You must then prepare a risk assessment report on the company using the Risk Exposure Calculator and specifically address:
A. Pressure points due to growth
i) pressure for performance
ii) rate of expansion
iii) inexperience of key employees
B. Pressure points due to culture
i) rewards for entrepreneurial risk taking
ii) executive resistance to bad news
iii) level of internal competition
C. Pressure points due to information management
i) transaction complexity and velocity
ii) gaps in diagnostic performance
iii) degree of decentralised decision making
Background: Theoretical explanation of Risk Calculator, and an overview of the chosen organization
Risk is an inevitable part of any business venture. An enterprise cannot survive in the long run if it exhibits an aversion towards taking risk. The market situations are forever in a state of change, thereby necessitating the need to constantly adapt to the needs of the hour, as and when required. Though risks are at the face value extremely negative and detrimental, but they are in essence the driving force which motivates an organization to expand and explore newer avenues. Naturally, the organizations are supposed to take the risk factor in a positive light, which they do by calculating the appropriation of the risk factor needing attention. On the basis of it, the organizations devote themselves to serious decision making so that the potential obstacles could be overcome (Begenau, 2016). In this report an analysis of the theoretical construction of risk and the significance of risk calculator as an important evaluative tool for undertaking business related decisions shall be discussed at length. Following that, a section shall be devoted towards analyzing a practical situation provided in form of a case study related to a firm by the name trading.com against the template of risk calculator. Thus, this report has the qualities of being theoretical, analytical and practical, all at once.
Moments of success are temporary and delusional. They can overwhelm business organizers with a sense of achievement and deprive them of the sense of urgency to act proactively in intercepting the imminent risks, and act accordingly. For that purpose, the structurization of the risk exposure calculator has been done by Robert Simons, who is a professor of Business Administration at the Harvard School of Business. The risk exposure calculator has been tested by hundreds of business executives who have attended his classes, and only then has it been confirmed to be an instrument for testifying the levels of risk against certain parameters, which shall be discussed subsequently.
The risk calculator is equipped with certain parameters which Professor Robert Simons has defined as pressure points. Those are basically the areas on which the nature, type and intensity of the risk is supposed to be evaluated. A summation of the numerical points marked on each parameter provides an account of the risk posed by a single factor, and those when totaled, becomes reflective of the net amount of risk threatening the organization (Simons 1987). The calculation is a two way process. Firstly, the employees as well as the managing authorities placed at different levels of hierarchy are asked to individually mark the parameters of the risk exposure calculator, by the managers of the organization. Secondly, the scores derived are analyzed to deduce the level of risk following a comparative approach. The scores are then taken to analyze the situations that prevailed almost two years ago, and then, it is compared with the actual scenario that prevailed during the time when the risk related calculation was derived. The method is so followed in order to determine the level of vulnerability of the organization, and to determine the course of action to be undertaken based on whether the level of vulnerability has increased or decreased, by what percentage, and on which areas specifically.
How the Risk Exposure Calculator works
The Pressure Points have been categorized into three broad headships, which are internal pressures related to, Growth, Culture and Information Management. The internal risks are a result of lacking in expertise on part of the personnels and a gap in communication between the superior and the subordinates as a result of reluctance or due to some genuine impediments. These pressure areas if left unchecked can cause the organization to collapse (Arnesen, and Foster 2016).
The mounting Pressure of Performance pushes an employee to perform better for the sake of bagging the rewards and incentives. Or else, incompetency shall deprive the employee from the share of benefits dished out from the organization. The score for this parameter is supposed to be high if the rate of bonuses earned by the employees is high (Cipovová, and Dlasková 2016).
A business venture always looks forward for opportunities to keep its Rate of Expansion at a high level. It is an indicator of a business venture being successful. However, without the necessary logistical support in terms of infrastructure and finance, the quality of the produce of an organization shall fall by leaps and bounds (Salmela, 2016). That shall not enable the organization to expand. Rate of Expansion shall be considered as a negative pressure point if the quality of the product is not compromised with (Ayadi, Ferri and Pesic 2016).
Organizations look for efficiency on part of the employees, especially the important ones. If the key employees are inefficient, then the level of pressure shall exert negative pressure on the organization, and escalate the chances of risk (Blundell-Wignall, Atkinson and Roulet 2014). The key employees are supposed to be the ones on whom the greater share of the burden of responsibility lies in making the organization function properly. Hence, the risk score shall be less if the key employees are quite efficient, and it shall be high, if the key employees are not adequately skilled (Khameneh, Taheri and Ershadi 2016).
Reward driven risk taking can prove to be detrimental to the stability of an organization if allowed to flow unrelented. Successes and achievements have the ability to invigorate a great deal of confidence in an entrepreneur, and that might drive the entrepreneur to indulge in unethical practices of making promises which can never be fulfilled at all (Burkholz et al., 2016). Naturally, when the clients shall not be satisfied with the net result, they shall take steps against the organization to seek compensation for the loss. Thus it can be deduced that higher the ambition for reward, the greater shall be the risk (Berghöfer and Lucey 2014).
