Risk Management

BP is a British global energy company which is the third largest energy company and the fourth largest company in the world. As a multinational oil company, BP is the UK’s largest corporation, with its headquarters in St James’s, City of Westminster, London. BP America’s headquarters is in the One Westlake Park in the Energy Corridor area of Houston, Texas; the company is among the largest private sector energy corporations in the world, and one of the six leaders.

In order to project social responsibility and improve its image British Petroleum changed its name into BP in year 2000 with a logo of green and yellow sunflower patterns. Paradoxically the same company symbol is now under derision and the object of controversial attacks from environmentalists and damaging court cases. The company’s predicament further worsened when it was listed as one of the “ten worst corporations” during the year 2001 and 2006. In fact, BP and its competitors Royal Dutch-Shell were considered by activists to be responsible with the threatening phenomenon of climate change.

BP was warned before the oil pipeline leak happened in Alaska, but no action was made by the higher officials to mitigate its possible occurrence and reduce damages. In March 2005, BP’s Texas City, Texas refinery, one of its largest refineries, exploded causing 15 deaths, injuring 180 people and forcing thousands of nearby residents to remain sheltered in their homes. A large column filled with hydrocarbon overflowed to form a vapor cloud, which ignited. The explosion caused all the casualties and substantial damage to the rest of the plant.

The incident came as the culmination of a series of less serious accidents at the refinery, and the engineering problems were not addressed by the management. Maintenance and safety at the plant had been cut as a cost-saving measure, the responsibility ultimately resting with executives in London. The fall-out from the accident continues to cloud BP’s corporate image because of the mismanagement at the plant. There have been several investigations of the disaster, the most recent being that from the U. S. Chemical Safety and Hazard Investigation Board which offered a derisive evaluation of the company.

The US Occupational Safety and Health Administration (OSHA) found organizational and safety deficiencies at all levels of the BP Corporation and said management failures could be traced from Texas to London. The company pleaded guilty to a felony violation of the Clean Air Act, was fined $50 million, and sentenced to three years probation. On October 30, 2009, OSHA fined BP an additional $87 million— the largest fine in OSHA history— for failing to correct safety hazards revealed in the 2005 explosion. Inspectors found 270 safety violations that had been previously cited but not fixed and 439 new violations.

BP is appealing that fine. In August 2006, BP shut down oil operations in Prudhoe Bay, Alaska, due to corrosion in pipelines leading up to the Alaska Pipeline. The wells were leaking insulating agent called Arctic pack, consisting of crude oil and diesel fuel, between the wells and ice. BP had spilled over one million liters of oil in Alaska’s North Slope. This corrosion is caused by sediment collecting in the bottom of the pipe, protecting corrosive bacteria from chemicals sent through the pipeline to fight this bacteria.

There are estimates that about 5000 barrels (790 m3) of oil were released from the pipeline. To date 1513 barrels (240. 5 m3) of liquids, about 5200 cubic yards (4000 m3) of soiled snow and 328 cubic yards (251 m3) of soiled gravel have been recovered. After approval from the DOT, only the eastern portion of the field was shut down, resulting in a reduction of 200000 barrels per day (32000 m3/d) until work began to bring the eastern field to full production on 2 October 2006.

In May 2007, the company announced another partial field shutdown owing to leaks of water at a separation plant. Their action was interpreted as another example of fallout from a decision to cut maintenance of the pipeline and associated facilities. On 16 October 2007 Alaska Department of Environmental Conservation officials reported a toxic spill of methanol (methyl alcohol) at the Prudhoe Bay oil field managed by BP PLC. Nearly 2,000 gallons of mostly methanol, mixed with some crude oil and water, spilled onto a frozen tundra pond as well as a gravel pad from a pipeline.

Methanol, which is poisonous to plants and animals, is used to clear ice from the insides of the Arctic-based pipelines. From January 2006 to January 2008, three workers were killed at the company’s Texas City, Texas refinery in three separate accidents. In July 2006 a worker was crushed between a pipe stack and mechanical lift, in June 2007, a worker was electrocuted, and in January 2008, a worker was killed by a 500-pound piece of metal that came loose under high pressure and hit him.

On April 1 2009, a Bond Offshore Helicopters Eurocopter AS332 Super Puma ferrying workers from BP’s platform in the Miller oilfield in the North Sea off Scotland crashed in good weather killing all 16 on board. On April 20, 2010, a semi-submersible exploratory offshore drilling rig in the Gulf of Mexico exploded after a blowout and sank two days later, killing eleven people and causing a massive oil spill threatening the coast of Louisiana, Mississippi, Alabama, Texas, and Florida. The rig is owned and operated by Transocean Ltd on behalf of BP, which is the majority owner of the oil field.

The company originally estimated the size of the leak at about 1,000 barrels a day but later accepted government estimates of a leak of at least 5000 barrels per day. On April 30, BP stated that it would harness all of its resources to battle the oil spill, spending $7 million a day with its partners to try to contain the disaster. BP was running the well without a remote control shut-off switch used in two other major oil-producing nations, Brazil and Norway, as a last resort protection against underwater spills. The use of such devices is not mandated by U. S. regulators. The U. S. Government gave the responsibility of the incident to BP and will hold it accountable for costs incurred in containing the situation. On May 11, 2010, Congress called the executives of BP, Transocean, and Halliburton to a hearing regarding the oil spill. When probed for answers regarding the events leading up to the explosion, each company blamed the other. BP blamed Transocean who owned the rig, who then blamed the operators of the rig, BP. They also blamed Halliburton, who built the well casing.

Coming to analyze BP’s risk management, it is noted first that BP organization employs the systems of centralized direction and decentralized implementation. The centralized direction system was designed to attain business goals and objectives. The company unifies the corporation by implementing strategic objectives, values, behaviors and standards to be performed and easily understood by their people. On the other hand the systematic objective of BP is decentralized implementation of its operations in order to deliver the best quality of products or services and satisfy the needs of the consumers.

The decentralized implementation covered three business segments namely: Exploration and Production, The Gas, Power and Renewable and Refining and Market. As is well known, procedures and controls are a necessary condition for effective risk management, but not a sufficient one. A company’s standards and processes will fail if employees do not feel empowered to follow the standards during times of stress or they fear retaliation for reporting “unwanted” information. Reading the report of BP and other esources at my disposal I have found that how parts of BP’s culture may have tolerated shortened safety procedures as they fell behind investment schedules and other deadlines. For example, the company cut short a procedure involving drilling fluid that is designed to detect gas in the well and skipped a quality test of the cement around the pipe (another buffer against gas) despite BP’s report finding that there were signs of problems with the cement job and despite a warning from the cement contractor company.

The experts also concluded that there was not a strong culture of communication across its own team leaders and partner companies. Having multiple players can restrict access to critical knowledge and slow decision-making processes to a dangerous point. Nor did there appear to be a culture where managers were expected to seek out or share contrary information from a different perspective. These cultural elements allowed issues to continue without the application of comprehensive expertise.

It seems to be necessary adding more controls, more checks and balances, with auditable risk management processes new minimum standards, and increased self-audits. While some criteria and thresholds did not exist prior to the accident, it is unclear whether the lack of these controls and audit mechanisms directly caused the accident itself Companies are not able to entirely shift operational or reputational risk to a partner, subcontractor, or supplier. Presumably, BP had in place significant and comprehensive controls and contractual requirements for its contractors and other service providers.

