Risk management refers as the process of identification and evaluation of uncertainty and prioritize them on the bases of their nature and impact. For this, an organisation needs to manage their resources to face these risky factors properly. Management and employees should have to be able to taking kind of risk in order to getting higher growth and desired success. Risk can come from various sources as finance, machinery or resources, lack of employees knowledge, threat of failure, legislation, credit risk, bad-debts and others. For this management and employees requires to make impactful strategies to reduce its negative impact or about to making money easily (Higgins and Field, 2012). For this, management of organisation requires to analyse and monitor their business procedure as well as several factors to manage risk properly. Through this, they can easily make ultimate security in business procedure to manage each and every term in effective manner. This report is based on H&M which is a Swedish multinational clothing retailer company which was established in the year of 1947 by Erling Persson. This organisation provide their clothing services for men, women and children. This is second largest global clothing retailer store that provide their effective in world wide. For them it is required to analyse impact of several risk factors on the business organisation to create impactful strategy for them. This report include risks of business environment, Organisation’s tolerance to risk taking, Risk profile for an organisation and specific reviews on this for different industries. At last it represents possible risks of innovation in an organisation and how to mange them to create advantages for firm.
1.1 Different business environments and the likely risks of those environments
Risk is a common factors that occur in several business activities. For this management of organisation requires to analyse their organisational activities on timely bases. Through this, they can easily reduce negative impact by making impactful strategy and planing procedure. For this, H&M requires to analyse business environmental factors that can be classify into two different terms as internal and external factors. These element are -
Internal factors – These are inbuilt risk factors in an organisation that requires to analyse in effective manner. For this manager and management of a form needs to manage their business activities in effective manner to getting desirable outcomes easily (Heidenreich and et. al., 2011). One most important factor in such activities is making of impactful strategy that helps to minimise negative impact of environmental factors.
- Organisational structure – These kind of activities helps to manage business activities in effective manner. Structure of H&M is based on its future objectives and target goals as well. Main objective of this procedure is to maintain organisational functions smoothly to carry out future goals and objectives. In this procedure, risk factors can be appropriate positioning, manage communication and management hierarchy. All these activities should have to be maintain in proper manner otherwise it can impact negatively on business functions (Zabeo and et. al., 2011).
- Employees and management – In H&M, employees and management staff is known as their key strength who help them to achieve target goals and objectives. They should have to be skilled and capable who can provide their effective services in business organisation. Untrained staff of organisation can be a risky factors in H&M. For This, manager of leaders needs to analyse their interpersonal skills to provide appropriate training to them. Through this they can easily enhance their capacity to achieve target objectives easily.
- Stability – It is one most important factor that helps to meet with financial stability, return policies and investors capability to getting desirable outcomes easily. For this manger and employees needs to utilize firm's resources in effective manner to getting higher and desirable growth. For this they requires to mange financial stability, funds capability and reserve strategy to manage further activities in appropriate manner.
- Incentives – It can be a risky factor in business organisation because incentive should have to be impartial and appropriate on the bases of employees skills and their working performance. Through this, higher authorities can easily provide satisfaction to their furthers employees that these rewards are based on employees past performance and their contribution in business activities (Heidenreich and et. al., 2014).
External factors – Thee kind of factors are under the control of employees and management of organisation, so for this they needs to analyse its future impacts to make effective strategy for them. These factors can be -
- Political factors – For a business organisation, it is require to implement all the governmental rules and policies in their operational and functional activities properly. Such factors has direct impact when government change their policies and regulate some other rules. So for this owner of H&M requires to keep in informed such activities properly in their business activities and approaches.
- Economic factors – In this procedure organisation should have to provide their effective contribution in economy development. Through this they can easily develop own positive image and goodwill as well. Economy has direct impact on business activities because it can manage threats and opportunities for firm (Biass and et. al., 2014).
- Social factors – These factors are related to market and customer's demand for specific product as well as services. For H&M, it is require to analyse customer's requirement to provide them quality products. These are most beneficial approaches for an organisation but it also consider some risky factors because firm needs to manger their business activities on the bases of market condition otherwise they faces lots of loss and wastage.
- Technological factors – For H&M, it is required to implement advance technology in their business procedure because through this they can easily get profitability and productivity. This is a most effective procedure that require appropriate skill and knowledge of employees while implement them in firm. Some of the risky factors in this process can be outdated version and traditional methods as well (Taslakian, Sebaaly and Al-Kutoubi, 2016).
