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Risk Assessment Affecting Organization Performance Advances in Economics, Law and Political Sciences Risk assessment affecting organization performance FLAVIA FECHETE and ANIȘOR NEDELCU Manufacturing Engineering Department Transilvania University of Brasov B-dul Eroilor, nr. 29, 500036, Brașov. ROMANIA [email protected], [email protected]. Abstract: To maintain the same company running efficiently, and more so, for a increasing performance it is necessary to adapt to the changes occurring in the environment in which it operates. Such adaptation requires permanent changes in the company to be set, known, analyzed and managed . Risk identification is the first and most important phase of management, it consists in identifying hazards that exist within the entity. Hazard identification work is done to detect, if possible, all existing risk factors . The advantage of identifying risk factors is reflected both in creating treatment conditions and analysis in an efficient way as they are known, and the establishment of latent risks . This paper aims to analyze the risks that may affect and influence the performance of organizations, often leading to a financial crisis. In this respect, a presentation of the theoretical risk typology was made, and the case study illustrates the risk exposure in organizations through the application of analytical models that emphasize this. Key-Words: performance, risk, risk management, profitability, assessment, micro risks, control. 1 Introduction learn from mistakes and from the examples of others As liberalization, globalization and the rapid and equally for those who study and analyze the development of computer technology creates new market, as a topical and interesting theme. business opportunities, economic and financial bodies are exposed to risks more complex and diverse than in the past. Identification, measurement 2 Problem Formulation and control of risk has never been more important to Obtaining overall performance is a major organizational and strategic management. objective of any company, causing a number of This paper deals with the issue of risks to an advantages and benefits, both financial and entity, the efficiency and advantages nonfinancial. But there are some risks and implementation of risk management. disadvantages that can affect the performance of the A case study on the methods and models are organization, but that can be predicted and concnetreaza risk analysis, and focuses on measures prevented by effective implementation of risk to improve our knowledge that can be applied after management. the results. Risk is a term used with various meanings: The importance of addressing this issue is defines the uncertainty that characterizes the evidenced by the current situation facing the activity; likelihood that something will happen, the economy and entities operating in the market. Since effect of uncertainty on objectives [1]. Risk is an the beginning of the financial crisis and so far we uncertain element, which occurs constantly in the could witness the effects of the crisis apparently, but process of socio-human, whose effects are especially following an ineffective management, damaging and irreversible [2]. The event's hazard strategic plans unviable. and adverse human health effects, the performance In these circumstances, entities that have of organizations and society in general have brought developed effective risk management in the past to the fore the concern of management to identify have been able to maintain during this period, and risk factors and assess their effects. some more, have managed to remain profitable. Organization's risk management approach Treatment of risk management and its impact on requires that it establish objectives and activities all levels becomes relevant because entities can still leading to the achievement of goals , and at the ISBN: 978-960-474-386-5 190 Advances in Economics, Law and Political Sciences same time seeking to identify factors that may Micro risks have direct impact on the prevent achieving the goals in order to take the time performance of the organization and are generated necessary measures. by a series of internal and external factors . In this The overall goal of risk management is to help category are included [5 ] : understand the risks to which an organization is Pure risk - is likely accidental , unintentional , exposed so that it can be administrate. Iniţial focus occur without warning signs, beyond the control of was on assessing the risk . In the present approach is the parties, refer only to enable economic operators more complex and is called risk management ; this to lose without them decide on the size of losses expression defines the coordinated actions that an (physical, financial risks : risks subversive) . organization shall plan and control the risks that Speculative risk is usually known , valued and may affect its ability to achieve its objectives . Such taken by managers. This venture provides economic a preventive approach is characteristic of modern opportunity to both earn an extra profit and the management systems , providing improved possibility of losing . Managers may be accepting performance of the organization by managing attitude, dislike or neutrality. environmental threats and capitalization of the The probability of default risk traders to cease opportunities that market offers [3 ]. payments to suppliers of raw materials, equipment, Stages of risk management : utilities, and restitution and interest rates on bank loans, or payment of salaries . Risk At the same time it is very important to consider analysis and other risks affecting the organization's work , the evaluation most important being: Operational risk - associated managerial and operational deficiencies within the firm. Can be Risk generated by : global policy management , structural Risk RISK response identification MANAGEMENT strategy imbalances , law infringement , the risk of image formulation and communication. Economic risk - is determined both contextual developments of the company and the quality of the Risk control economic activities . Examples: operating risk , the risk of profit margin security firm, financial risk, the risk of higher Fig. 1. Stages of Risk Management inflation, etc. Commercial risk is directly related to quality Identification and quantification of risk are competitive position in the market as the company sometimes treated together and called risk and the product (s) or service (s) thereof. assessment or risk analysis. Risk Response Plan is Examples: ineffectiveness of trade policy; sometimes met as the mitigation plan. Also, inefficiency of the procurement process, storage and sometimes, risk response plan and control plan are sale; inefficiency of the pricing policy applied by treated together as the risk management plan. the company; lack of competitiveness of its The main forms of risk are: microriscurile, products. macroriscurile and regional and global risks [4]. Micro risks 3 Problem Solution (Case Study) With specific current market economy, risk has become an essential component of management Macro risks policy of the organization. Typology All specific stages of running a business, from of risk setting goals and finishing with finding markets is conducted under pressure of many risk factors, that Regional and most often means loss for the organization. global risks Therefore, the discovery and management issues, as far as possible risk situations is a priority for the performance of the company Achieving business requires knowledge and Fig.2. Typology of risk multiple risk-taking. ISBN: 978-960-474-386-5 191 Advances in Economics, Law and Political Sciences Risk management process comprises three Unit variable cost (cv) 2500 USD / ton sugar stages: risk identification, risk analysis and risk Sale price (Pv) 4490 USD / ton sugar response . Achieving business requires knowledge and Table 1. Financial indicators of the company multiple risk-taking . Risk management process analyzed comprises three stages: risk identification , risk Source: Ministry of Finance, Bucharest Stock analysis and risk response . Exchange. The economic risk is assessed as the variability of the outcome of an activity under pressure Costs of this will be: disturbances in the internal and external CV = 2 500*20 546 = 51 365 000 lei environment . CF= 106 211 431 – 51 365 000 = 54 846 431 lei Internal rate of return a business is directly dependent on the risk borne : it can not be assessed 6 Breakeven = = 27 561 sugar tonnes only on the basis of the risk of the bear trader . – Most economic agents determine their risk management measures based on profitability CA pr = 27 561 * 4 490 = 123 748 890 lei expected by taking into account the minimization of losses, additional expenses in the event that the risk Where: materializes. Qpr-production to break even. The study presented below is intended to cv-unit variable costs. illustrate the exposure at risk of a company, under CV - total variable costs. internal and external factors . CF - total fixed costs. The company studied has as main activity the CApr - turnover in breakeven. processing of sugar beet and getting the finished product, crystal sugar. Analysis and risk assessment can be achieved by VT (CT) these several methods [1]: 1. Breakeven method Breakeven means a measure of the flexibility of the organization in relation to its business VT fluctuations, so a measure of risk. It is the point at which turnover cover operating costs, the economic results are null. After this threshold activity CF
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