However, questions remain about whether these contractual requirements were actually implemented, assessed, and monitored by BP. Anyway, risk management referred to in this paper are the activities related to managing an organization that integrates recognition of risk, risk assessment, developing strategies to manage it, and mitigation of risk using managerial resources. Its primary objective is to reduce the different risks related to threats caused by environment, technology, humans, organizations and politics.

Firms usually formulate strategies in order to manage or mitigate risk by transferring the risk to another party, avoiding the risk, reducing the negative effect of the risk, and accepting some or all of the consequences of a particular risk. BP must apply risk management in its corporate financing as the technique for measuring, monitoring and controlling the financial or operational risk on the firm. The commonly used framework breaks risks into market risk (price risk), credit risk and operational risk and also specifies methods for calculating capital requirements for each of these components.

In enterprise risk management, a risk is defined as a possible event or circumstance that can have negative influences on the survival of a company. Its impact can be on the very existence, the resources (human and capital), the products and services, or the customers of the enterprise, as well as external impacts on society, markets, or the environment. In a financial institution, enterprise risk management is normally thought of as the combination of credit risk, interest rate risk or asset liability management, market risk, and operational risk.

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. In the case of BP, the following must also be undertaken in addition and consideration of those discussed above. Firstly, it is of major importance to planning how risk management will be conducted must be undertaken: in this regard the plan must include risk management tasks, responsibilities, activities and budget.

Secondly, managers responsible for BP will assign a risk officer who will be responsible for foreseeing potential problems. In this respect, it is important also to maintain the risk database and each risk should have an opening date, a title, a brief description, a probability and a suggestion of importance. Once potential sources of risk have been identified, it will also need preparing a plan for reducing the risk (mitigation plan) for risks that are chosen to be mitigated.

In this regard, it is well known that the purpose of the mitigation plan is to describe how this particular risk will be handled what, when, by who and how will it be done to avoid it or minimize consequences if it becomes a liability. BP, in a perspective of reducing the risks described above in the long run as well as in order to optimize and reduce the resources used for that purpose, must eventually summarizing planned and faced risks, effectiveness of mitigation activities, and effort spent for the risk management.

Project selection should be done in a manner that address external risk before the project commences. Consequently the personnel selecting the project should also understand the deferral risk before making the decision of deferring the project. In many projects of organizations, they neither simply avoids risk since if it is not properly managed can result to a great loss. However taking risk is a necessary condition in creation of wealth. Most projects take risks deliberately especially when it is their advantage.

Risk can affect a project negatively if the selection of the project can not manage, understand, and price it. Before selecting project, there is need to recognize, accept and understand the risks involved that can lead to the project failure or have little potential of going up. When risks evaluation is poorly done, it can lead to unrecognized and high risk projects that have potential of endangering the whole enterprise. Selecting a project wisely can lead to taking advantage of low risk and thus benefiting much from the project.

Most projects usually fail because of lack of consideration of important risk factors that can ruin the project. A good model of selecting a project is supposed to be put in place so as to avoid frustrations in the project when things turn out to be worse. Every thing proposed in a project may be implemented as well as people put more efforts in the project but at the end the project fail if the selection did not take into account the risks that may be involved in it. Senior officials may make their decisions but if they do not understand the risk which may be involved, the project may not be able to do better.

In order to reduce loss after selecting a project, there is need to have knowledge of the project so as to make a sound plan and also understand on the right or appropriate technology that should be used in the project. Before selecting the project you have to understand on the problems that may encounter it and also there is a need to first discover what you do not know about the project to reduce the risk of failure. Risk can be reduced by identifying it and understanding on the specific impact that can affect the project so as to take action and address the risk.

If the risk has been understood and identified, ideas should be generated to modify the plan of project to reduce the risk. Furthermore, identifying risk of the project can be useful in reducing risk for any similar project that may be conducted in future. In order to reduce risk in selecting a project the process of selecting the project should be reputable in that the project proposal needs to be clear with high level statement in the scope, objective and expected success measure.

The project should have estimate of high level and magnitude needed in the implementation of the project and there should be discussion of the alternative risks and approaches in each approach. The process of selecting the project must also be cross-functional in that senior representatives must be part of it in the selection. It further has to be multidimensional by recognizing the set of the viable project. The selection process also must also recognize that there is no single or obvious metrics based on better results in picking any one project to operate and this can prevent the optimistic approach.

British Petroleum (BP) is a major player in the energy industry. Worldwide, it is in the business of energy, fuels, petrochemicals, retail services, gasoline, industrial and motor lubricants, solar power and other services (BP, 2007). BP formerly known as Anglo-Persian Oil Company or APOC is now providing worldwide services in six continents such as: Africa, North and South America, Australia, Europe and Asia. Their head office in London oversees their business interests in many parts of the globe.

Most of their oil resources are coming from the various onshore locations in the Caspian Sea, Mediterranean Sea and in the Gulf of Mexico, as well as offshore operations in Angola, Azerbaijan, Trinidad, Algeria, Alaska and the famous BTC (Baku-Tbilisi-Ceyhan) pipeline running through Azerbaijan, Georgia, and Ceyhan Marine Terminal in Turkey (BP, 2007). Not too long ago, BP diversified their business operations from energy providers, supplier of lubricants and other petroleum products to selling other product lines like convenience items, bread products and coffee to their consumers.

Their gross income from the retail business represented only two percent of their six billion total revenues, but they continue to expand their operation because their profit in convenient shops is higher than their oil revenues (BP, 2007). BP products and services have the following brands: BP, AM/PM, Arco, Aral, Castrol and the Wild Bean Cafe. BP stands for “Beyond Petroleum”. They set for quality standards to produce energy for the consumers and to build innovation to help the public to gain access to quality living.

The AM/PM convenience stores are found in different locations to provide quality services and to provide snacks or food and drinks to satisfy the hunger of their customers. Arco is one of the retail gasoline brands of BP. Together with AM/PM; they serve about 24 million customers a month. Aral is the petrol brand of BP while Castrol is a brand of automotive lubricant. Together they bring better motor performance to machines and vehicles. BP does not only provide energy, gasoline, petroleum and lubricants. They also offer pastries, sandwiches and drinks or coffee through their Wild Bean Cafe (BP, 2007).

The Problem BP just like any other businesses is facing different types of risks in its day to day operation. Recently the company experienced catastrophic accidents in its business operations and thinking of divesting their interest in several business units. Consequently, the CEO and its executives are under threat of losing their jobs because of pressures from its stockholders. Objectives of the Study Main Objective: The main objective of the study is to analyze the different risk management failures associated with the business operation of BP.

Specific Objectives: The specific objectives are to: 1. Identify the areas of risk management to consider including the operational, financial, market and credit risks of the company; 2. Establish a framework for the identification, measurement and control of risks; and 3. Recommend methods to mitigate the probable occurrence of identified risks and increase the shareholders value of the company. 2. CASE ANALYSIS BP organisation employs the systems of centralised direction and decentralised implementation. The centralised direction system was designed to attain business goals and objectives.

The company unifies the corporation by implementing strategic objectives, values, behaviours and standards to be performed and easily understood by their people. On the other hand the systematic objective of BP is decentralised implementation of its operations in order to deliver the best quality of products or services and satisfy the needs of the consumers. The decentralised implementation covered three business segments namely: Exploration and Production, The Gas, Power and Renewable and Refining and Market (BP, 2007).