- Legal factors - These are the most important element that are regulated by governmental authority of an organisation. H&M requires to working through such legislation to implement legality in their functional activities. These factors consider some of the risky elements as authorised body can cancel their license if they working under illegal terms.
1.2 Organisation’s tolerance to risk taking and evaluate how organisations can measure tolerance
Risks is intangible or invisible factors that have direct impacts on the business operations and its functions at several ways. Therefore, manager always focus on risks characteristics through analysing internal and external environment so it is necessary to define risks factors and tolerance which is related with project management in any organisation. There must be required to define risks or ready to take any challenges for generating more profits within the company. H&M is focusing on taking risk consciously and try to manage those risks or uncertainties in an effective manner so that they can avoid the downfall of firm. Hence, It can be seen that risk tolerance are agenda for entire companies which are listed. The institute of risk management has produced various guidelines or instructions to the company so that they can face several challenges in an appropriate manner. On the other side, risks can be defined as the distribution of most possible outcomes, resources, their values and likelihood as well. In term project management, these can be applied in several aspects such as time, cost, performances, method and influential factors which have major impacts on business operations or functions as well.
Modelling and quantifying risks tolerance
Risk tolerance defined as the possibilities of occurring risks and arisings its factors that take place and it also have major impacts on organisational activities in profitability, productivity and operations in various ways. Therefore, company always consider several tools or techniques which must be required for handling any kinds of risk factor while running business in an effective ways. In this undertake a proper review procedure of risk or uncertainties that will be beneficial for company in determining such uncertainties so that better decisions can be made in more effective manner (Xiang and et. al., 2014). Risk tolerance can be support ins finding best methods for dealing with any uncertainties while running the business operations in an appropriate way and also conduct selection decision model that is beneficial in making project with better manner so that they can enhance their productivity and profitability as well. In this focus on project selection decision model which is flexible so it will be suitable in finding best way of tolerating risks within an organisation during operating business.
There are defined some methods which can be use for measuring the risk tolerance within an organisation such as:
Sensitive analysis: Systematically project must be needed for defining the entire risks or other factors, in this consider several inputs for project selection decisions model which will support in defining impacts on the estimated project values. It helps in analyse the chances of changing of project value which totally depends on occurrences of uncertainties as well. This method can be suitable for modify the projects values to gain bests results (Ekener-Petersen and Finnveden, 2013).
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Conservatism: This is an essential for defining the outcomes which are less effective or favourable for the performance of H&M project. This method is very helpful in various risks that are related with health and safety in the organisation in an effective manner. Conservatism method can be use for compounding the points which has major impacts on the risks factors as well as decisions to achieve best possible outcomes.
Scenario analysis: H&M can use this method for the purpose of risk tolerance so that project can made in more efficient manner. They conduct the valuation in which consider various aspects such as pessimistic, expected and optimistic scenario as well. It is difficult to know about modifications of project values that depends on results so scenario analysis can help because it is more relevant and realistic rather than single variable sensitivity analysis.
Monte Carlo analysis: This is another effective tool to take such risks or deal with them for getting best possible outcomes so many of firms are using Monte Carlo analysis method for computing probability distribution of project and chances of occurrence of risks while running the organisation in an appropriate manner. This will be beneficial in quantifying the uncertainties regarding project but not suitable in finding several ways for adjusting the situations of that particular project as well.
2.1. Produce a risk profile for an organisation
A risk profile is an evaluation of a person or organisation for willing to take risks and the major threats where an organisation is exposed in proper manner. A risk profile is essential for considering the effective investment assets which allocating the portfolio. An organisation using high risk profile as a way which mitigate desired risks and threats. This risk profile identifies the acceptable level of risk corporation which is developed. A corporation risk profile determine and consider that will directly affect on whole decisions making procedures and startegies. For developing the effective risk profile that includes the stock of the organisation operating surroundings ad their ability to deal with key high level risk that measure the level of achievement for gaining high income and revenue in better manner. The risk profile is the logical which starting the point in executing the integrated risk management. An organisation take inventory of their regulation and operation for identifying the major risks and review the firm capacity to deal with such risk factors in effective manner. Along with this, the corporate risk profile assist department for establishing the direction to mange and maintain the risk which occurs in the H&M organisation (Etzel and Balk, 2011).