The Pressure Points
If the managing authorities of an organization are adverse to negative feedback, that shall cause the risk factor of the organization to increase. It should not be expected on part of the managing authorities that opinions shall always sound favourable. It is however not uncommon to shun employees who criticize the policies of the company, and endear them whose opinions are artificially convincing (Chen et al., 2015).
It is not a negative thing to have competition among the employees for performing better. However if that internal competition damages the team spirit and replaces it solely with selfish interest, then that shall be problematic in the long run for organization, as the risk score shall escalate to a high level (Gregory 2015).
As an organization expands, and the level of complexity and the velocity of transactions also increases, which poses serious logistical inconveniences to the organization. Effective counter-active measures should be taken to solve the issue, or else the risk factor shall increase (Belás et al., 2015).
It is however also not possible that all the previous reports, observations and experiences be taken into account while diagnosing an issue area. This tendency to devote less attention to the past experiences of a company can be problematic for the organization (Wolke 2017).
Decentralization of administration can also the risk factor of an organization to increase. In big companies, it is quite common to give autonomy to act to managers at different levels. However, if that level of decentralization goes unchecked, the mangers at subordinate levels can channelize benefits unto themselves without caring about the concerns of the company at all, and that shall increase the risk factor of the organization (Mitra et al., 2015).
Overview of the chosen organization
For the purpose of analysis in this report, the case of trading.com, a company which offers educational services and guidance to their clients in order to enable them to invest judiciously. The company is driven by the philosophy that with a little amount of knowledge about how to channelize money for greater returns, any individual can invest the correct way. The company is based in Australia, and has offices in several important cities of the country like Sydney, Adelaide, Brisbane and Melbourne, with over a hundred employees. The company is indeed very ambitious, is seeking opportunities and taking adequate steps by employing more personnel and by increasing the intensity of its operations. However, since the operational aspect is proceeding at a very fast rate, which is exposing the organization to a great degree of risk. In the subsequent sections, the risk factor of trading.com shall be analyzed and depicted in a risk calculator.
Growth Oriented Pressure Points
The pressure for performance is indeed there, as the consultants are made to face quite a rigorous target with regard to the sales. The greater the share of the sale of consulting service, the greater is their remuneration. The rate of expansion too is unchecked, and that is reflected in the consultancy firm hiring more and more consultants who are mostly not backed by any kind of experience in sales. Even the course structure has been formulated without consulting the consultants. It has been authoritatively dumped upon the consultants to disseminate. The owner of the company, Jospe Drake is quite satisfied with the fact that the sale of consulting services shall increase because the number of consultants have increased. The managers at the lower level are however not as satisfied as the quality of the services have witnessed a downfall. Resultantly, several clients have complained against it. They have alleged that the consultants were reluctant to pick up phone calls.
As it has already been discussed earlier that the firm has set unrealistic targets for the consultants which is generating an unhealthy sense of competition among the employees which is pitting all of them against each other. This is disrupting the team spirit in the firm, and the nature of the business model is responsible for it. It is creating a collection of autonomous acting consultants who are interested only in their personal gains. This unhealthy internal competition is also forcing the employees to compromise with the quality of service. They are showing more interest in garnering more and more clients and charging them, ignoring the factor of customer satisfaction. They cannot be blamed as the firm has created conditions which inhibits the enthusiasm on part of the consultants to devote attention to the interests of the clients. The managing authorities too are also adverse to any kind critical point of view. They keep themselves surrounded by their yes persons who only provide them with the kind of feedbacks that are very pleasant in nature. The hard realities and the areas deserving attention when highlighted are not given due consideration. Naturally, this is demotivating and at the same time alienating the consultants from the firm.
There have been no mention of anything which hints at the initiative of scrutinizing the situation of the company by looking into the past records and databases. The company seems to be too preoccupied with a futuristic approach of expanding relentlessly and earning more revenues. The requirement to learn from past experiences is ignored. This hints at the gap in diagnostic and analytical approach in arriving at business related decisions. There is also a low degree of decentralization in the internal dynamics of the working of the firm. The lower level managers more often than not find it difficult to connect with the management placed at a high level. There is a serious gap in communication. The management at the higher echelons of the bureaucratic structure also do not find it necessary to communicate with the managers at the lower level. Naturally, the exchange of essential information gets inhibited. The ground reality is something which the lower level managers are aware of, like client satisfaction. The higher level managers are however only concerned with revenues.
Culture Oriented Pressure Points
Having gathered all the information about the pressure points, now it shall be depicted in a risk calculator. It is assumed that each risk factor shall be assigned a mark of one unit.
- pressure for performance- high
- rate of expansion- high
- inexperience of key employees- high
- rewards for entrepreneurial risk taking- high
- executive resistance to bad news- high
- level of internal competition- high
- transaction complexity and velocity- high
- gaps in diagnostic performance- high
- degree of decentralised decision making- low
Thus it becomes quite evident that the share of pressure points and risks are quite high for the consulting firm, trading.com. it has to rectify several areas in order to survive in the long run, or else it shall collapse.
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