For over ten years now, the British Petroleum was threatened by business misfortunes and controversies on several fronts. In 1992, Greenpeace International named the company as one of Scotland’s largest polluters (Wikipedia, 2007). In March 2005, BP’s Texas City Refinery in Texas City – one of the largest refinery in the United States and in the world – experienced a damaging explosion, which injured almost 100 people and led to the tragic death of at least 15 people including those who are working at the refinery. The company’s misfortunes even worsened last year.

On March 2006, a leak in one of BP’s pipelines located on the Northern Slope of Alaska caused a major oil spill, which polluted the tundra of the region. The incident led to the replacement of the federally regulated Oil Transit Lines (OTL’s) in Alaska. Another unpleasant incident on August 2006 led to the shutdown of its oil operations in Prudhoe Bay. Ironically, the shutdown decision was made due to corrosion in their pipelines which were obviously due to negligence of the company and clear violations of safety regulations.

This event eventually led to reduction of production to 400,000 barrels per day that causes the increase in oil prices. Recently, the Alaska Department of Environmental Conservation stated that the Prudhoe Bay oil field discharged toxic spill of methanol combined with crude oil and water spilled into the tundra which may threaten the ecosystem in that location (Wikipedia, 2007). In order to project social responsibility and improve its image British Petroleum changed its name into BP in year 2000 with a logo of green and yellow sunflower patterns.

Ironically the same company symbol is now under mockery and the object of controversial attacks from environmentalists and damaging court cases. The company’s predicament further worsened when it was listed as one of the “ten worst corporations” during the year 2001 and 2006. In fact, BP and its competitors Royal Dutch-Shell were considered by activists to be responsible with the threatening phenomenon of climate change (commondreams. org, 2003).

According to Steven Minsky (2006), BP was warned before the oil pipeline leak happened in Alaska, but no action was made by the higher officials to mitigate its possible occurrence and reduce damages. Since the year 2002, BP’s management is experiencing mounting pressures from its stockholders as discussed by Robert Heller (2006) in his web article. Lord Browne – BP’s Chairman – had a history of missing production targets since November 2002. Browne also angered the senior executives of the firm when he solicited the actual situation of the business from the low level managers of their company.

Amid the controversies, the problem later on was reevaluated and the blame went back to the Chairman. Consequently, it created miscommunication due to the extra cautious stance of the executives to report failures and give inaccurate data. Enterprise Risk Management implies to the methods and processes used to organise risks while being able to grab opportunities. ERM offers a background for risk management involving circumstances relevant to the business goals and objectives.

It determines and evaluates different strategies, monitors progress and identifies risks and opportunities for the business venture. ERM also integrates strategic plans for operations management and internal and external control of the company (Wikipedia, 2007). ERM can be employed by BP because it uses business risk assessment which recognizes, evaluates and controls risks depending on the impact to the firm and how the business organisation manage those risks (Minsky, 2007). 3. AREAS OF CONSIDERATION IN RISK MANAGEMENT

Risk management referred to in this paper are the activities related to managing an organization that integrates recognition of risk, risk assessment, developing strategies to manage it, and mitigation of risk using managerial resources. Its primary objective is to reduce the different risks related to threats caused by environment, technology, humans, organizations and politics. Firms usually formulate strategies in order to manage or mitigate risk by transferring the risk to another party, avoiding the risk, reducing the negative effect of the risk, and accepting some or all of the consequences of a particular risk (Roehrig, 2006).

BP must apply risk management in its corporate financing as the technique for measuring, monitoring and controlling the financial or operational risk on the firm. The commonly used framework is the Basel II framework, which breaks risks into market risk (price risk), credit risk and operational risk and also specifies methods for calculating capital requirements for each of these components (http://www. occ.

gov/ftp/release/2007-123. htm). 3. 1 Enterprise Risk Management In enterprise risk management, a risk is defined as a possible event or circumstance that can have negative influences on the survival of BP. Its impact can be on the very existence, the resources (human and capital), the products and services, or the customers of the enterprise, as well as external impacts on society, markets, or the environment.

In a financial institution, enterprise risk management is normally thought of as the combination of credit risk, interest rate risk or asset liability management, market risk, and operational risk (http://en. wikipedia. org/wiki/Risk). In the more general case, every probable risk can have a preformulated plan to deal with its possible consequences – to ensure contingency if the risk becomes a liability (Crockford, 1986 as cited in Wikipedia).

Introduction

Details needed from Mrs Its Disgusting

In order to make a thorough investigation into the food complaint that has been made by Mrs Its Disgusting, it is necessary to take some details from her so that the actual cause of the complaint can be determined. This is also necessary in establishing whether the bakery in Elsewhere has breached food safety legislation by manufacturing and distributing the scones. Once the relevant information has been gathered, it will then become clear what the best course of action to take is, having regard to the Food Law Enforcement Policies of Somewhere Local Authority. The exact details of the bakery where Mrs Its Disgusting purchased her scone will be needed so that an investigation of the premises can take place. The time and day in which the scone was purchased is also required as well as the details of who served Mrs Its Disgusting. This will enable the correct premises to be identified and will ensure that no time is wasted trying to locate the bakery. It will also be necessary to find out who actually purchased the scone from the bakery and whether it was eaten on the premises or off the premises. The reason this information is needed is because it may affect the duty of care that was owed as shown in Donoghue v Stevenson [1932] UKHL 100.

Furthermore, it will also be necessary to find out whether Mrs Its Disgusting altered the scone in any way by spreading butter and jam onto it or whether she actually purchased the scone like that. This will help to determine liability since there is a possibility that there was no glass in the scone when it left the bakery. Furthermore, it will be necessary to find out whether any other food was purchased from the bakery and the condition of it. It is also important to find out if there is a likelihood that someone could have tampered with the scone subsequent to it being purchased and before Mrs I-D took a bite out of it. In finding this out, Mrs Its Disgusting will need to be asked whether the scone is in its original state and whether it has been kept in a refrigerator or not. Finally, Mrs I-D’s address and telephone number will be needed so that she can be contacted during the investigation and both Mrs Its Disgusting and Mrs I-D will have to sign a food complaint form to state that they are happy for an investigation of the problem to take place and that they will act as witnesses if the Council decide that legal action is appropriate.

The following questions will need to be asked:

1. Has the food been stored in a safe place
2. Has the food been tampered with any time after it was purchased
3. Are there any other packages apart from the one that you have provided me with
4. Was the scone part of a pack and if so do you have the remaining scones
5. Could you tell me exactly when and where you purchased the scones and at what time
6. Can you provide me with specific details as to how you handled the scones from the time of purchase up until you discovered the problem
7. What did you do with the scone after you discovered the glass
8. Can you tell me exactly how the food has been stored before and after the problem was discovered
9. Has you or Mrs I-D been affected by this
10. What injuries did Mrs I-D sustain as a result of the broken glass and do you have a medical report in relation to this
11. Are you and Mrs I-D willing to give evidence in court if necessary.

Investigation Steps

Once all of the necessary information has been gathered from Mrs Its Disgusting and Mrs I-D it will then be determined whether an investigation is necessary and what steps will need to be taken. Since it is the responsibility of all enforcement authorities within the UK to ensure that food businesses comply with the law (Food Standards Agency, 2011, p. 4) it is evident that an investigation will be needed. This is because, under the Food Safety Act (FSA) 1990 and the Food Hygiene (England) Regulations (FHR) 2006 it is an offence for any person to sell or process food for sale which is harmful to one’s health (Rochdale Metropolitan Council, 2012, p. 1). Furthermore, although the food was baked in a bakery in the neighbouring food authority, Elsewhere it will still be appropriate for the enforcement officer in Somewhere Local Authority to investigate this case because this is where the food was actually eaten.

