Anti-Corruption, Business Ethics and Professional Conduct

Written by: Mohamed Sanih, Gn. Fuvamulah, Maldives

This was my first article for a resort staff newsletter and I hope by sharing, people will find it useful and helpful. I will give a brief introduction into “Anti-Corruption, Business Ethics and Professional Conduct”.

I would like to give you some clues on how to conduct yourself professionally, which adhere to anti-corruption and business ethics in general.

Organization ethical culture need to have an open door and honest policy by always doing the right thing to deliver results.

A successful business relationship whether with work colleagues or with other stakeholders will always depend on honesty and integrity of the individual and which will reflect back on the organization that person is working.

All employees need to have thorough knowledge of the codes and procedures of the company and corporate head office policy, including employee code of ethics and conduct. There should be a continuous commitment to use good judgment and common sense in trying to do the right thing and always work in the best interests of the company.

The term integrity is defined in this article as:

Having the best ethical standards, showing honesty, respect for your fellow colleagues & stakeholders and open communication (not hiding or keeping things secret which can prove detrimental or damaging to the organization).

The best Code of Conduct which I came across was from InterContinental Group, where they ask these simple questions, which if answered properly in your conscience, you will know whether it is something right or wrong?

They are as follows:

Is it Legal?

Is it Ethical?

Is it Safe?

Is it consistent with the Code and IHG’s policies and procedures?

Is it consistent with our Winning Ways?

Would I be comfortable explaining it to my friends and family?

How would I feel if it was made public in the newspapers or online?

Further, workers should not misuse, own or sell anything (including but not limited to information, confidential matters etc.) which is a property or asset of the company.

In short if I were to summarize “what is Anti-Corruption and Business Ethics?’

I would conclude by saying that it is always doing the right thing, by using your common sense and judgment on doing what is right. What you feel and what your conscience tell you to do which is the right thing.

BCG Matrix - Product Life Cycle Theory

By: Mohamed Sanih, Gn. Fuvamulah, Maldives

The BCG Matrix is a famous model developed by the Boston Consulting Group which shows the various stages in a product life cycle in a simple and understandable manner.

The BCG Matrix can be either used to measure a single product or more commonly a group of products in an portfolio which will be in the various stages of the product life cycle. e.g. some maybe a cash cow, while others maybe a problem child or question mark?

The company should decide which products needs to be abandoned, and which ones to pursue depending on various factors such as market penetration, product success, saturation of the market, low growth, cash generating, high expenditure products, research and development etc.

The BCG Matrix has four categories and they are:

1. Question Mark or Problem Child
2. Stars
3. Cash Cows
4. Dogs

• Question Mark or Problem Child

This is normally a product which has a small market share in a fast growing industry. A problem child or question mark (product) will consume a lot of cash & resources in a company (e.g. for market penetration, product awareness, etc.) than it generates. 

Products within this quadrant in the BCG matrix may remain uncertain for a number of years, during which time it may evolve into a Star (high market share / fast growing industry) or Dog (small market share / mature industry).

Most products or businesses start off as problem child and represents the biggest challenges to management. As management need to decide whether to put into the resources and huge cash reserves to make this product a success (Star) or when to put the stop limit or abandon the product before it becomes a Dog.

• Star in the BCG Matrix

The product which we think of when thinking about Stars are telecom products. If we look at any best 5 telecom companies, share of market is high but the company growth rate is much higher. Since, these two factors, there is always high competition and juggle to invest and harvest between telecom companies i.e. invest the money into new products or taking out cash from time to time.

Stars can always be taken over by another company due to high competition which capitalize on the high market growth rate. With a successful strategy a star can become a cash cow in the long term.

Star Strategies can be as follows:

-          Marketing and Sales Promos
-          Advertising
-          And Various other marketing activity

Cash cow will normally already have these strategies due to which it has resulted in the formation of the cash cow. Stars on other hand, due to high competition and high market share, the marketing strategy will of high expense with a lot of marketing activities to maintain market share, so as to gain and retain the respective market share. 

• Cash Cow in the BCG Matrix

They’re the market leaders and exhibit a return which is greater than market growth rate. Thus generating more cash than need to be expensed. The cash from such products should be harvested, extracting the profits and investing little cash as possible.

Cash from cash cows will be used to turn “problem child or question marks” into Stars, to cover admin costs, marketing costs, fund R&D development, debts and pay returns to shareholders.


