Enterprise risk management can be mainly defined as the organizing, planning, controlling and loading the activities of a company, which is mainly related to the effective management of the organization to minimize the risk of earnings and capital losses. There are plenty of risks associated with a business like the changing environment as well as the losses that are faced often as a part of the business (Olson & Wu, 2015). The slumping revenue is also another sign of risk where a business always thinks about innovation for stopping the potential risks to happen. Thus, the entire assignment deals with the risk management process, and explains the terms with the help of Aabar Investments.
The complexness of the business is increasing every now and then, and the global trades must survive this storm for enhancing the growth of the business. Keeping the business constant is not the only lookout (Chitakornkijsil, 2010). For pursuing value and growth, the managers as well as the employees are aware of the fact that they should take risks in order to enhance the continuity in the very competitive global market. The ERM processes mainly deals with the strategies that an organization are mainly taking for managing this risk taking attitudes of the employees and the managers.
For understanding the farsightedness of risk taking in many industries in the recent times, a survey was conducted in tow with the American Institute of Certified Public Accountants (AICPA) business as well as the government team. This survey has brought forth the current state of enterprise risk management or the state-of-the-art in enterprise risk management. In the course of the survey, it could be observed that the financial industries, public limited companies and large organizations have more capacity of predicting the uncertain events (Hoyt & Liebenberg, 2011). The latest conditions of risk taking can be summarized as the potential failure of risk taking as well as lacking the risk disclosure with the help of a proper transparency.
The newbie SEC ruling also suggests that the capacity of managing the risks should not only be confined with the executive level of the employees but it is also applicable for the staff at the lower levels who are producing a material impact on the company (Lam, 2014). The companies of this generation always keeps a record on how a company identifies its risk, sets up the risk tolerances, and manage the reward and risk tradeoff by different enterprises. The state-of-the-art method mainly focuses on the present state of a company related problem, and generally keeps the front line and the board of management away from such problems.
There are several levels of risk management process in a modern organization like the change of the term risk management from an asset based view to an enterprise type view. The governance was changed in the modern days from passive and infrequent types to the active board involvement (Banks, 2013). The budget processes were not under the domain of ERM, which is now quite common. The standards and guidelines were functionally focused before that are now shared on a wide manner. Previously the integration within an enterprise was forced but now it is adaptive.
The business cases of previous days were filled much with technical jargons, which were quite difficult to understand but the business cases of modern days basically have the language that is suitable for a corporate. The responsibilities and roles of an executive were functionally defined in the previous days, but nowadays, the employees are hired with multiple competencies (Charette, 2010). The leadership only meant command and control in the previous days, but during the present time, it means enabling and empowering. The knowledge of the trade was only the functional knowledge in the previous days, but nowadays, it refers to the wider understanding of business.
ERM is required in an organization on a daily basis because the more risks are taken, the more the management of such risks become a liability. If a particular business does not take any risk, then there is no requirement for an ERM (Banerjee, 2016). Moreover, the ERM also measures the amount of risk taken within a year, and whether the amount is increasing or decreasing every year. Furthermore, the companies should also ensure that a proper amount of capital is present for the taking of risks.
Aabar Investments PJS or the previously known Aabar Investments PJSC is mainly a private company of joint stocks that is incorporated and registered in Abu Dhabi, UAE. The company engages investing in various activities such as the aviation, infrastructure, real estate, automotive, energy, commodities and financial services. Aabar was cancelled from the Abu Dhabi Securities Exchange (ADX) on 14th September, 2010, and slowly it got converted from a public joint stock company (PJSC) towards a private joint stock company (PJS). The parent company of Aabar Investments is International Petroleum Investment Company (IPIC) that is completely owned by the Abu Dhabi government (Bank, 2011). According to the IPIC’s financial statements that comes out semi-annually, IPIC’s ownership of Aabar Investments is 95.52% on 30th June, 2012.
On March, 2009, Daimler AG proposed the sale of € 1.95 billion for the shares of Aabar. The investment organization also proposed to buy 96.4 million newbie shares of Daimler for € 20.27 apiece. Post the taking of all the new shares, Aabar would approximately hold only 9.1% of the capital in the new share (Haberly, 2011). The organizational future aims at creating the economic and social benefits for UAE as well as Abu Dhabi. The partnership would also focus on joint initiatives under the following areas. The focus of the company would mainly be on the following points:-
Aabar Properties LLC, which is a subsidiary concern of the Aabar Investments was launched in the year 2010 as a management, real estate development and an investment organization. Aabar properties are presently focused on the support of Abu Dhabi’s vision 2030 by the development of a huge range of properties that are very much located inside the Abu Dhabi (Alali & Foote, 2012). The present projects include the Najmat, Al Durrah Tower, Maysan, Al Raha Beach, Shams C12, Hard Rock Hotel, IPIC Square, Rawdhat C59, and Rawdhat C69/77. This organization also occurs when the additional property related services for its customers like the property sales as well as marketing, leasing the property management and the facilities management as well.