Since Mrs Its Disgusting found glass in a scone she purchased from the bakery it is evident that this would be harmful to her health as this is a serious matter which needs to be dealt with accordingly. Under Reg. 6 (1) of the FHR and section 10 of the FSA it is made clear that an enforcement officer authorised under the FSA may serve a notice on the food business operator ordering them to improve their business if they have reason to believe that the business is failing to comply with the Hygiene Regulations.

In doing so, the officer will thus be required to:

“State the officers grounds for believing that the food business operator is failing to comply with the regulations;
Specify the matters which constitute the food business operators failure to comply;
Specify the measures which the food business operator must take in order to secure compliance; and
Require the food business operator to take those measures within a certain time period” .

In deciding if there are reasonable grounds for believing that the food business operator is failing to comply with the regulations the officer would need to enter the premises and take necessary samples of the food being produced. Under Reg. 14 (1) of the FHR officers are permitted to enter the premises of a food business operator whether they are in or outside the authority’s area. Furthermore, under Reg. 12 the officer will also be permitted to take samples of food or articles so that they can be used as evidence in the event of proceedings. If any samples are taken, the officer will then need to decide whether they should be examined under Reg. 13 and in accordance with their powers under section 9 of the FSA. Regulation EC 178/2002 provides the general traceability provisions which will provided the officer with the ability to trace and follow the food being produced by the baker through all stages of production, processing and distribution (European Commission, 2007, p. 1).

As part of the investigation process, it is also necessary for the enforcement officer to send details of the food complaint to; the manufacturer or importer of the food; the bakery where the food was purchased; and the Elsewhere local authority. This is because, the comments provided by the manufacture of the scones and the bakery may be able to establish what caused the problem and an overview of the precautions normally taken will be provided. In addition, they will also be able to demonstrate what steps will be taken in the future to prevent this from happening again. The Elsewhere local authority will also be able to “provide information on hygiene conditions at the production plant, the precautions taken and how well they usually comply with legal standards” (Embridge Borough Council, 2012, p. 1). Once the investigation has been undertaken, it is then up to the officer to decide whether an offence under the FSA has been committed. Since the bakery has rendered food that is injurious to health, it is likely that an offence under section 7 (b) of the FSA will be found. This is because an article appears to have been used as an ingredient in the preparation of the food which had caused Mrs I-D to sustain injuries.

In deciding whether the appropriate action shall be a warning letter, formal caution or prosecution, the seriousness of the offence and the steps taken to avoid any future mishaps will need to be considered. Regardless of this, however, if the bakery is able to demonstrate that they had taken all reasonable precautions to avoid problems such as this from occurring then they may be able to put forward the ‘due diligence’ defense as provided for under section 21 of the FSA. If it can be shown that the person involved in the sale of the scones had acted with due diligence to prevent the commission of an offence from occurring then that person will not be found negligent (Wild and Weinstein, 2010, p. 627). Because of the broad nature of investigations, it is likely that the process will take a number of months since a lot of in-depth information needs to be gathered. This is because unless all of the relevant information is attained, a proper review of the case cannot be made and the due diligence defense will not be made out. On completion of the investigation, the officer will be required to write to Mrs Its Discgusting informing of the action that shall be taken.

If the matter has been resolved informally during the investigation no further action will be taken and the food business complained of may want Mrs Its Disgusting’s and Mrs ID’s details so that they can send an apology or provide them with compensation. The permission from both ladies will first be needed, however, before any details can be passed on. In deciding what action shall be taken, the officer will need to decide whether the bakery had acted reasonably in order to prevent any risks of contamination and if not a plan of action will need to be devised so that care is taken to “identify and consider the risks of potential sources of contamination in the surrounding environment” (Brennan, 2006, p. 357). Accordingly, suitable controls will need to be developed and implemented so that future contamination is avoided (Sprenger, 2003, p. 229). This will ensure compliance with Regulation 852/2004 which makes it clear that all food business operators must certify the “hygiene of foodstuffs at all stages of the production process, from primary production up to and including sale to the final consumer” (Europa, 2009, p. 1) in order to avoid damage to health. Compliance with Regulation 853/2004 must also be certified which lays down the specific hygiene rules relating to the microbiological criteria for foodstuffs.

Available Options

There a number of different options available for the investigating officer, yet it would be appropriate to serve a notice on the food business ordering them to make necessary changes to the production process in order to avoid a re-occurrence of this problem. This will require the officer to serve a notice on the food business, yet in order to decide what changes need to be made, the officer will be required to interview all those involved with production. Once this has been done, the officer may also want to undertake legal action so that Mrs I-D can make a claim against the food business for breaching their duty of care towards Mrs I-D. In doing so, it will need to be established that the food business did actually owe Mrs I-D a duty of care, that they breached their duty and that the duty caused the harm as in Caparo Industries plc v Dickman [1990] 1 All ER 568. Because Mrs I-D would have been so closely affected by the actions of the food business that they ought to have had her in their contemplation it is clear that they owed her a duty of care. This duty was thus breached by allowing the glass to enter the scone and the glass subsequently caused injury to Mrs I-D’s gums. As a result, it is evident that the food business shall be liable for negligence and that Mrs I-D should be compensated for the damage. This can be settled out of court but if the food business is un-cooperative; legal action will be the next step. And it will therefore be up to the food business to demonstrate that they acted with due diligence (Atwood and Thompson, 2009, p. 346).

References

1. Atwood, B. Thompson, K. and Willett, C. (2009) Food Law, Tottel Publishing, 3rd Edition.
2. Brennan, J. G. (2006) Food Processing Handbook, John Wiley & Sons.
3. Elmbridge Borough Council. (2012) Food Complaints; What we can do about unsatisfactory food, [Online] Available: http://www.elmbridge.gov.uk/envhealth/food/foodcomplaints.htm [28 December 2012].
4. European Commission. (2007) General Food Law – Traceability, Health and Consumers, [Online] Available: http://ec.europa.eu/food/food/foodlaw/traceability/index_en.htm [29 December, 2012].
5. Europa. (2009) Food Hygiene, Summaries of EU legislation, [Online] Available: http://europa.eu/legislation_summaries/food_safety/veterinary_checks_and_food_hygiene/f84001_en.htm [29 December 2012].
6. Food Standards Agency. (2011) Making Every Inspection Count, Internal Monitoring Advice for Local Authority Food and Feed Law Enforcement Team Managers, [Online] Available: http://www.food.gov.uk/enforcement/enforcework/ [27 December 2012].
7. Rochdale Metropolitan Borough Council. (2012) Food, Pests, Pollution and Food, [Online] Available: http://www.rochdale.gov.uk/health_and_social_care/food.aspx [27 December 2012].
8. Sprenger, R. A. (2003) Hygiene for Management, London, Highfield Publications.
9. Wild, C. and Weinstein, S. (2010) Smith & Keenan’s English Law: Text and Cases, Longman, 16th Edition.

This research paper will be looking at the risk management and corporate strategy approaches taken by low budget airlines and, in particular, by EasyJet. As part of the background analysis, literature in this area will be drawn upon to identify background information that will shape the research aims and questions, as well as identifying the research methodology and timescales that are going to be applicable.

