Ensuring Turnbull compliance and implementation of an enhanced Risk Management program
Risk Management is becoming an essential factor for every organization in order to maintain stability in the business and to increase their potential through effectively identifying and controlling the risks so identified. Alongside, Risk Management is also necessary for the harmonic operation of any business since the fact that risk affects the business at any time without prior notice.
This paper aims to identify the potential areas of risk in Brand Plc, a leading car and speciality vehicle rental organization operating across the globe. This paper is aimed to supplement a two-day workshop on risk management in the organization to create the awareness and importance on risk management to the managerial staff within the company.
2.0: Key issues faced by the company
Brand Plc is a global car rental company that provides car and other speciality automobile rental service to the customers by operating in key locations like airports, business centres, etc. The key issues faced by the company are
Increase in the operating costs of the business
The company’s expenditure in repair and maintenance of the cars has increased to a very high level. This is mainly because of the increase in damages of the vehicles that are rented by the customers. The high level of damage is mainly because of bad drivers who rent the cars. The flexible terms and conditions of the rental agreement is the root cause for the damages in the vehicles rented. Failure to verify the driver’s credibility whilst renting the car is the main reason for the cars to be rented to drivers with rancid driving experience. This apparently reduces the number of cars available for rental at any given occasion eventually reducing the usage of the vehicles for business.
Poor Customer Satisfaction
The reduction in the availability of the cars in driving condition has increased the number of dissatisfied customers since the customer demand was not met by the company even with the high level of resources in the company. One has to realise that the customers are the heart for any business (Philip Kotler, 1988) and hence poor customer satisfaction apparently reduces the number of customers in due course. Also the poor customer satisfaction is adversely affecting the brand image of the company eventually hindering new customers. The potential to increase global market share is reducing due to the reduction in customer turnover due to the poor customer service.
Competition from Local vendors
The poor customer satisfaction is the major reason for the growth of the local vendors who have now become major competitor in the operating geographical regions. The competition is not addressed effectively because of the poor usage of the vehicles in the business as well as the reduced customer turnover. The competition is also intense in terms of pricing as well as the quality of service. The international customers are also reducing in number because of the poor response from the company in terms of service and quality of the vehicles and hence the global market share is also reducing with the growth of the local vendors and the stiff competition associated with it.
Lack of Consistency in Information
There is poor consistency in the information transferred between the departments within the organization itself. Since the reservations are made primarily through phone or on the Internet, the information is not accurately transferred to the pick up offices from the bookings office. This is the major reason for poor customer satisfaction because of the inconsistency in the service levels mainly due to lack of timely information in the pick-up spots. Also the inconsistent information on the pricing and the additional charges on the customers at the time of pick up of the cars is another critical issue that is hindering the business. The lack of a coherent management system of the information in the company is the root cause for the inconsistent information in the company thus resulting in poor customer satisfaction.
Operational Issues affecting long-term goals
The lack of commitment of the staff in the organization and the poor management of the tactical staff in the company is another critical issue that is hindering the growth.
The global presence of the company with diverse human resource from varied cultural background is the main issue for poor tactical staff management in the company. The reduced staff turnover within the company due to lack of training of the staff involved in the operational wing of the business is a critical element causing poor customer service due to staff shortage and other related issues. The long-term goal of the company is to achieve a global market leadership through efficient service with a committed workforce. This long-term goal of the company is hindered by the aforementioned operational issues and poor performance of tactical staff in the company.
Low Return on Investment
The above factors of increased operational costs and low customer turnover are the main factors that have reduced the revenue for the company in the first quarter of the year 2005. The low return on investment is not only because of the increase in operating costs but mainly because of the competition and the reduction in the customer turnover due to poor customer service. The low return on investment eventually hinders the profit generated thus increasing the overhead for the company. This affects the company’s mission of providing valuable customer service through increasing the quality of service by investing on quality products nod constantly updating the range of products offered to the target customer segments.
3.0: Top down structure of the key issues faced by the company
The top-down structure of the key issues discussed above provides the criticality of the issues and its impact on the business itself. This diagram provides a snapshot view of the critical issues faced by the company.
Fig 1: Top-Down Approach to the Key issues faced by the company
From the above diagram it is clear that the return on investment, which is the key for company performance is, affected due to the poor customer satisfaction caused by the various critical issues mentioned in the diagram.
4.0: Risks in the Brand Plc business
The potential risks identified in the business are listed below
External
1. Drivers with bad history
2. Lack of comprehensive checking and verification of the customer’s credit history
3. Competition and the risk of loosing potential customers due to poor quality of service
Internal:
1. Inconsistent information that hinders decision making both at tactical and managerial level.
2. Operational issues leading to low staff turnover eventually hindering the company performance and targets
3. Risk of improper or inefficient deployment of the workforce within the company.
4.1: Role of Risk Management in Brand Plc
Risk management is the process of identifying, analysing and the economic control of the risks that threaten the assets as well as the entire business of the organization. In the light of the above statement, risk management can achieve the following:
Screening of the Drivers
Through conducting extensive and quick checks of the driver history to judge his/her efficiency in driving the automobile rented without causing damage will not only eliminate the risk of renting the cars to drivers with bad driving history but will mainly reduce the operating costs of the business by reducing the expenses on repair and maintenance of the vehicles. Also the efficient management of this risk will ensure the availability of the automobiles to genuine customers thus increasing the revenue.