As the company is mainly dealing with the infrastructure and financial services, the core value of the company lies in creating a proper work culture, and giving an ethical service for the consumers. The mindset of the consumers are also known by doing a survey of its consumers within a period of stipulated timeframe (Banks, 2013). The company takes the risk based on the consumers’ mindsets in the matter of creating new and innovative services. The core culture of the company is mainly based on its values of creating new economic space in the market. The corporate views on the risk management of Aabar Investments is quite different from the other industries.
The corporate mainly operates on the concept of teamwork. The main concept of Aabar Investments is creating an integration among all the kinds of services that happens within the company. The company also fosters an integration between all its departments (Alali & Foote, 2012). The teamwork is also facilitated inside the company as an antidote for the risk management. Due to the proper discussion and idea sharing between all the employees, the company can predict the outcome of a number of risks that it takes.
The strategy of an organization mainly consists of applying some basic business principles for the furthering of business. Aabar Investments is basically an MNC that caters to a number of services for generating the maximum amount of revenue from the customers. The integration of all the departments and a tie-up between the financial services, the infrastructure services and other services can be considered as the main strategy of development for this industry (McNeil, 2013). It lets the sharing of ideas along with the basic development of the organizational culture in the newbie era. The core business activities of the company mainly lies with establishing a good link between the consumers and the management.
The organization is facing a lot of issues in the modern times like the globalization. The customers are getting aware about the international products as well as the international culture. Naturally, the customers are not liking the old business patterns nowadays (Chapman, 2011). The company should be commensurate in understanding the customers’ minds. The financial performance is also at risk in this age due to the fact that the global recession has hit the market. The business activities of the modern times includes increasing the popularity of a particular product by internet or by social networking websites.
The risk management is somewhat related to the product life cycle in any industry. Aabar investments also follow the outlook of a product life cycle. It states that any products or services undergo four stages called the inception, growth, maturity and decline. The period of inception occurs when a particular service is launched into the market, the growth occurs when the development happens due to the development of the product popularity by advertisements and marketing (Beasley & Frigo, 2010). Then, the product reaches the peak stage, and it is known as the product maturity, when the revenue comes within the company in spite of much marketing.
The last part of the stage is the stage of decline when the product no longer cuts the edge in the market. It is the time when the consumers have already changed their minds about a particular product or a service. In this particular phase, the business must take a risk through innovation otherwise the business would cease to exist (Arena & Arnaboldi, 2010). The risk taking generally happens by taking the diverse opinion from the workers and the staff. The group discussion ensues within the marketing team as well as the management for ensuring the betterment of the product. The risk management is done by thinking about the capital that is present within the company.
The risk management at Aabar investments is also controlled by installing a risk management software by the IT department. It is a completely technical software for controlling the risks of a particular company or industry. It can summarize all the loopholes prevalent in the company including the amount of risks undertaken previously as well as the success rate, and can even predict the possibility of the success of a particular risk that is taken by a company (Wu & Olson, 2010). The software mainly works on the basis of a cloud computing tailor made system with the help of coding and decoding procedure.
The risk management is mainly done by addressing the issues of marketing and business every now and then within the company. As Aabar investments has many types of services, the financial services are given more importance than the others because it can predict a risk faster than the other type of services (McShane & Nair, 2011). The prediction of risk is taken from the managers, management and the top level members of an organization. Every factor of the management is proceeded with caution, and the company ensures a collaborative and democratic mode of leadership to enhance the competitiveness within the industry.
In the year 1992, the Committee of Sponsoring Organizations of the Tradeway Commission (COSO) created a model for the evaluation of internal controls. This model is always accepted as a normal framework for the internal control as well as it is broadly accepted as a definitive standard against the organizational process of measuring the efficiency of internal control systems (Wu & Olson, 2010). The COSO model is mainly concerned with the internal controlling as a method, which is affected by the entity’s directors’ board, management and different personnel, which are designed for providing a methodical assurance for the achievement of the objectives in some of the categories like:-
In an efficient system of the internal controlling process, there are fivefold components of supporting the business’s mission, strategies and vision including the business objectives. The main five components are controlling environment, risk assessment, controlling activities, communication and information, and monitoring (Beasley & Frigo, 2010). The control environment is mainly created from the ethical values and integrity, commitment towards competence, auditing committee along with the directors’ board, operating styles and the management philosophy.
The controlling environment is also dependent on the organizational structure, the assignment of responsibility and authority, as well as the HR procedures and policies. The risk assessment of the company depends on the company objectives, process-level objectives, analysis and risk identification and the change management (Altman & Sabato, 2010). The control activities involve procedure and policies, security of network and applications, change management of applications as well as business continuation backups and outsourcing. The communication and information depends on the efficiency of communication as well as the information quality. Lastly, the monitoring also depends on the reporting deficiencies, separate evaluations as well as ongoing monitoring.