While developing accurate profile, risk data and information at the corporate and operational level assist in analysing and examining the various characteristics of the board range of the internal and external risks which are facing an enterprise. The management mainly concentrate on managing all type of risk factors and there are number of risks which occurs within an organisation. It is important for company is to make effective relationship with their corporate risk profile and strategic planning procedures effectively. Along with this, risk should be managed and maintained in the firm for developing appropriate risk profile. The risk profile are totally interlinked with each other which are managing and maintaining all type of risk aspects.
Organisation risk profile:
A risk profile also describing the risks and threats which are faced by an organisation in better manner. This can be includes the probability of results or outcomes of resulting the negative results of effects and the outline of the desired cost and also maintaining the level of disruption for specific risk factors. This is the corporation of best interest which is active when this will come towards its major risk management system. There are certain risks which can reduces and minimises the accounting systems of the firm. The association can develop and create a compliance department which assist such endeavours. The compliances assist in make sure that the corporation and their staff members are regulated and operated all business functions in effective manner. There are large number of organisation which are select independent auditors which help them for discover the occurring risk factors so they can properly highlighting before they required to deal with different external issues and problems in better manner (Henderson and et. al., 2011).
At the time of failure they are reducing or minimising the risk which can lead towards negative consequences. If H&M company does not effectively test their new treatment with the help of accurate channels it may harm or damage the people towards risk and they will lead to legal and monetary damages in proper way. For failing to reduction of risk that can leave the firm exposed to failing stock or inventory price, negative public image, lower income and desired bankruptcy. They required to manage and maintain all risk factors which desired for gaining goals and targets in effective manner.
2.2. Review and comment on risk profiles of organisations in different industries
There are various companies which are deal with different type risk factors and this will occurs in an organisation for creating issues and barriers. The risk profile re totally different from various industries which create harm and danger for the organisation factors and activities. Industrial companies are grappling with risk which are face specific issues and problems and they are mainly aware about better management of risk factors in effective manner. There are various other methods and techniques which are specific needs and requirements in better way. The traditional wisdom are driving towards danger and they should investigate properly which are right or wrong factor. The risk profile help them in analysing different sectors risk which occurs within an organisation. This can be analysed that risk profile can be seen as major effect and outcome that are determining the firm business activities and functions effectively. The comprehensive audit of the company can be done by risk from variations of products rates, interest rate, exchange rate, firm danger and manufacture losses which offer by senior manager. Such type of audits are totally different from each industries and their risk factors are also differ from each other (Li and et. al., 2014). The industrial companies are developing and maintaining the insights in some important distinction among shelf approaches for managing effective risk and the unique requirements of companies are also different. This is the duty and responsibility of different company manager is to analyse and mange their all risk factors which create bad impact on the its reputation or goodwill. They are using various techniques and methods which help in bearing all types of major risk factors and also analysing the external risk which create issues and barriers within an organisation.
A risk profile help in evaluating and maintaining the whole business activities and functions for gaining high amount of income and revenues effectively. They required to identifying and recognising the sources of risk volatility. They need to accounting the complexities and difficulties within an enterprise. Also they need to take their customers views and reviews which help them in analysing the customers contracts properly. For different industries, they need to measuring all risks so that the company can easily manage and hold their goodwill in the large market place. This can be concluded that it can be determined as the risk profile can manage and control all business functions and operations in effective manner. Also they required to analysing the whole market situation as well as other industries profile in better manner. It is appropriate and correct for the firm is to compare their risk factors with the other competitors companies which mainly exist in the large market place. For evaluating and understanding the risk exposure in given time so the firm need to classified the power and ability of their company manager appropriately (Edwards and Bowen, 2013).
2.3 Discuss enterprise wide risk and the benefits and drawbacks of such an approach
Enterprise risk is considered as new management discipline which is helping a firm in different aspect. Enterprise Wide risk management is a process which is coordinated risk management which do place an great emphasis and having an co-operation with department so that they can easily manage the firms risk as whole in better way. Basically, ERM is something which do offer a proper framework that manage or handle the uncertainty, although it also respond to the risk management that also leads to exploit the better opportunities as arise in market to work in organization in right format too. Many company like H&M is also struggling in market with having an implementation of ERM and also lead to identify how and at what level the work is done and having an integration of there organization. Hence, firm also do use ERM programs which also lead to provide an combination of both the qualitative and quantitative benefit. ERM also help in firm as:
- It help in determining the risk and also find out the opportunity whatsoever the entity face.
