensated by the beneficiaries. Fixed costs like salaries and logistics remain constants even in such kind of defaults. The time line provided by the goals and objectives of the organization is greatly compromised by such risks. Government expectation for the organization is based on total compliance of the people to submit their taxes and so when such defaults are realized the performance of the organization is questioned.
- Liquidity risk: Risk of losses generated by the corporate asset management division, due to lack of market in the assets under their possession. When assets are retained for an extremely long period with no clients being interested in it, the division losses great opportunities to make returns. During such duration the expenses of the division would still be high though no returns is being realize. The cost to retain the asset and security threat also poses an additional expenses for such a non performing asset (Chapman, 65).
- Operational risk: Australian Wide Taxations Solutions has a total of 1500 employees that are spread over a vast region. Due to this large number of staff in, there is likelihood that losses may be incurred from their inadequacy, carelessness or neglect. This may in return result to technology failure, unavailability of timely services, loss of important organization records, errors in financial reports or even fire destroying assets of the organization. All this unfortunate events can be very costly to the company and can slow the process towards achievement of the goals and objectives (Grey, 62).
- Economic risks: This is the risks associated mainly in both personal taxation and small business taxation divisions. There is likelihood of the clients being insolvent. The insolvency of the clients can be caused by external factors such as mismanagement of their businesses, sacking from their places of work or theft. Economic risks can also be as a result of the clients non-acceptance of terms and conditions laid down by the organization to govern their relationship. In such a case then the client may fail to meet his/her expected financial obligation. Economic risk can also be fueled by global trends such as economic recession which may make funds greatly unavailable due to dwindling performance of the businesses of the clients.
- Political risks: These are the risks that may be as a result of abrupt change in the government policy in taxation that may proof difficult or expensive for the organization to comply with. This may result to cancellation of licenses for the affected services. In such cases the organization may be forced to retain the staff and some of the liability within the areas dropped that may be counterproductive.
- Interest rate risk: Australian Wide Taxations Solutions invest some of its money in governments’ bonds, capital market and prime assets. There is a probable risk that relative value of such security may worsen due to increase in market interest rates when measured against its duration. In such a case money that should finance the activities laid down in the goals and objectives of the organization might be lost.
The following points outline the various control measures that Australian Wide Taxations Solutions has put in place to deal with the identified risks. Assessment of the effectiveness based on their likelihood and expected consequence has also been done.
- Credit risks: Australian Wide Taxations Solutions has put in place a large network of well trained staff to ensure that all the expected tax is collected in time. The staff collects feed back data from the clients and submits it to the management so as to determine the likelihood of default before it can occur. However due to the complex nature of the monitoring system, the multiple number of divisions, the diversity of the organizations services and bureaucracy in the organization there is still a level of likelihood for this risk to occur. The consequences for such an occurrence would be serious reduction in the income generation especially in personal and small business taxation divisions.
- Liquidity risk: Australian Wide Taxations Solutions has designed procurement policies that demand acquiring of new assets be based on their demand in the market. That move will ensure that the period in which the asset is stored in the organization stores awaiting for the client is minimal. The likelihood of this risk is quite minimal once the policy is strictly adhered to though the consequences are high in case of occurrence.
- Operational risk: Australian Wide Taxations Solutions has started a national wide training and awareness campaign on work ethics. This is geared at ensuring that the staffs understand the basic code of operation for equipment including the ones that they don’t frequently use. The management has also introduced an award program to recognize the exemplary performances by the staff at the end of every year. This will encourage the staff to carry out precautionary measures of the company property and call for excellence and accuracy in performance of duties without supervision. There is a high degree of likelihood that this risk will occur given the high number of staff in Australian Wide Taxations Solutions, however the consequences might not be high since such errors and omissions occur in dismal scales (Wideman, 99).
- Economic risks: The causes of this risk are mainly external; however the Australian Wide Taxations Solutions has encouraged the staff to do a thorough background survey of all the clients. The organization is also planning to work with other financial institutions to share these risks. The likelihood of the occurrence of these risks is small as well as their consequences.
- Political risks: Australian Wide Taxations Solutions has signed joint ventures with other national taxation companies to share their common portfolio responsibilities that seem prone to political interference. Australian Wide Taxations Solutions has also joined the labor union that may help in presenting its grievances and defending its position in case of such occurrences.
- Interest rate risk: Australian Wide Taxations Solutions has employed a permanent expert in forex trading and property management to offer constant advice on the most advisable areas to invest the residual liquid cash. Though the likelihood of this risk is minimal its consequence can be great for it involves great sums of money in investment.
Evaluation of Risks and treatment strategies
The management of Australian Wide Taxations Solutions has assessed the various risks to determine whether they are acceptable or unacceptable. The organization is committed to monitor and review periodically the acceptable risks to ensure that they remain acceptable and ‘treat’ those that are deemed unacceptable.
Credit risks: Acceptable risk, likelihood of occurrence is minimal. The risk will be retained, and the consequences mitigated by effective clients’ feedback system.
Liquidity risk: Acceptable risk, likelihood of the occurrence can be reduced, by prioritizing procurement items based on demand index.
Operational risk: Acceptable risk, the activity that generates this risk can be discontinued by periodical training and implementation of various staff motivational programs, monitored at divisional levels. Australian Wide Taxations Solutions will also buy insurance policy for the major assets and buildings to mitigate on the effects of the consequences.
