The risk is composed of two parts; the first part is the likelihood of something going bad and the negative impacts if it does. It is not easy to detect a risk and if any company is hit by consequences it had not planned for, it will be on the brink of making the loss. Risk analysis is a process that assists in managing problems that are potential and could compromise with essential business initiatives or projects. It is an essential tool to Apple Company whose market involves a lot of risks. It is helpful since as the company is able to understand the risks that it faces in its operation. At the end, this helps in identifying and coming up with proper ways of managing this risk. A proper detailed information such as financial data, market forecast, and security protocols need to be drawn (Modarres, 2006).
A qualitative risk analysis considers the identified risk using a rating scale that is pre-defined. Risk will be scored basing on the probability of their occurrence and the impact on the objectives of the project if at all they happen. The first phase of qualitative analysis is identification. This is perceived to be one of the most important elements in the entire process since once the risk has been detected; it is easy to do something about it. Identification of the risk can be achieved by reviewing the companys past experience if the appraisal records have been properly kept. Secondly, personal experience of risk analyst is essential in risk identification. Interviewing key members of the involved team and organizing a meeting where you can have a brainstorming session with the interested parties. After identification, the risks are then assessed into initial assessment and then categorized into a low/high probability of occurrence and the major (Modarres, 2006).
Qualitative analysis facilitates the identification of the risk, after identification, it is essential to enter into a detailed quantitative analysis. During quantitative analysis, the impacts of the risk are quantified against time, performance and cost which are which the basic project success criteria. Various techniques are used in quantitative analysis such as probabilistic analysis. This is one of the most common methods of carrying out a quantitative risk analysis and it is the one most companies prefer to be equal with the whole project risk. The analysis specifies the distribution of probability for every risk and considers the impact of risks in a grouping. The most common form of probabilistic analysis utilizes sampling techniques. The other technique used in the quantitative analysis is sensitivity analysis which is referred to as the easiest form of risk analysis (Modarres, 2006).
Discussion of Risk Classification
Risk classification is grouping of risks according to their likelihood impact, the probability of occurrence, estimated cost required, etc.
Competition risk is the type of risk that is posed by competitors. For example, apple is confronted by aggressive competition in the electronic industry worldwide. Most of its products such as music player, personal computer, Smartphones, laptops are related services are highly competitive. The markets the company has ventured in most of the counties have many powerful competitors. The financial condition and competitiveness of apple depend on the ability of the company to offer and develop new innovative products in every market it competes. If apple is not able to compete effectively in these market, it will lose most of its customers thus its financial and the result of its operation could be affected
Multinational corporations such as apple face a lot of market risk. For example, apple being a key player on the international market still faces two major risks in the market which includes the interest rates and foreign currency fluctuation which has posed a greater risk of the companys performance. The exposure to fluctuating interest rates in developed countries directly affects the interest earned on Apple cash and cost related to foreign currencies.
These are risks that are related to management, leadership and decision making. The management may make decisions that can have a negative impact on the business. Furthermore, operational practices such as product range distribution, procurement, and supply chains are vulnerable to risk that may arise at managerial level. These activities, for the example, supply chain that involves the movement of product to the customer, may are exposed to risk such as poor transport and communication networks in some of the counties.
Strategic risk involves the risks that are associated with the environment the business operates, the business strategies put in place by top management, product distribution and sourcing policies and product design and other expertise. For example, the sole sourcing risk that limits the company to only one supplier who can easily subject the firm to high prices and supply related risk.
Organizations face diverse risk as they carry out their businesses. So as a measure to help reduce or curb these risks as a whole the organizations must develop strategic options and plans to help reduce such risk that may occur in the project. In most cases organizations set up a project manager whose duties are to monitor such response to risk. Above we have discussed diverse types of risk that affect organization for example Operational risk, Pricing risk, Strategic risk, Market risk and competition risk. In our risk response, we will now analyze carefully different ways and measures that companys respond to various risks so as to reduce them. However first let us look at what risk response involves:
Firstly risk response involves identification of the risk after which the project manager determines if the risk warrants a response and if it does it is up to him to develop the appropriate strategy required to handle the risk. After identification of the risk and strategy utilized to contain it then, one must evaluate if the cost of implementing the said strategy for reduction of the risk is worth it. IF it is also a contingency plan should be made just in case the strategy does not actually do as expected in terms or reduction of risk. After all of this, the project risk manager will confirm to the risk owner the best strategy who will consequently execute the response.
Types of Risk Response Strategies
Risk response strategies implemented depend on what type of risk. Organizations face two main types of risks i.e. from threats to the company and opportunities.
Risk can be reduced by organizations refusing to accept risks by not engaging in actions that can create risk. In risk avoidance, businesses do not perform any activities that may carry risk. For example in competition risk, a particular market may be flooded with competitors who are offering same products and services. In such a situation, the company that is on a brink of venturing in such a market can decide not to launch its product and services in such a market and exploit another market. Additionally, organization may decide to remove the said cause of risk by carrying out the project in a different way for example in operational risk, which involves risk that comes from management and decision-making risk can be avoided by properly vetting of high levels of management to make sure that they are able to carry out their duties well (Hoffman, 2002).
This is a strategy whereby the business decides to reduce the total exposure to risk by sharing some operational activities with another party. Take for example that operational risk that the company is exposed to through activities such as supply chain and distribution. For example, Apple may decide to outsource logistics and distribution function to a logistic company. The logistic company is aware of all risk involved in the logistic industry and how to respond to them as compared to Apple and thus it will respond to them on behalf of apple. The logistic company takes all distribution and logistics related risks but should work under the supervision of Apple. The movement of the products to most of its strategic dealers worldwide is done by the third party.
This is the act of accepting a risk and dealing with it the moment it occurs. In this process, the organization does not take initial actions to avoid or reduce the risk. This is one of the strategies used by Apple when for example it gets itself in a potential market but full of competitors. While responding to competi...
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