- ERM do help enterprise to understand the systematically probability and also leads to impact on various risks and opportunities as well (Hillson and Murray-Webster, 2017).
- It also looks forward to proactively select and also bring to have an prioritize which needs to strategically handled and managed in great way.
Moreover, there are various advantages and disadvantages of risk management which needs to be involved and some of those are as follows:
- Creation of more risk which focus culture for organization: H&M is having an implementation ERM which do increase focus on risk at the senior level that result in having an more discussion of risk at all various levels. Even though, it also lead to result into the cultural shift that also allows to shift risk which needs to be considered in more open and having an different break down too.
- Standardized Risk reporting: ERM is that which do help in supporting better structure, report it and also analyse the risk in great way. Even though Standardized report is such which do track enterprise risk which can help in improving the risk and focus of directors and they also enable it with better risk mitigation decision. Even though the various availability of data is that could help leadership to understand the most important risk in better way.
- Improved focus on risk: ERM do help company to determine the potential risk associated with risk event and also provide an early warning. Moreover, Key metrics and the measurement of risk is that which keep risk further and also leads to improve different values of reporting and having an analysis which lead to provide ability that track changes with risk vulnerabilities of likelihood which change risk profile too (Loosemore, Reilly and Higgon, 2012).
- Efficient use of resources: If ERM is absent in organization then various individuals are there who is involved with managing and also report with risk that has an operational unit. Basically, while having an development of ERM program that does not to have an replacement with need for day to day risk management. Even though, it can also improve framework and tools which used to perform critical risk management functions in stable way.
- Effective coordination of regulatory compliance: It is required to have an proper coordination in between the regulatory and compliance matters. Since, ERM is that which do involve identify and monitor control over mitigation efforts that has an across the organization.
- There is mainly cost associated with these which take time for ERM. Basically. It is such which utilize ERM that also find out the cost that is worth out for protecting the most valuable and assets and bring the company H&M on side of right way for having an achievement of strategic objectives.
- Even, ERM is considered as the typically valued from the top leaders, it has largely the company who set the strategic plan. Therefore, risk and opportunity is such which was not being understood in proper way, hence this can lead to cause of having an incorrect strategies to get implemented.
H&M has used ERM in effective manner but it is needed as it should be used in a systematic or disciplined way too.
3.1 Analyse the possible risks of innovation in an organisation
For a business organisation, it is require to make suitable changes to grab several opportunities from target market. In this procedure adoption of digital technology and innovation can be a impactful method that provide beneficial and desirable outcomes easily. When a organization seeks to innovation then it needs a support from other elements too because it can innovate the things but roll out the innovation is tough there are so many factors which opposes it top drop down this innovation (Woods, 2012). These factors are known as risks aspects such as :
Failure – When H&M is trying to innovate something new in the apparels that does not mean that it can go successful as it thought. The innovation is an experiment that has an equal chance to be get successful and fail. The product can be fail in any phase of development like in those manufacturing if there is a requirement of specific machine then but at any time of manufacturing process the machine can be in the error state and because of that the process can be fail. The product can be fail in the testing phase also cause there are so many measures of feasibility that means product development cost may be high and that does not fit into the firms cost at that time the risk management team can also refuse the production. The failure may occur due to various reasons.
Financial risk – Finance is crucial in every organization cause that is needed on the implementation process digital technology. Innovation is a effective procedure that is require for modification and alteration process. For this, management of H&M requires to manage appropriate funds and resources because it is not obvious that this procedure will be beneficial in future. Implementation of innovation and advance technology can provide financial risk to firm. For this, they needs to make some reserve and financial resources that are about to use in future terms. Innovation is a effective process that helps to make effective changes in organisational products as well as services to provide higher satisfaction to customers on the bases of their requirement and need (Hopkin, 2017).