Economic risks: Unacceptable risk, external risk, the risk shall be transferred to financial institutions by asking the clients to use credit cards in all their payments.
Political risks: Unacceptable risk, external risk, the risk is shared by partnering with other taxation organization exposed to similar risks.
Interest rate risk: Acceptable risk, the activity that generates this risk can be discontinued by seeking professional advice on all investment matters.
Effectiveness of the risks treatment strategies
Australian Wide Taxations Solutions’ risk mitigation officer is monitoring the effectiveness of the risk treatments listed above in an effort to identify emerging risks and treat them as they come. The officer is responsible in providing a feedback report on risk management with his recommendations every three months (Grey, 49).
Advantages and challenges
Australian Wide Taxations Solutions strength in the number of employees is an advantage for it reduces the amount spent per person in the risk management. The production on man hour basis for the organization is immense while the risk management cost is not done on individual basis. However such risks as operational risks are more severe when the number of staff is large and can therefore be expensive at long term. The organization can instead choose to transfer the entire risk management process to an insurance company and pay monthly premiums for the service.
Advantages for considering stakeholders during risk management process
- Increase in general shareholder value
Involving shareholders in the risk management process opens a door for them to understand the internal operations of the organizations and therefore may seek to associate more on the organization. This influences the stake holders’ decision to increase their share holding value in the organization.
- Increase in market capitalization
Shareholders come with diverse wealth of information that they share with the management during the risk management process. This information once qualified can be used in diversifying in organization’s operations and increase the market capitalization.
- Reduction in risk
Some of the risks that the organization suffer are related directly or indirectly to the shareholders. Involving them in the risk management process will open their eyes and wipe out their ignorance on such risks. The share holders will then be actively involved in the mitigation activities and avoidance of the risks.
- Enhanced representation
The share holders of an organization are spread over a wide range of geographical and institutional scales. Representing them in the risk management process therefore would been that efforts from their respective areas is represented in the overall aim of the organization to reach amicable decision on the risks. The ideas of a wider section of communities shall therefore be considered and chances of making mistakes will be minimized.
- Share holder communication channels open
Shareholders channels to contact the management are usually closed due to perception that the organization has committees to run it. Great ideas on the improvement of the organization and opportunities that can be considered never get to the management. Involvement of the shareholders in the risk management process is a good opportunity to break such barriers.
- Reduction in operational costs
Some of the expenditure that an organizational meets in the process of risk mitigation may not be necessary if the share holders were involved in the management process. For example, a driver who is always over speeding and exposing an organizations van to risk when he is away from his supervisors can be reported by the public if they take that as their responsibility (Grey, 87).
Factors influencing organizations’ risk profile
Business environment depends much on the stability of the government, if the government is unstable the clients are scared of and they may not have long term engagement with the organization. With unstable government violence and riots can be witnessed and in such times the property of the organizations can be destroyed. The workers can not work comfortably in war like situations ad therefore the output of the organizations will be minimal. In such cases the risk factors are very high and premiums for insurance can be set at very high amounts. In addition if the government is led by a dictator policies can be prone to changes with no prior knowledge such changes can be very expensive to the organization. The diplomatic events within the country can also raise the risk of an organization especially if the organization deals with export import business. Misunderstandings between the countries may affect the normal flow of commodities or even lead to a total ban in trade between the two countries.
Economic performance index of a country affects the overall risk situation of the businesses in that country. For example the global economic recession led to closure of many large and small organizations in USA and other developed economies. Economic down turn affects the people purchasing power that directly affects the output of an organization and hence profits.
Currency exchange rates between two countries also pose a great risk to an organization. When such rates change then the exporting or the importing organization might experience huge losses as a result.
Doing business in an environment where societal norms restrict free access of the products to a section of the population posses a serious risk to the overall performance of the organization. The social perceptions on the quality of a product can greatly affect its performance in the market. Such perception can change by mere public utterances from the leaders.
Organizational products are prone to legislative procedures and can be declared illegal and be banned from the market. For example an organization selling abortion pills is at a very high risk of loosing business if the abortion issue is being discussed in parliament. It means that if the parliamentarians decide that abortion is illegal then the pills are also illegal and so also is the business.
Technological advancement can pose a big risk to businesses that deal with incompatible parts. Similarly, technological advancement can provide for automation of services that would previously be manual. In case of a business that deals with such manual products, then the technological advancement would throw them out of the market
The change in government policies such as the economic policy and the trade policy sets up the business environment in a given country. Such policies may abolish, regulate or cause major changes on some given products. This may impact greatly on the financial performance of the concerned organizations as they struggle to comply with such regulations (Chapman, 43).
Based on the listed strengths, weaknesses, opportunities and threats it is paramount that the organization focus on such areas that shall ensure continued growth and superior performance. The organizations need to concentrate on areas that will distinguish it from the stiff competitors and give it a unique face. To have the current arrangement adequate it is important to set the organization apart from the competitors and allow improved shopping convenience for customers a service that is missing across the board.
It is recommended to change the store design to allow customers to get in and out more quickly. Shallow loops need to be created within the stores to allow better and faster service to the customers. These will also accommodate the growing number of the older customers. The organization needs also to expand on its online services. This will add convenience to buyers and contribute to unique brand image that will attract more customers.