Introduction

In order to gain a background understanding, this section will look at the general strategy and corporate issues experienced by the low budget airlines, before then going on to examine the risk management and corporate strategy that is used, especially by the likes of EasyJet. Consideration will be given as to how this strategy can then be evaluated as, although delineating the actual way in which the strategy operates. Once this has been achieved there is the need to verify whether or not this strategy has bee successful and how exactly success should be defined in this context. During this research proposal one issue that needs to be delineated is why EasyJet is being looked at as a case study and why this is being done after the theoretical background has been looked at. It is contended here that choices of business strategy are theoretical and need to be understood generically before then looking at how this choice plays out in the ‘real world’ through the use of EasyJet. Understanding the choice of strategy is just one stage of the proposal, with the main value being added by the ability to evaluate the strategy in the context of the industry and to look at ways in which the strategy could be improved or altered, in order to achieve sustainable success, in the future. For this reason, the background literature review and current understanding has been looked at here before setting out the structure for the research paper in more detail.

The Concept of Budget Airline Strategies as Background Understanding

The UK airline industry has, as an industry, gathered considerable pace in recent years, with the number of passengers flying in the last decade increasing to a point whereby it is becoming part of day to day life, rather than an activity that is reserved for the wealthy, perhaps once a year for their annual holiday. According to the CAA Statistics there are approximately 126 million air journeys made a year from the UK This general change in the demographic of those relying on these airlines is such that it has fundamentally changed the budget airline industry. In particular, one of changes is the appearance of budget airlines, such as Ryanair and EasyJet, as well as the growth within the regional airports across the country, again supporting greater access for all. Prior to the growth of the low cost airline industry, commercial flying was something that was reserved for those in a much more financially stable situation, yet the marketing and branding of the budget industry has encouraged a much broader range of appeal. There is a question as to which way round this has occurred and as such this will need to be explored during the wider paper. The industry as a whole hit a particular difficulty in 2001, where the trade centre attacks meant that a variety of airlines no longer had the same appeal and a number of airlines went into liquidation (IAA, 2011)Despite this, there has been an increasing pressure on the airline industry from the low cost arena, with more and more people viewing airlines such as EasyJet and Ryanair as a viable travel option, thus attracting a broad range of individuals who will now consider, particularly local and short haul travel, as a means of enjoying cheap holidays, on a regular basis (Gross and Schroeder, 2007) .

The budget airlines operate with a different strategy from the more traditional commercial airlines in the industry, and are thus able to make cost savings that can then be passed on to the customer base. A considerable amount of literature such as that by Doganis in 2001 has been established to look at the ways in which the low cost airlines have set themselves apart and have changed the airline industry. One of the leading arguments that is presented as part of this background research is that of Porter’s Five Forces model, in 1981, provides a conceptal tool which suggests that a company will look at the five forces on the industry as a means of creating and establishing their own strategy. These five forces are : the bargaining power of suppliers, the bargaining power of buyers, the threat of potential new entrants, the threat of substitute products and the rivalry within the industry. This strategic argument has also been presented by Brandenburger and Nalebuff 1995 that indicates game theory is used to support the success of the airline industry. ,This will be explored in considerably more detail in the research itself; however, it provides an important starting point for the discussion here and will form a key part of the ongoing analysis.

Corporate Strategy employed by EasyJet

EasyJet is being used as a case study in this scenario. Therefore, consideration will be given as to how the specific corporate strategy as indicated by Porter’s model, has worked within the company itself and how this can then be evaluated and the risks associated with the strategy managed, appropriately. As noted by Porter in 1996 (p.62), it was stated that: “A company can outperform rivals only if it can establish a difference that can preserve. It must deliver greater value to customers or create comparable value at lower cost or do both”. It is this approach that is used as the fundamental strategy which has been established by EasyJet (Wright 1987). Porter, as a result of his analysis, created three generic strategies, one of which is relevant here, namely that of cost leadership. In this case, the aim is to be the lowest cost supplier and to achieve profitability based on having a strong price cost margin (Dobson, Starkey and Richards, 2004). This is an extension of the understanding established initially by Porter in 1985, where he stated at p.13 “Low-cost producers often sell a standard, or no-frills, products and place considerable emphasis on reaping scale or absolute cost advantages from all sources”. Although the discussions here were aimed at those that generically follow these strategies, they are clearly very relevant to the way in which EasyJet has formulated itself. Moreover, for this type of cost leadership strategy, it is suggested that there is a need to be offering roughly the same product as the competitors, but to do so in a way that is cheaper, thus identifying the key element of the product or service that simply must be provided and to remove the frills that are perceived to be unnecessary, in order to attract the appropriate market share. Within the airline industry, it could be argued that an actual airline seat which goes from A to B is a standard commodity and that a seat will be booked in order to allow an individual to travel from one place to another and that aside from this, no substantial differentiation is necessary for the majority of the public. Of course, there are those who might desire more leg room, better food, faster check in, etc., but on the whole, this is a standard commodity which lends itself to an idea that cost leadership can be achieved and is a approach potentially taken by budget airlines such as EasyJet.

EasyJet, for example, has looked at the various ways in which it can save costs, such as the cost of landing at central airports, the cost of providing meals to everyone, the cost of check in staff at the airport, all of which has been eliminated as part of its strategy. For instance, by encouraging online check in and allowing all customers to book online and to manage their booking entirely online, this reduces the number of staff required within the airport. Furthermore, the airline typically utilises regional airports, as they charge less than central airports and this then allows the company to provide cheaper flights to the region. This will, of course, reduce the number of people who are willing to travel to that region, as some will place a premium on a direct flight to the centre of the city but, in many cases, an alternative airport within a few miles will be acceptable and is a great way of achieving a cheaper flight. This will also be the approach when providing the flight element of cheap package holidays.

Concept of Risk Management within the Budget Airlines

Based on this strategy, there are clear needs to look at risk management as a means of maintaining the strategy. When following a cost leadership approach, there is the need to consider that competitors may simply innovate to copy and to be able to do the same, so that companies such as EasyJet need to ensure that they stay ahead of the game and are constantly looking towards improving their position and cost savings and therefore gathering greater market shares.

Other risks are generic to the industry, as a whole, such as terrorism or global economic decline; however, the focus of this paper is on the way in which EasyJet deals with the risks that set it apart from the others and the way that this company uses its own strategy to manage the risks that may be present. For example, if there is operational pressure, or there are fewer people looking to travel, EasyJet can look towards the notion of providing greater technological efficiencies or offering its customers to groups of the market share that may improve its position. Risk management is therefore, in this case, about creating a level of dynamism that allows the company to remain ahead of the competition and to further its own competitive strategy, in this case, cost leadership.

Industry Background

In order to understand the role of EasyJet it is necessary to briefly understand the generic industry situation. The actual notion of a low cost airline can be seen to have emanated in the 1970s, when Southwest Airlines established itself as a cut price airline providing a very basic but nevertheless acceptable service to American internal travellers. It aimed to appeal to those who were interested in price, rather than convenience, comfort or timeframe; it was often aimed at the student market and was referred to by many as the ‘Hippie’ Airline. From this point, several longer haul efforts emerged, but never fully gathered speed in comparison to the short haul equivalents, arguably due to their inability to differentiate themselves across the markets (Porter, 1980). That said, from the late 1990s through to the current day, several short haul no frills airlines have gained considerable success. Others have failed such as Zoom, in 2008, which suffered from problems associated with higher costs, most notably in the area of fuel. (Zoom, 2014)

Despite certain differences pursued by the various carriers, on the whole, they pursued the approach of having uniform airplanes that reduced purchase and maintenance costs, as well as sticking to those airplanes that have minimal operations requirements and can therefore retain a low level of costs. Other operational benefits are gained through the use of requiring personnel to undertake multiple roles and to ensure that there are less people required to service customer needs, both on the ground and in the air. Whilst this may somewhat reduce the efficiency and the quality of service provided, on balance, it provides a basic service at a cheap price. Certain principles are seemingly consistent across the low cost airline industry, such as the use of secondary airports which are cheaper, the removal of non essential features, the imposition of charges for any added extras, e.g. additional baggage handling, so that individuals can simply pay more for what they actually require or want as added extras. The primary example of this is the removal of inflight meals as standard, thus allowing flyers to purchase what they wish, if indeed they wish to purchase food at all. Again, this reduces automatic costs and also offers opportunities for added revenue to be generated through the sale of snacks.