Effect the capacity of organisation – For a business organisation, it is require to make effective changes and transformation to grab several opportunities easily. These type of activities can be risky for firm because it is hard to implement such activities in business properly. Innovation has direct impact on capacity of employees and their productivity as well. Organisational capacity include quality, skills, financial resources, physical resources and others. For them firm needs to make impactful stargate while implementing innovation in such activities. These factors can be risky because these type of changes has direct impact on operational and functional activities of firm.
Wastage of time – Innovation is a effective procedure that requires appropriate time, effectiveness and funds to implement them properly in firm. These are time consumption activities that has direct affect on overall production operational and functional activities. It is required that innovation should have to be effective and impactful that provide maximum profit and growth to income because it takes a long time to provide desirable benefits. For this management require to provide their proper efforts to getting beneficial outcomes. These type of activities takes a long time to getting desirable outcomes. So for this, H&M requires to getting higher benefits by implementing innovation in their business procedure (Paape and Speklè, 2012).
Rejection by customers – Main objective of implementing innovation in business is to provide higher satisfaction to customers. For this H&M making effective changes by innovative ideas and creative thoughts. Major risk in this factor is rejection of customers. It would be possible if organisation not implementing effective innovation and strategy in their businesses process. For this firm, manufactures need to analyse and examine the customers needs and demand which help them in determining their choice and preferences in better manner. They require to analysing the whole market situation and condition and according to this they require to develop their products and services in proper manner. If buyers does not like their manufacture goods so they need to make proper changes as per their request and choice for satisfying their requirements and needs effectively and efficiency way (Smit and Watkins, 2012).
3.2 How to manage innovation risk so that innovation can be used to create advantage
For a business organisation, it is require to manage innovation risk through different strategies and impactful ideas. Innovation is a appropriate process that impalement creative ideas and thoughts to make desirable changes in business process, products as well as services. H&M is a Swedish multinational clothing retailer company that provide their clothing services for men, women and children. For them, it is require to make effective changes in their production and distribution process to maximise sales and future growth easily. For this they needs to implement innovation and advance technology that is require to make appropriate changes in organisational procedure. All these activities consider higher risk that requires to manage in appropriate manner as -
Strategic management – For H&M, it is require to manage their business activities in effective manner to getting higher benefits and competitive advantages easily. For this manager of H&M requires to analyse impact of innovation on their business procedure and its advantages and disadvantages. After this they needs to make impactful strategy to reduce its negative effects or maximise benefits and advantages properly. These are the most specific and beneficial management approach that can manage risk oriented situation of firm in effective manner. Innovation is a effective procedure which is uses to maximise growth and income as per future demand and need as well (Fernández-Muñiz and et. al., 2012).
Growing a great leader – For H&M, it is require to manage their operational and functional and functional activities effectively. In this process, they requires trained workforce which understand firm's needs to achieve target goals and objectives in effective manner. In this procedure a leader provide their effective contribution to providing direction and guidelines to employee for achieving target goals and objectives in effective manner. Leader is an individual, who helps to motivate their workforce to accomplish their work and task effectively. Thorough this firm can easily manage innovation risk by making effectiveness in working process of organisation. All the employee can easily understand uses of innovative ideas in their business procedure.
Build effective communication - Innovation is a transformation process that require impactful communication to exchange ideas and thoughts to each other. For this H&M requires to working through a team who assist each other to solve issues and problems properly. All these activities are very beneficial in achieving target goals and objectives. Main objectives of effective communication is to resolve issues and problems by their mutual understanding to getting higher competitive advantages. Through this, H&M can easily implement innovation by reducing risk factors properly. Through this they can easily build positive market image and goodwill (Marcelino-Sádaba and et. al., 2014).
Provide training and learning to employees – For a business organisation, employees are known as their key strength who provide their services and contribution to achieve future targets and objectives. In this process, GH&M requires to provide them appropriate training to manage innovation risk appropriately.
From above, it can be concluded as risk management is that which is forecasting and making an evaluation of risk together with having an identification of procedure that also help to avoid the risk or minimize its impact. Although risk is such which cannot be eliminated but for such strategies and decision can be made to minimise or to overcome such in proper manner. Basically, there are various risk environment which is addressed and worked according to that only. Even risk was there in innovation too as report has also included as pros and cons of enterprise wide risk and to reduce risk a effective risk profile was produced. Hence, risk is involved in every process of working and in implementation as it is required to determine it and to bring an effective solution to those.
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