These factors work out for the establishment as well as foundation of the sound internal control within the company through the shared values, directed leadership as well as a culture that emphasizes the control related accountability (Fraser & Simkins, 2010). The different type of risks that the company is facing is mainly assessed and identified routinely at different levels, and inside all the various functions of Aabar Investments. The activities of controlling as well as other mechanisms are completely designed for the sake of mitigating and addressing the significant risks. The critical information related to the identification of risks as well as business meeting related objectives, which is communicated through the established channels of Aabar Investments. The total system of inside control is monitored continuously as well as the problems are addressed in a proper manner.
The organizational structure as well as the HR policies and procedures play a huge role in the understanding of the risk management. A company that follows a steep hierarchal structure is bound to have a greater risk probability than a company with a low hierarchy (Arena & Arnaboldi, 2010). A company with a low hierarchy is the exact kind of organization or Aabar Investments where the company is quite confident about the kind of work that is totally at par with the teamwork process of the organization. The organizational members often form a group discussion and share ideas on how to manage the amount of risk taken in a new initiative.
The HRM policies are quite different in the Aabar investments where the employees get the best of facilities in the market. The managers give two types of motivation known as the intrinsic as well as the extrinsic motivation (Beasley & Frigo, 2010). The incentives are given to the employees, as well as the ambience of the workplace is quite good, which makes the company quite interesting to work with. The recruitment policies of Aabar investments are mainly on the basis of employability rather than the qualification and experience, which minimizes the amount of risks taken by any employee within the organization.
Risk intelligence is associated with the creation of a barrier towards innovation and creativity in an organization like Aabar Investments, UAE. It is because the risk intelligence would always figure out the problems associated with the risks, and would analyze the amount of risk based on the innovation of a product (McShane & Nair, 2011). If a particular service has got some kind of similarity with the previous service, then the amount of risk is considered to be low. However, if the potential product is completely new, the risk management would figure out the service as having a high level of risk factor, which is actually lowering the innovation potential of an industry.
Value creation can happen through the innovation of services. The service can make its innovation based on the VRIN category, which means the newbie product must be valuable, rare, inimitable and non-sustainable. If the products follow these categories for the innovation, the amount of risk associated with the product becomes quite less (Olson & Wu, 2015). The process innovation also opens the new door for a particular industry and reduces the associated risk with the launching of a newbie service. The value creation might happen without involving the domain of risk within the company because if the proper method is followed, the amount of risk becomes less.
The proper value creation might be done by the only process of integration, teamwork and sharing of ideas. The ideas are often shared by the marketing department with the management for the new strategy of marketing for the advertising and promotion of a new product. The integration of all the departments also reduce the risk of a potentially new service (Wu & Olson, 2010). When the IT department works for the promotion of a particular product over the internet the moment it is launched, the marketing department thinks about the newbie strategies while marketing a product, and the operations department controls the internal operations with ease, then the proper risk management happens and the amount of risk involved becomes quite low.
The value creation also depends on the overall ambience of the organization. The atmosphere of Aabar Investments is quite easy to formulate the presence of a proper atmosphere for the risk management. Thus, the risk management is always done within the organization in a proper manner.
The portfolio management techniques can be used for determining the kind of business they want to pursue for the IT project related investments. The project portfolio management (PPM) gives an added dimension for approaching through the use of disciplines in the project management as well as the ongoing governance for ensuring the project investment portfolio for designing the required objectives (Arena & Arnaboldi, 2010). The PPM groups analyzes, views as well as manages the projects in an integrated manner for maximizing the positive trade related results inside a company’s resource related constraints. Projects are basically included or excluded from the portfolio based on various alignment within the portfolio performance and strategy against the portfolio based trade objectives.
PPM is considered as a mix of management disciplines that mainly focuses on most of the programs and projects along with the portfolio strategy. This method is generally used to improve the project level risk management activities in the project related portfolio management. The focus on the general management should also be for managing the company’s risks as well as resources (McShane & Nair, 2011). The project management also focuses on the reviews, assessment as well as the management of projects and programs for ensuring the meeting or the exceeding of planned contribution for the portfolio.
The project level management strategy can also be improved by the manager’s holistic approach towards the entire project and looking after all its pros and cons. It sometimes even poses a conflict with the proper interests of a good portfolio related project (Banerjee, 2016). The dependencies on the available resources are also measured for understanding the project level risks. The overall integration of management can also be considered as one good advice for increasing the impact of the ERM strategies.
The entire assignment deals with the possibility of risk management and its associated measures by which it can be established within an organization. It is also known by the name of enterprise risk management. The overall structure of the report clearly deals with the major changes in the ERM sector in the current days (Beasley & Frigo, 2010). It also clearly explains how the Aabar Investments can deal with the situation. The assignment also gives a brief about the company as well as its strategies in the market. The risk management of the company is also analyzed with the help of COSO framework. At the end, the recommendations are also given for better improvement.
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