These basic principles are common across the entire industry, although certain aspects have been more readily pursued by EasyJet and will form the focus of the main discussions.

Research Aim and Research Question

The overall research aim is to evaluate risk management and corporate strategy in low budget airlines using Easyjet as a case study.The research will analyse the working methods of the budget airline industry and to consider its overall and generic corporate strategy and positioning as an industry, as well as to look at individual examples within the industry, such as Easyjet.

The research objectives are as follows:

1. To gain an understanding of the ethos of the no frills airline industry, as a whole, considering strategies and approaches that are being accepted as the norm within the budget airline industry. A specific consideration of the risks facing low budget airlines
2. To evaluate risk management and growth strategies across the industry and identify how these can then be mitigated in the long run.
3. To evaluate the processes and strategies operating within EasyJet.

By following this approach, the aim is to look at the industry, as a whole, but then to use the knowledge gained as a means of evaluating the current approach and looking to the future for both EasyJet and others within the same industry. Recognising this will enable a rounded and directed discussion for the management team of both EasyJet and other similar airlines.

Research Methodology

The research methodology for the paper is considered to be important for the purposes of identifying how the overall aim of evaluating the strategies and risk management available to low budget airlines and, in particular, EasyJet can be acheived. Firstly, it is considered to be necessary to undertake a deductive approach to the literature review, whereby the basic theory of the no frills airline is taken and then explored and observed. For example, there are accepted principles which are part of the no frills airline as a generic cost leadership strategy. Therefore, by taking the essence of the cost leadership strategy and then observing the industry in light of this, it is then possible to create a further theory as to the success of the industry and, more specifically, EasyJet. At this point, it is then necessary to take an inductive reasoning approach and to use observations as a means of developing a further theory of how these approaches can be evaluated and how these can then be better dealt with, in the future, for both EasyJet and the industry, as a whole. With this in mind, there is a shift in reasoning that needs to be clearly delineated in the structure of the research paper and will be looked at in these sections, below.

This research methodology, which relies entirely on secondary research, may be seen to be limited, due to the lack of primary research; however, it is felt to be appropriate in this case, due to the need to gather such a broad range of opinions, if primary research were to be relied upon. With this in mind and the specific thought that consumers are likely to have in relation to the industry, it was determined unhelpful to collate a large amount of primary research.

Although there is a large amount of information available in the general domain, this is not in itself going to provide sufficient depth of understanding and therefore additional databases are going to be required, in order to add the necessary value to the discussion.

Economic and financial journals may also prove useful in this regard, as they are readily available in the University library and will provide the background theoretical understanding.

The starting points for the references and resources to be used are contained below; however, it is anticipated that this will be increased dramatically, over the course of the first two stages of the research and, in particular, during the literature review.. Key words will include, budget, strategy, airlines and EasyJet

Timescale

The overall duration of this research is to take place over one academic year, consisting of ten months. This is also a large deciding factor in the determination not to rely on primary research, at all. There would need to be a large amount of primary research gathered and this simply would not be possible with the time frame allocated if a suitable level of reliabilty were to be obtained.

The following time frame is to be followed, with a degree of flexibility allowed in order to ensure that all aspects of the research are completed diligently.

1. Month 1 – set out the research question, consider the available literature as well as the access to case study information and delineate any possible limitations that may arise in terms of information available.
2. Months 1 – 2 – establish the introduction and industry background, looking solely at literature relating to the generic theories of business development, as well as the theory of the no frills airline.
3. Months 3 – 4 – undertake case study analysis of EasyJet, which will require detailed information to be gathered from the company, from the commentary relating to the company and from any other source that could offer guidance as to how the company has been successful or, indeed, where the company has failed.
4. Months 5 – 6 – analyse case study, in light of the literature review and evaluation structure set, going forward. A key component of this research is to evaluate the strategy being employed and to evaluate the way that the company may manage its risk. With this in mind, the evaluation process should be considered over a long period of time and with sufficient depth, revisiting issues, if required.
5. Months 7 – 8 – pull together all the research and revisit any areas that seem lacking or where additional questions have been raised; most notably, ensuring that the aims and objectives are fully established and any gaps have been dealt with or, at the very least identified, so as to form part of the limitations and future research statements in the end report.
6. Months 9 – 10 – review and present findings, undertake any other final areas of research that may be required and ensure that the findings of the research paper are presented fully. Any further areas of research will be identified at this stage and laid out for future use by others. Any limitations of the research will also be established.

Resources Required

The primary research is not being undertaken due to the required timeframe. For the analysis itself, there is a need to have access to a variety of literature data bases, including the standard academic databases and industry information relevant to the airline industry. It has been identified that sources such as Euromonitor may provide a particularly useful insight into the industry itself, but are paid for databases. However, there are certain databases that may present industry information and are provided to the University which need to be looked at, in more detail. Specific databases that are appropriate include:

• Datastream
• EconLit
• JSTOR
• Datamonitor

In summary, therefore, the aim is to evaluate the strategies used by the no frills industry, with particular reference to EasyJet. In this context, the next step is to undertake a reasonable amount of background reading, to ascertain the areas that are then going to be pursued as part of the literature review. The main initial stage will be to look at the various aspects of the corporate strategy and to split the areas of reading and literature into sub headings. This will then be pursued when looking at the EasyJet case study; therefore, it is necessary to establish these strands of the argument and the support for this argument, from the outset.

Establishing the main aims, strands of analysis and the way in which the findings will be presented will all be part of this initial fact finding and preparatory stage.