Credit Check of the customers
Through the efficient credit check process and screening of the customers based on the credit history, it is not only possible to eliminate the customers with bad credit history but can provide effective service to customers who meet the requirements. This will eventually increase the customer response and the return of the cars with proper payment and low damage apparently increasing the service level to the customers as well as increasing the number of customers served. This proves that the monitoring of the risk of bad credit history of the customers will increase the sales as well as customer satisfaction
Monitoring Competition
Competition is a critical risk for the company since the emergence of a new competitor is mainly with respect to demand created in the target market that was not efficiently addressed by the existing competitors. The risk of poor market awareness once managed effectively through comprehensive market management will apparently increase the company’s ability to respond to competition in the market from both the local vendors as well as the global competitors.
Controlling operational issues:
The operational issues at the tactical level and the middle management level cause a potential risk internal to the organization that hinders the stability. This can be controlled through regular training of the staff for improved performance and motivation as well as conducting regular counselling and staff development programme through identifying critical issues with respect to the human resource and the performance of the organization itself.
Monitoring Information consistency
The consistency of information is the critical element for the business since it is dependant on information at both the tactical level for efficient customer service and verification of the customer credibility as well as at the top-level management in order to monitor the critical success factors as well as identifying the major elements for the business development into new markets. The control of the risk with inconsistent information will not only increase the revenue for the company but also reduce the operating costs since the company through verification of the customers and provide quality service to the customers at the right time with accurate information.
Through the effective monitoring of the external risks as mentioned above, the company can reduce the probability of the corporate objectives being jeopardised by the external factors when left without being monitored as in the current situation of the business.
The control of the internal risks will mainly increase the company’s internal performance and also the harmony of the business process eventually motivating the staff as well as eliminating errors in the processing of the information by maintaining consistency in the information being produced.
From the above arguments, it is evident that the risk management must be applied in par with the business process in order to increase the performance of the company both externally and internally. The benefits of this integrated approach to risk management in the light of the business include
1. Proactive business environment where the company can be prepared to meet a crisis or operationally critical situation without disturbing the core business objectives.
2. Efficient identification and control of risks resulting in enhanced performance of both the staff as well as the entire organization itself.
3. Critical control of potential risks to the organization as well as developing the business into new markets through risk analysis of the market environment prior to investment eventually increasing the return on investment.
5.0: Limitations and Ownership
In compliance with the Turnbull risk management methodology, the risk manager cannot always identify every single faced by the organization because of the fact that the risk associated with a specific segment of the business can be identified by personnel experience in the specific field only. This makes it clear that the limitations of the risk manager are mainly with respect analysis and control of the risk whilst the initial identification of the risk is not always by the risk manager.
Another limitation of the role of the risk manager in the company is the global reach (i.e.) the risk manager will not be able to identify the risks that are specific to a given geographic location. Hence the ownership of the risk is essential whereby an employee in a specific role within the organization both at the tactical level management and top-level management is essential. The major advantage of risk ownership is that the commitment of the staff involved in the business will increase since his/her role is treated as important eventually motivating the co-staff working with the risk owner. The primary responsibility of the risk owner is not just to identify a risk and tick the boxes in his/her performance review but should be able to continuously monitor the risk identified and supporting the analysis and decision-making on the control of the risk so identified.
6.0: Enhancing risk management capability
The Turnbull risk management methodology says, “The risk management capability of an organization can be increased through objective analysis of the issues related to a business both at the operational level and at the managerial level”. This makes it clear that the risk owners in both the operating as well as managerial sections of the organization must not only have free communication at all levels but should analyse the risks objectively against the company’s core corporate objectives. It is necessary to understand that the corporate objectives of an organization reflect on the goals and targets of the company, which in turn derives the operational level objectives for the organization.
The risk management capability within the company can also be nurtured through the continuous evaluation of the risk against the core objectives of the organization and also through performing economic control over the identified risks in order to effectively control the risk as well as achieve the business objectives of the company. Since the company is a global organization, the core objectives of the company must not only reflect upon the corporate culture but should embrace the diverse culture in the organization.
The risk management within the organization should also embrace the long-term goals of the company in order to effectively identify any external factors that are a potential risk to the company’s long-term growth. For example, the implementation of new driving regulations for foreigners in India where by the foreigners are eligible to drive in India only with an international license or India License apart from UK driving license is a potential risk to the company in the Indian market because the company’s primary customers are foreign nationals visiting to India and violation of the law will result in serious legal actions. Hence the company should conform to the latest procedures in order achieve the mission of “providing valuable customer service through increasing the quality of service by investing on quality products nod constantly updating the range of products offered to the target customer segments”.
7.0: Conclusion
The two-day workshop on the risk management program should thus contain the following
Day One: Key issues faced by the company and the risks faced by the organization due to these issues. This is covered by the sections 2 and 3 of the paper.
Day Two: Critical analysis on risk identification and management with focus on the Turnbull compliance and its advantages in achieving business efficiency. This is covered by sections 4, 5 and 6 of this paper.
The identification, analysis and economic control of the risk when conducted in tandem with the business process will apparently identify and control numerous risks associated with the business both at the global level as well as at the local level.
Thus to conclude this paper, it is established tat the risk management is essential for the sustained growth of the company n the global market. The company should thus include the above mentioned elements with respect to risk management in the two-day work shop in order make them aware of the risks faced by the company and the ways identified to resolve the risk.
References:
Books:
James C. Barnes, (2003), A Guide to Business Continuity Planning, UK: John Weily and sons.
Philippe Jorion, (2000), Value at Risk: The Benchmark for Controlling Market Risk, 2nd Edition, UK: McGraw-Hill Education
Journals:
Ian Pleace, (2004), Facing up to the finance challenge: Turnbull Approach, Journal of Risk Management, Mar2004, Vol. 133 Issue 1327, p38, 2p, 2c
Tags: risk managment
