Risk Management Systems: Control Systems and the Management of Risk

According to the case study, the managerial staff responsible for the global expansion and acquisition of foreign energy plants did not have sufficient knowledge of the topic, and no research was done. In combination with fast-paced expansion and a little pressure on performance, Lincoln would achieve 12 points in the “Growth” section. In terms of “Culture,” it appears that the level of internal competition within the company was high, which provided obstacles to smooth decision-making. In addition, rewards for risk-taking and executive resistance to bad news were also higher than needed for a pleasant expansion. Therefore, Lincoln would receive no less than 13 points for the “Culture.” “Information Management” was more than certainly the weakest link of the company. Lincoln would reach all 15 points as the organization did not carry out sufficient research, starting its operations abroad. It lacked centralized decision-making as well as did not apply appropriate marketing strategies. Furthermore, the company was unable to assess its performance abroad correctly. The total score for Lincoln would be solid 40 points on the Simons’ risk exposure calculator.

In his, work Simons states that there are four levers of control that assess risk exposure. The author also says that these methods only assert risk exposure within the organization. This is true as all the examples Simons presents to support this provides sufficient evidence. Any company willing to avoid troubles arising from within the organization must apply these methods. Otherwise, it may lead to employees breaking traditional business practices, which often results in harmful consequences. Furthermore, there is also “external” risk exposure for any organization, such as competition from the market it operates in or a current economic situation. A company must distinguish between the two to keep its risk management under control.

The world outside a company is constantly changing, and so is the market it operates. The control system must be close to its perfection since an organization is at risk of under or over-controlling its staff. Therefore, to develop a control system sophisticated enough, a company must go through trial-and-error methods, constantly adapting its control system to all the requirements it faces.

Birkett argues that a control system implemented by a corporation is crucial in managing risks a company takes on. According to the author, control systems engage with risk parameters relevant to a particular exposure. These systems are designed either to forecast any incoming failures, which may impact the expected goals of the company or to ensure that included risk treatments secure the outcomes.

Birkett claims that companies establish their control structures with risk parameters relevant to these organizations, but a structure may become a subject of revision due to unexpected risks and failures a company goes through. In the case of Lincoln, a need for a revised strategy arose after its failed expansion overseas, which generated massive losses. Instead of cutting back on its European operations, the company decided to attempt to boost profits in the American market, and, thus, a new control system was established. The new plan involved various educational programs for both management and employees to boost their performance within the company.

The author states that if companies do not carry out their risk assessment properly, it may only result in them being exposed to more risk. Birkett breaks down risk management into five parameters. A company must identify and then avoid the source of the risk; then it must reduce the sources which give the risk its value. This can be achieved through a suitable control system that determines the risk and then deals with it. For instance, a fire alarm which would prevent unexpected fire damage to an organization’s property. Furthermore, the organization needs to deter itself from following the pathways that may expose it to risk and transfer its risk scenarios. A business can insure its equities to avoid any unexpected financial losses. Finally, it must share the consequences of the risk it is about to undertake. A proper risk-sharing arrangement may help to redistribute the losses among the company members.

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