Cash cows generate stable cash flow and their value is accurately determined by calculating present value of its cash stream using a discounted cash flow analysis.

• Dogs in the BCG Matrix

Dogs are generally has a low market share in a slow growing mature industry. These kind of products generally either barely generate enough cash to maintain their market share in their industry.

Even though of the fact barely getting back original investment money or making a loss it gives the social advantage of giving employments and conceivable cooperative energies that help different specialty units.

From a bookkeeping perspective such a unit is useless, not producing money for the organization. They reduce the company’s return on assets ratio, utilized by numerous financial specialists to judge how well an organization is being overseen. 


Dogs, it is thought, ought to be sold off or generally discontinued in the long term.

The BCG Matrix has two axis one for Market Growth and another for Market Share, as can be seen from the below diagram:

Example of an BCG Matrix slide can be seen below for Nestle:

http://www.valuebasedmanagement.net/methods_bcgmatrix.html

Excellent Video on BCG Matrix:

ACCA P1 Governance, Risk and Ethics: Summary Synonyms for Last Minute Exam Preparation

Corporate Governance Concepts - HAIR DRIFT

Honesty or (Probity): Create a culture of honesty & ethical stance within the organization.

Accountability: Providing comprehensive information to all concerned stakeholders and effective risk management within the organization.

Integrity: Have a high standard of strict moral and ethical values or codes.

Responsibility: Having a clear responsibility for corporate governance decisions and the clarification of individual roles and responsibilities.

Decision Taking: Take clear cut decisions to improve the wealth of an organization.

Reputation: Maintain a culture to develop reputation and moral stance and also to comply with the corporate governance concepts.

Independence: There should not be a conflict of interest between the executive directors and non-executive directors. NED's or non-excutive directors should be fully free and independent to make their decisions within the organization.

Fairness: All stakeholders should be dealt ethically and equal by the organization and should take into account their legitimate interests.

Transparency: Organization agents or directors should have an honest and open relationship with all stakeholders in their decision making process. And provide full disclosure of all material matters (whether financial or non-financial) which concern the company and this should be done in a ethical and transparent manner.

Corporate Governance Purposes -PIGCREW

Practice methods - governance provides practice methods to aid those who are managing a company
Investment - governance creates assurance and trust thereby attracting investment
Growth - governance creates conditions for growth of the economy

Control - it is set in place to control excessive behaviour in the organisation
Rules - it creates rules within which the organisation is operated
Employment - it creates employment as well as deals with several employment issues
Wealth - it supports a wealth-creating capitalist system

The role of the Chairman can be defined best by the synonym (RAISE DIP) for the ACCA P1 Paper: Governance, Risk and Ethics.

The best description can be found in Derek Higgs Report and they can be summarized as follows:

R: Run or leadership of the board and effectiveness of the board to set their roles and agenda.

A: Accurate, timely and clear information to the Board of Directors.

I: Information facilitating & contribution of the non-executive directors.

S: Self sufficiency in performing complex and difficult decisions.

E: Effective communication between executive and non-exectuive directors (NEDS) and also with the shareholders.


D: Develop and process the needs of both executive and non-exectuive directors.

I: Induction and training programs for the Board of Directors.

P: Performance evaluation of the Directors.

Role of the Non-Executive Director are as follows: ("CSSR")

Non-Executive Directors should:

C: Contribute and challenge the organizational strategy for it's continued success.

S: Satisfy themselves that the there is adequate internal controls and risk management system in place. And also that the financial information generated by the organization is accurate.

S: Scrutinize management performance and monitor the reporting of performance for meeting agreed goals and objectives.

R: Responsible for the remuneration of Executive Directors and have a major role in contractual and disciplinary measures if necessary to be taken against executive directors. And are primarily involved in removing, appointing senior management and succession planning. Also, hold executive directors to account for their actions and to represent the shareholder interest.


The following quote is taken directly from Derek Higgs Report: 

"The role of the non-executive director is frequently described as having two principal components: monitoring executive activity and contributing to the development of strategy. Both Cadbury and Hampel identified a tension between these two elements.

A number of consultation responses identified the personal attributes required of the effective non-executive director. They are founded on:

• integrity and high ethical standards
• sound judgement;
• the ability and willingness to challenge and probe; and
• strong interpersonal skills."

The role and function of the Audit Committee can be defined best by the synonym (CLARISSA) from the ACCA P1 Paper: Governance, Risk and Ethics:

The below is an summary transcript of each without an broader definition:

(CLARISSA) 

C: Create a an environment of discipline and control

L: Lend accuracy and truthfulness and credibility in the financial statements.