References

1. Brandenburger A.M. & Nalebuff B.J. (1995), “The Right Game: Use Game
2. Theory to Shape Strategy”, Harvard Business Review, July-August pp 57 – 71
3. Calder, S. (2003), No Frills: The Truth Behind the Low-Cost Revolution in the Skies, UK: Virgin Books
4. CAA Statistics (2006)
5. http://www.caa.co.uk/docs/80/airline_data/2006Annual/Table_0_1_6_All_Services_2006.pdf
6. Doganis, R. (2001), The airlines business in the 21st century, London: Routledge
7. Galbraith, C. & Schendel, D. (1983), “An Empirical Analysis or Strategy Types”,
8. Strategic Management Journal, 4:2 153 – 173
9. Gross, S and Schroeder, A. (Eds.) (2007) Handbook of Low Cost Airlines – Strategies, Business Processes and Market Environment, Berlin.
10. Hill, C.W.L. (1988), “Differentiation Versus Low Cost or Differentiation and Low
11. Cost: A Contingency Framework”, Academy of Management Review 13:3 pp 401 – 412
12. IATA (2011) The Impact of September 11th http://www.iata.org/pressroom/documents/impact-9-11-aviation.pdf
13. Miller, D. (1988), “Relating Porter’s Business Strategies to Environment and
14. Structure: Analysis and Performance Implications”, Academy of Management Journal 31:2 pp 280 – 308
15. Mintzberg, H. (1978), “Patterns in Strategy Formation”, Management Studies 24:9 pp 934 – 948
16. Mintzberg, H., Quinn, J.B. & Ghoshal, S. (1995), The Strategy Process, UK: Prentice Hall
17. Murray, A.I. (1988), “A Contingency View of Porter’s “Generic Strategies””, Academy of Management Review 13:3 pp 390 – 400
18. Porter, M.E. (1985), Competitive Advantage: Creating and Sustaining Superior Performance, New York: The Free Press
19. Porter, M.E. (1980), Competitive Strategy: Techniques for Analysing Industries and Competitors, New York: The Free Press
20. Stabell, C.B. & Fjeldstad, O.D. (1998), “Configuring Value for Competitive Advantage: On Chains, Shops, and Networks”, Strategic Management Journal 19:5 pp 413 – 437
21. Treacy, M. & Wirsema, F. (1993) “Customer Intimacy & Other Value Disciplines’, Harvard Business Review, Jan-Feb pp 84 – 93
22. White, R.E. (1986), “Generic Business Strategies, Organizational Context and Performance: An Empirical Investigation”, Strategic Management Journal 7:3 pp 217 – 231
23. Wright, P. (1987), “A Refinement of Porter’s Strategies, Strategic Management Journal 8:1 pp 93 – 101
24. Zoom (2014) Zoom – Bankruptcy Filed in 2008 Retrieved from http://www.flyzoom.com/

Introduction

What is a riskAccording to the historical background, the term ‘risk’ takes his origin from the Arabic word risq or the Latin word riscum (Merna and Al-Thani, 2005). The Arabic risq means a chance with positive outcome. In opposite, the Latin riscum is an event with unfavourable issue. In the 17th century, term reached Europe and meant ‘’in terms of good and bad fortune’’ (Wikipedia, 2010). In our days term `risk’ acquires a slightly changed meaning. Macmillan dictionary (2010) defines risk as ‘’the possibility that something unpleasant or dangerous might happen’’. Another interpretation of this term was established by UK Association for Project Management (2006): ‘’risk – is an uncertain event or set of circumstances which, should it occur, will have an effect on the achievement of the projects objectives’’. In different walks of life risk has different meanings, with negative, positive or neutral effect. For instance, in the project management, many discussions and debates are conducted by scholars and researchers about using the term `risk’. There is a tendency treat risk as uncertainty (Perminova, et al., 2008). For fully understanding whether this treatment is correct or not, it is necessary to define term `uncertainty’. According to Oxford dictionary (2010) uncertainty is ‘’something that you cannot be sure about; a situation that causes you to be or feel uncertain’’. If consider term `uncertainty’ from angle of psychology, uncertainty is illuminated as ‘’a state of mind characterized by a conscious lack of knowledge about the outcomes of an event’’ (Perminova, et al., 2008).

Variety studies about distinctions between risk and uncertainty exists in our days. Practitioners and researchers cannot to come to one sole resolution. As was mentioned above, risk is treated as uncertain event, and some researchers incline to transform risk management to uncertainty management (Ward and Chapman, 2003). Variety opinions about using terms ‘risk’ and ‘uncertainty’ and the reason of the transforming risk management to uncertainty management will be considered in this essay.

In accordance with the article `A positive approach to risk requires person centred thinking’ risk is described as ‘’a futile form of linguistic imperialism’’ (Neill, et al., 2009). Risk in its popular usage is essential only for political and social decision making processes, not for risk analysis processes. Sven Ove Hansson (2005) agrees with the article, that risk is an ineffective form of linguistic imperialism. Also he thinks that in practice to define only single meaning of ‘risk’ is impossible. In spite of this, attempts at such linguistic imperialism are not uncommon. He explains his statement, that the term `risk’ may have different meanings dependently of the subject and situation, when risk is used.

According to David Hilson and Murray-Webster (2007) risk has two characteristics: uncertainty and consequences. But risk ‘’is not the same as uncertainty’’; the key difference between these two notions ‘’arises from consideration of the consequences’’. Risk is an uncertainty that could influence one or more objectives, and authors present the example: a child will pass examination tomorrow with uncertain results, but these results are not important for other people. For them exam outcome is uncertainty, which is insignificant and therefore it cannot be pose as risk. Uncertainty about weather in Kazakhstan tomorrow also insignificant for most of people and so this too is not a risk. But if the child is a Kazakh and he was promised by his father to go to fishing trip if his exam results will be high, both uncertainties become major and significant in the context, and therefore they can be posed as risk. From this example it becomes understandable that ‘’there are some uncertainties that do not matter in the relevant context’’. Author states that linking risk with objectives clarifies that every aspect of life is risky. Also he affirms that this link is necessary to the risk management, ‘’since it is a prerequisite for identifying risks, assessing their significance and determining appropriate responses’’.

In the book `Reducing Project Risk’ risks connects uncertainty with objectives. ‘’Risk is the effect of uncertainty on objectives, to be managed opportunity’’. Risk exists when probabilities of possible issues are known, and uncertainty has a place, when these probabilities are unknown (Kliem and Ludin, 1997). Halim A. Boussabaine and Richard J. Kirkham (2004) in the book ‘Whole Life-cycle Costing’ also write that ‘’concept of risk deals with measurable probabilities while the concept of uncertainty does not’’. When event encounters with risk, probabilities can be developed, and when event encounters with uncertainty, probabilities cannot be defined. If probability cannot mathematically be expressed it is uncertainty, while risk can be calculated in terms of probability. Finkel (1990 cited in Merna and Al-Thani, 2005) distinguish risk and uncertainty as: risk is taken to have quantifiable attributes, and a place in the calculus of probabilities, whereas uncertainty does not.

Above were shown differences between risk and uncertainty, and their characteristics. Now will be observed terms ‘risk’ and ‘uncertainty’ in project management.

Stephen Ward and Chris Chapman (2003) believe that different definitions of term `risk’ create a problem of its equivocal use ‘’as a synonym of probability or chance in relation to an event or outcome’’. They cite on Oxford Dictionary, where risk is described as danger or probability of bad outcomes. Also they refer on definition of risk, which was published by the UK Association for Project Management, which was described above. In spite of considering risk as an event with positive or negative effects, risk frequently is treated as event with an undesirable issue. Risk has a negative effect, rather than positive, people predispose to consider only unfortunate probabilities (Neill, et al., 2009). Ward and Chapman incline treat risk in hazard terms and Project Risk Management as ‘’primarily threat management’’, and they suggest use the term `uncertainty management’ instead of `risk management’. In their opinion, use term `uncertainty management’ is more preferable, as uncertainty management means analysing and understanding the root of project uncertainty without prejudice about what desired or not before managing it. Researchers propose to transform risk management to uncertainty management, as use the term uncertainty management can improve project management processes, and they suggest to start revising by using term `uncertainty’ every time instead of `lack of certainty’. Mostly important in this revising of terms that focus will be concentrate on process, not in product. They suppose that project performance can be more modified and improved, if this revising will be accepted, as from their point of view risk management restricts the contribution to project performance, as is threat orientated and ‘’not readily focussed on sources of operational variability in the performance of organisational activities’’, when uncertainty management perspective more concentrates on project life cycle stage.

