CHAPTER 1

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities. Risk management’s objective is to assure uncertainty does not deviate the Endeavour from the business goals.

From time past, Risk management have been a big issues in SMEs including all aspect of businesses, home management, church management and all you can think of, all aims at one point risk management and the achievement of organizational goals in business and objective which is making profit and prolonging the life span of business in the competitive SMEs society of today in Nigeria and the world at large.

Risks can come from different ways for example; uncertainty in financial markets, threats from project failures, legal liabilities, credit risk, accidents, natural causes and disasters as well as deliberate attack from an adversary, or events of uncertain or unpredictable root-cause. There are two types of events; negative events, which can be classified as risks while positive events are classified as opportunities.

Risk sources are more often identified and located not only in infrastructural or technological assets and tangible variables, but in Human Factor variables, Mental States and Decision Making. The interaction between Human Factors and tangible aspects of risk highlights the need to focus closely into Human Factor as one of the main drivers for Risk Management, a "Change Driver" that comes first of all from the need to know how humans perform in challenging environments and in face of risks (Trevisani, 2007). As the author describes, it is an extremely hard task to be able to apply an objective and systematic self-observation, and to make a clear and decisive step from the level of the mere "sensation" that something is going wrong, to the clear understanding of how, when and where to act. The truth of a problem or risk is often confused by wrong or incomplete analyses, fake targets, perceptual illusions, unclear focusing, altered mental states, and lack of good communication and confrontation of risk management solutions with reliable partners. This makes the Human Factor aspect of Risk Management sometimes heavier than its tangible and technological counterpart.

The strategies to manage threats (uncertainties with negative consequences) typically include transferring the threat to another party, avoiding the threat, reducing the negative effect or probability of the threat, or even accepting some or all of the potential or actual consequences of a particular threat, and the opposites for opportunities (uncertain future states with benefits).

Risk management is simply a practice of systematically selecting cost-effective approaches for minimizing the effect of threat realization to the organization. All risks can never be fully avoided or mitigated simply because of financial and practical limitations. Therefore, all organizations have to accept some level of residual risks. Whereas risk management tends to be pre-emptive, business continuity planning (BCP) was invented to deal with the consequences of realized residual risks. The necessity to have BCP in place arises because even very unlikely events will occur if given enough time.

Risk management and BCP are often mistakenly seen as rivals or overlapping practices. In fact, these processes are so tightly tied together that such separation seems artificial. For example, the risk management process creates important inputs for the BCP (e.g., assets, impact assessments, cost estimates). Risk management also proposes applicable controls for the observed risks. Therefore, risk management covers several areas that are vital for the BCP process. However, the BCP process goes beyond risk management's pre-emptive approach and assumes that the disaster will happen at some point.

1.2 STATEMENT OF RESEARCH PROBLEM

The main purpose of risk management is to identify potential problems before they occur so that risk-handling activities may be planned and invoked as needs across the life of the product or project to mitigate adverse impacts on achieving objectives. Therefore, specific risk management policies must be in place and carried out effectively and efficiently in an organization or enterprise to ensure that these organizational objectives are achieved and met.

However, There are significant challenges to implementing these policies some of which  includes; bad attitude of workers towards risk management, employing staff without adequate technical know-how to manage such risks, Inadequate reporting guidelines from management to employees, Inadequate staff training, Lack of adequate IT infrastructure and applications to mitigate such risks, and the inability of management to communicate the relevance and importance of managing risks to ensure an organization’s set objectives are met.

1.3 PURPOSE OF THE STUDY

The purpose of this study is:

1.     To determine the relevance and importance of risk management in the achievement of an Organization’s objectives.

2.     To determine the challenges/ factors that influence effective risk management in an Organization

3.     To determine the ways of implementing proper risk management to achieve high Profitability, customer satisfaction and a good corporate image.

1.4 RESEARCH QUESTIONS

1.     To what extent is Risk Management important in achieving an Organization’s objectives?

2.     What are the challenges/ factors that influence effective risk management in an Organization?

3.     What are the ways of implementing proper risk management in order to achieve high Profitability, customer satisfaction, and a good corporate image in an Organization?

1.5 RESEARCH HYPOTHESIS

         HYPOTHESIS 1

H0 – Risk Management is not relevant in achieving an Organization’s objectives

H1 – Risk Management is relevant in achieving an Organization’s objectives

         HYPOTHESIS 2

H0 – There are no challenges/ factors that influence effective risk management in an          Organization

H1 – There are challenges/ factors that influence effective risk management in an Organization

1.6 SIGNIFICANCE OF THE STUDY

From these survey research work focusing on risk management and the achievement of the organizational goals and objectives tends to ensure and determine the relevance and importance of risk management in the achievement of an Organization’s objectives. Making SMEs in and organization determine the challenges/ factors that influence effective risk management in a growing or known company or firms in LAGOS and OGGUN State in Nigeria business world.  

The study also will determine the ways of implementing proper risk management to achieve high Profitability, customer satisfaction and a good corporate image. Organizations know the importance and relevance of managing risk effectively and efficiently.

1.7 SCOPE AND LIMITATION OF THE STUDY

It is within the scope of this study to determine the importance and relevance of risk management towards the achievement of an Organization’s objectives and also determine the barriers to effective risk management within an organization. The geographical region covered is the western region of Nigeria, specifically Lagos and OGUN state.

During the course of carrying out the research work, the following factors may hinder the effective completion of the study, which are:

1.     Low Level of corporation from Organizations.

2.     Financial constraint which may hinder the ability of the researcher to increase the scope of the study.

1.10 DEFINITION OF TERMS

Risk: Risk is an uncertain event or condition that, if it occurs, has an effect on at least one project objective.

Risk is a function of the likelihood of something happening and the degree of losing which arises from a situation or activity.

It is also the chance of loss, the possibility of loss, the dispersion of actual from expected results, the probability of any outcome different from the one expected.

Risk is a condition in which there is a possibility of an adverse deviation from a desired outcome that is expected or hoped for

Uncertainty: This refers to a state of mind characterized by doubt, based on a lack of knowledge about what will or will not happen in the future.

Uncertainty is also a psychological reaction to the absence of knowledge about the future

Management: Management in businesses and organizations is the function that coordinates the efforts of people to accomplish goals and objectives using available resources efficiently and effectively.

Risk Management: Risk management is the identification, assessment, and prioritization of risks (defined in ISO 31000 as the effect of uncertainty on objectives) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities.

Business Continuity Plan: A business continuity plan is a plan to continue operations if a place of business is affected by different levels of disaster which can be localized short term disasters, to days long building wide problems, to a permanent loss of a building.

Business Continuity Planning (BCP): This identifies an organization's exposure to internal and external threats and synthesizes hard and soft assets to provide effective prevention and recovery for the organization, while maintaining competitive advantage and value system integrity.

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