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Risk is the probability of occurrence of any damage or loss. There are various aspects in every business in which risk may arise and so it is needed that a proper understanding should be developed in this respect. There are various types of risks that are associated with any business which can be controlled by using different measures and all those will be discussed in this report. As the security manager of Unilever it will be required to identify the manner and extent to which the risk can be controlled. It will be evaluated that which measure is most effective in dealing with the risk and what are its strengths and weaknesses.
Risk is such an aspect that exist in every organisation. It is practically not possible that there is no risk in conduction of any business. In the changing environment there are so many risk that are required to be taken into consideration for achieving the success of the organisation. Risk is the probability of occurrence of loss which means that there are chances that a problem may arise and it is not sure to happen. Risk is basically related to future period . It is concerned with the change that occur in the opinion, actions, or other things as by the the demand will differ and choice of the consumers will be uncertain which will be the risk for the business. In risk there exists both uncertainty and opportunity. If due to any action there will be any negative impact that will have to be born than that will be the uncertainty but if any positive outcome is experienced than that will be the opportunity for the business . For the person who expects that the they will receive failure it proves to be threat and for those who sees the victory it will be a challenge.
In the business there are various risks that are faced by Unilever and those have been described below...
1. Strategic risk
In the conduction of every business it is required that a proper business plan should be made for the effective operation of various activities. But it is not possible that all the plans that are made are appropriate and this is due to the reason that things and environment keeps on changing and with that the requirements that are to be meet also change. So a plan that is made can not be said to be perfect if it is not updated at the regular interval of time by considering the changes that are taking place. It is possible that the best plan made by you will prove to be a failure and the risk involved with it is known as the strategic risk. It is the risk according to which Unilever will have to face problems in achieving the targets and objectives that has been set by it as the effectiveness of the strategy made by it has reduced. There are various reason due to which it can happen such as if there is a change in the technology than it will have an impact on the plan made earlier will no longer be treated as appropriate in the changed scenario. A part from it other factors that can make the plan less useful are entry of any new competitor in the market, increase in raw material cost, change in the demand of customers and many more. In case of Unilever this will be the major risk as it is dealing with consumer products so the economic conditions will play a major role. This is because the purchasing power and consumption demand are directly affected by it and so the sales of the company will be affected. As there is a lot of competition in the consumer goods so it will have to face many uncertainties.
2. Financial risk
Finance is the most important aspect that is to be taken care of in any business and there is a high risk associated with it. There are chances of the sudden increase in the expenses that will lead to the financial instability. If there will be change in the rate of interest that due to that interest rate risk will arise. With the change in floating interest rate will be risk that the expenditure in relation to interest will increase and there will be shortage of funds and that will be met by increased borrowing. If there is increase in fixed interest rate that by that the loss in fair value will arise and that will be the risk which company will have to bear. Together with it as Unilever operates in various parts of the world so it will have to deal with the risk that is associated with the exchange rates. As the income will have to be converted so there will be loss that will be faced due to the fluctuations. The credit rating of the company will be affected as there will be decrease in the amount of profit and also the cash flow and turnover will be affected in an adverse manner. Due to this there will be problem in raising funds and also the confidence of the investors will be lost as they will fear to invest in the company due to its financial instability.
3. Environmental risk
This is the risk that is associated with the damage that is caused to the environment due to the activities that are undertaken by the company. As Unilever is involved in consumer products so there will be lot of wastage that will be generated. Alos the harmful gases will be discharged and due to that there will be lot of environmental damage that will be made . The gases that are discharged cause harm of many people and due to which company will have to face the legal consequences because now a days public has gained awareness and also government has made many laws in this respect to protect the environment.
4. Operational risk
There are various operations that are undertaken by any business and it is not possible that all will be performed in specified and appropriate manner. So operational risk is the risk that is raised in the company due to the failure of the operations that were unexpected. It can be said that this is the risk that is generated by business internally and it is itself liable for it. The failure of operation can be caused by two reasons which are due to the mistake or fault of person that is human error or it can be due to some technological mistake. A part from these there are certain reason of arising of this risk which are not in the control and cannot be controlled. Some of the examples of such reasons are natural disaster, or some problem that arise in website and due to power cut. The operational risk will cover all the aspects that will affect the core competencies of the company. With this risk as the operations will not be done in appropriate manner so due to that the problem in delivery will arise. Because of it there will be loss of sale and also the reputation of the business will be put at stake. As there are certain aspects that are beyond the reach so it can be said that this risk cannot be controlled.
5. Compliance risk
There are various laws and regulations that are made by the authorities and government that are required to be followed by the Unilever . Although it is tried that all of them can be complied with but than also there are some chances that some of the laws will remain non complied. This is because of the reason as many changes or we can say amendments keep on coming in the rules which are made by government for the benefit of all but it becomes difficult for the organisation to keep the knowledge regarding all and than incorporate all of them into the process. So this probability of non complaisance of laws is the compliance risk. There various laws which include national laws, state and local laws and in meeting with all of the will lead to the increase in the cost for the company. According to Blome and Schoenherr the compliance risk will arise in both the situation when there is some change in the business or some new product line has been added and due to which there will be new rules that will be required to be followed. As Unilever is operating in various countries so it will have to meet with the requirements of all the countries which will be very difficult and there will be high chances that compliance risk will arise as it is not possible that the changes that are made by different countries can be kept in account and than incorporated or applied.