Perminova et al. (2008) incline to agree with the statement of Ward and Chapman and suggest developing and researching the question of transforming. In their work term `uncertainty’ is defined ‘’as a context for risks as events having a negative impact on the project’s outcomes, or opportunities, as events that have beneficial impact on project performance’’. Risk and uncertainty are not synonymous. They are cause and consequence. Risk is one of the involvements of uncertainty, it cannot treat as uncertainty. From their point of view risk is certain and known, where uncertainty is event unpredictable and unexpected. Project manager can foresee potential threat and can undertake appropriate measures. In situation of uncertainty it is not possible to compute risk, therefore risk is less dangerous than uncertainty. Planning of risks is a significant step of project management in order to prevent undesirable issue of the project. But defining of risks depends on abilities and skills of project manager to recognise possible threats. Also project manager should be able use own knowledge from previous experience in order to overcome uncertain situations. However, it is not always possible to recognise all risks in advance. That is why authors believe that planning is not enough instruments in managing risks. ‘’One can plan only what one knows for certain.’’ Risk managers plan and consider risks, but there are uncertainties, which cannot be considered and foresaw. As the Danish Nobel Prize-winning physicist Niels Bohr said: ‘’Prediction is very difficult, especially about the future’’, to foresee all possible outcomes are very difficult too or even impossible (Hilson and Murray-Webster, 2007). Development of project management abilities and skills is ‘’an essential part of understanding and managing uncertainty’’. If the organisation or firm want to perform and extent themselves, it is necessary to manage uncertainty – if you do not have uncertainty, you do not have any evolution. Unfortunately, not all understand the importance of development of uncertainty management, because of lack understanding of definition of uncertainty. Perminova, Gustafsson and Wikstrom recommend continuing exploring uncertainty in order to develop project management.

Another risk researcher Jack Dowie (1999) claims that term `risk’ is a ‘’obstacle to improved decision and policy making’’, and it does not matter if this term uses separately or with other terms. `Its multiple and ambiguous usages’ constantly exposes to threat of separation such tasks as identifying evidence and making value conclusions. He writes, citing on Walker’s paper, that risk defiles all discussions of probability ‘’because of the implicit value judgement/s that the term always bring with it’’, just as it defiles all discussions of value estimate ‘’because of the implicit probability judgement/s that it contains’’. Also he states that instead of `risk decisions’ and `risk factors’ people should use simply `decisions’ and `factors’. It is not essential to use these terms with the word `risk’. Word `risk’ only prevent from making right decisions. Kaplan (1997 cited in Dowie, 1999) joins to his words. He says: ‘’for [communication] to take place, it is crucial that we have words that we all understand and use in the same way’’. However, `risk’ is ‘’not one of those words and that attempts to clarify it are doomed’’. Eventually, Dowie identifies that `risk’ has not important meaning; therefore `risk’ should be avoided in using. Risk has no importance and significance in making decisions. He strictly argues against risk.

There are many opinions and points of view about using term ‘risk’. Ones say that this using confuse and prevent from making right decisions and they argue definitely against risk, others that risk should be considered in certain situation and dependently of the subject, and it is wrong to examine risk in common application, also some of researchers suggest to transform risk to uncertainty. However, all of them agree that this field of discussions still stay open and need to explore and develop until all researchers will come to the one sole agreement. In project management, confronting with risk problems, sometimes disconcerts and makes difficult to reach definite purpose and in the case of using term ‘risk’ it seems that Perminova, Gustafsson and Wikstrom have a right point of view to this topic, that risk management and utilizing term ‘risk’ are needed researching and further exploring. Examining and studying an area of using term ‘risk’ can help improve not only risk management, but the whole project management too (Perminova, et al., 2008).

References

Association for Project Management (2006). APM Body of Knowledge. 5th ed. High Wycombe: Association for Project Management.

Boussabaine, H.A. and Kirkham, R.J. (2004). Whole life-cycle costing: risk and risk responses. Oxford: Blackwell Publishing Ltd.

Dowie, J. (1999). Against risk. Risk decision and policy 4(1), 57-73.

Hansson, S.O. (2005). Seven myths of risk. Risk Management: An International Journal 7(2), 7-17.

Hilson, D. and Murray-Webster, R. eds. (2007). Understanding and managing risk attitude. 2nd ed. Aldershot: Gower.

Kliem, R.L. and Ludin I.S. (1997). Reducing project risk. Hampshire: Gover Publishing Limited.

Macmillan dictionary. (2010). Definitions – risk [online]. Available from: http://www.macmillandictionary.com/dictionary/british/risk [accessed 5 October 2010].

Merna, T. and Al-Thani, Faisal F. (2005). Corporate risk management: an organisational perspective. West Sussex: John Wiley & sons, Ltd.

Neill, M. et al. (2008). A positive approach to risk requires person centred thinking. Available from: http://www.puttingpeoplefirst.org.uk/_library/Resources/Personalisation/Personalisation_advice/A_Person_Centred_Approach_to_Risk.pdf [accessed 16 October 2010].

Oxford advanced learner’s dictionary. (2010). Definitions – uncertainty [online]. Available from: http://www.oxfordadvancedlearnersdictionary.com/dictionary/uncertainty [accessed 7 October 2010].

Perminova, O. et al. (2008). Defining uncertainty in projects – a new perspective. International Journal of Project Management 26(1), 73-79.

Ward, S. and Chapman C. (2003). Transforming project risk management into project uncertainty management. International Journal of Project Management 21(2), 97-105.

Wikipedia, The free encyclopedia. (2010). Definitions – risk [online]. Available from: http://en.wikipedia.org/wiki/Risk [accessed 10 October 2010].

Indeed, it is exceptionally valuable to any organization. Comprehension of data risk is crucial for organizations to deal with the information they store successfully. Think about this, in your own personal life you take chances constantly. Therefore, it is difficult to do anything at all without tolerating some level of risk and this goes for any business or organization as well.

When an organization go out on a limb, the degree of risk increases. However, only then would they be able to consider how likely these dangers are to happen and how extensive the effect would be upon their organization (Fletcher, 2014). All business exercises have a level of hazard or some risk joined to them. In this manner, an organization must comprehend what the dangers are and the effect of them emerging, and afterward, choose whether they think the hazard is satisfactory or not.

The leading group of an organization will regularly set some corporate rules for any risk that they’ll face; administrators and heads of administration will then be relied upon to have a decent comprehension of the dangers identifying with the particular information they work with.Organizations can take into consideration the management of risk by characterizing and vocalizing the rules when it comes to taking risk. This could be most effectively accomplished by connecting it to their results.

For instance, bigotry of departmental disappointment, recognizing the conceivable reasons for negative results, understanding the probability of those results happening and approaches to diminish their probability, and survey those routinely with partners while thinking about the lessons that were learned during the process (Fletcher, 2014).

A soon as an organization have distinguished the possible dangers to their data resources, they would then be able to consider systems to help deal with the risk. A portion of those methodologies may include:

• Evaluating what can and will turn out badly (how it will happen, how regularly it can happen, how much harm can come from it).
• Keeping their staff within the loop and nimble with new innovation.
• Taking extreme measures and precautions when handling delicate data and exchange courses of action.
• Confirming staff can recognize any potential risks.

When dealing with risk management one must be in careful control between guaranteeing that the organization are not misusing the data they hold successfully and ensuring high esteem resources. Dealing with these fundamental standards can guarantee that an organization deals with its data chances properly.