6. Reputational risk
Reputation is the thing for which everything is done as it is very important for every business to maintain its reputation in the market. If there will be no reputation than it will have a direct impact on the company. There are many ways in which company will be affected by this which include that there will be loss of revenue as customers will not want to trade with it and this will lead to decline in sales. The employees will also be demoralised and will not be willing to work with the company and may leave and than it will bring more difficulty for Unilever as it will not be easy to hire new personnel in such situation because all will be are of the reputation decline will not want to join with the organisation. A part from it suppliers will also back off and investors and sponsors may also take there money back which will lead to financial crisis.
The above mentioned risks are the major risk that will be faced by the company but a part from them also there are various risks that will arise in Unilever. The first one is that there will be risk of the loss of customers which can be due to the fact if company will not meet with the quality standards and requirements of the customers. With the quality the hygiene is also important and it is required that it should be maintained otherwise Unilever will have to face its consequences and it has to provide the services which are better than what the others are providing and if not than customers will switch to the other suppliers. The other risk is related to the employees which means that if at any time there is high turnover rate than there will be lack of skilled employees which will have a negative impact. As due to this new employees will be required to be hired so it will be needed that proper training should be conducted which will lead to increase in the overall cost of the company and the money which could have been invested in some profitable project is used here so there will be additional loss of income. As Unilever is dealing with consumer products so it will be required that it should bring new products so as to deal with the growing competition in the market but it will also bring certain amount of risk. There are many factors that can make the new product unsuccessful such as change in technology or market demand or the condition of the customers in terms of finance.
As all these risk will prove to be hindrance in the growth of the company so there are various measures and strategies that are required to be undertaken in order to control the risk and those will be called as risk management strategies. Some of such measures are described below...
According to Aebi, Sabato and Schmid this is the measure in which it is required that every business should have the understanding of all the risk that are associated with that business. It should be identified that what all types of risk may arise and what are probability that they will occur. It has been stated that this process will start with the gaining understanding of historical precedent that are available and the opinions that have been provided by some experts in this respect together with the other sources will also be studied so that familiarity can be achieved in terms of the various problems and issues that may arise in the coming time. It will be found that what will be the effect of all those problems and will it have positive or negative impact on the company. There will be certain specific risk that will be involved and it is needed that they are ascertained.
With the help of all the data that will be collected by the above process a good and relevant risk management plan will be designed. There are some advantages of it which involve that by performing it the risk will be identified in advance and the plan that will be made will cover all the relevant aspects that should be taken into consideration. But with the advantage there exist the disadvantage also as it will require various research and study so company will have to incur expenses in relation to it which will make the process costly which is not possible to made every time. Also there are certain things which are not possible to be ascertained in advance and if some important point is left or wrong conclusion id drawn than it will lead to the adverse impact on the growth of the company. As stated by Quigley and Roy it can be said that Unilever can carry out the research to identify the taste of the customers and to identify the economic factors by which it will be able to meet the needs and requirements of the customers. By this the risk can never be eliminated completely and it will be controlled to certain extent.
As provided by De Bakker, Boonstra and Wortmann it can be said that this is the best control measure which can be used by any company. In this it is identified that what all are the steps that can be ignored. There are certain steps that are performed by the Unilever in the manufacturing of its product which prove to be hazardous for the environment and also some of the material that is used is also not good. So under this measure it will be tried to avoid those steps in the process by which there are chances that risk may arise or it can be undertaken that some substitute if available in relation to that than it can be used. The benefit of this measure is that it is simple and will not require any additional process or cost that will be required to be done. But the main disadvantage of this process is that by this risk will be avoided and there are chances that with it some of the benefits that may have been made are also missed. By using this the risk can be avoided to great extent as in this the process that will lead to the risk will be eliminated.
According to Thun and Hoenig there are two aspects that are involved in it which are loss prevention and loss reduction. In case of loss prevention various measures are taken by which the loss or risk can be minimised and this can be done by making the changes in the process by identifying the shortcomings that were present in the previous processes. Loss reduction will help in reduction of impact that will have due to negative results of any process. By this the effect can be reduced but cannot be eliminated so it can be said that risk will be controlled to some extent but will not be a major control.
As stated by Bullock, Haddow and Coppola it can be identified that there are certain circumstances in which it is not possible to control the risk. It means that there are some times when no action can be taken in order to reduce or eliminate the risk and there is no option left with the company other than using the method or it can opt to close the business. But according to Rejda it has been stated that company may reserve some funds in advance which can be used in such situations and this is known as risk financing. There are some situations in which the things are out of our control such as natural disaster and can never be controlled by any means. Insurance can also be used for such situations. But than also the control of this in this is very difficult.
Form all the above measures it can be identified that risk can be controlled and can to some extent and for that proper management is required to be done.
From the above mentioned report it can be concluded that in the process of business there exists risk so for that it will be needed that proper risk management should be done so that the risk can be controlled. It has been identified that for the control of risk it will be needed that proper research is conducted in this respect by which the risk will be identified and measures will be taken for that. The main risk that are involved are identified in this report together with the measures that will be used. The extent to which the risk can be controlled is also identified in this report.
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