A: Assisting the Finance Head or Chief Financial Officer in providing a forum of communication.

R: Review and check the financial statements for quality control and accuracy.

I: Independent Review & Judgement

S: Strengthen the position of the Internal Auditor within the company and provide support to their concerns and needs and provide such information to the concerned stakeholders in an transparent manner.

S: Strengthen the position of the External Auditor within the company and provide support to their concerns and needs and provide such information to the concerned stakeholders in an transparent manner.

A: Assist in any disputes between the External Auditors and the Board of Directors and provide solution in relation to such matters.

Agency theory - directors act as agents of shareholders

Potential problem - strategy to benefit directors, not shareholders, different attitude to risk (not their investment), short-termism
Goal congruence - incentives to align interests (profit related pay and share option schemes)

Rules or principles-based approaches

Rules - SOX, legally enforced, section 404 ICFR penalises SMEs
Principles - UK Combined Code of CG, comply or explain, SMEs more leeway, not legally compulsory, market benefits or penalties for non-complier

Risk Committee - majority of NEDs, 1 - from AC, 1 - risk expertrole

Assess ICs
Performs risk assessment of key operations
Oversees implementation and effective operation of risk strategy

Nomination committee - majority of NEDsrole

Identify appropriate people to join board
Determine packages and their compositions for prospective EDs

Remuneration committee - majority of NEDsrole

Determine appropriate packages and their compositions for EDs
Cross directorship and cross shareholdership are prohibited

THE TURNBULL CRITERIA TO ASSESS THE NEED FOR INTERNAL AUDIT

CCC PINS

C: Cost-benefit considerations
C: Changes in organisational structure
C: Changes in key risks

P: Problems with internal control systems
I:  Increased number of unexplained or unacceptable events
N: Number of employees
S:  Scale, diversity and complexity of the company’s operations

Turnbull guidance for sound ICs (sound = effective)

Principles of ICs embedded to activities (not stand alone)
Quickly response to risks
Immediate reporting to man-t

Public sector organisations

Hospitals, schools, local government authorities, state-controlled companies, NGOs
Purpose - implement government policy. It cannot be left for profit (eg. loss-making route may be retained to support economic development in a region)
Focus - value for money (EEE)
Agency relationship - man-t as an agent for taxpayers
Problem - strategic objectives hardly to define and monitor their achievements

Charities & voluntary organisations
Accountability relationship - charity - donor - purpose of donation and actual use of it


Risk


Strategic risk

responsible - board
arises from fundamental decisions related to organisation's objectives
Business and Non-business
Business - product and service related (marketing and development, economic risk, technological risk)
Non-business not related to product and service (long-term financing)

UK Cadbury report - matters:
significant acquisition and disposal
investments
capital projects
treasury policies

Managing - if problem is global (raw material supplier uncertainty), - not avoided in short term, - redesign production - reduce or eliminate risk in long-term
Avoid risk - lost business opportunity - competitor may take up these opportunities and boost its business

Operational risk
responsible - risk committee - line managers - employees
arises from internal resources, systems, processes, employees risks
stoppage line - machine failure
key staff leaving - dissatisfied
lost of sales - poor quality

Managing - controls to detect or correct problem - to reduce or eliminate risk

Guide to risks - FROP LIFE

Financial risk
Reputation risk
Operational risk
Product risk

Legal & political risk
Information technology risk
Fraud risk
Entrepreneurial or economic risk

Risk framework - ALARM

Appetite
List (risk register)
Assess (TARA)
Response
Monitor

TARA

High probability * High impact = Avoid
High probability * Low impact = Transfer
Low probability * High impact = Reduce
Low probability * Low impact = Accept

ERM model COSO's enterprise risk management 8 components

1 - Internal environment - tune of organisation influencing risk appetite, attitude to risk man-t & ethical values (criticism - external environment ignored)
2 - Objective setting - to support company's mission (consistent with risk appetite)
3 - Event identification - which may affect achievements of objectives. Negative impact - risks, positive impact - opportunities
4 - Risk assessment - probability and impact of risks
5 - Risk response - reduce, accept, transfer, avoid
6 - Control activities - policies & procedures to check effectiveness of risk responses
7- Implementation & communication - data - man-t & staff responsibility
8 - Monitoring - modified if necessary

Ethics

Gray, Owen & Adams - 7 positions on CSR
PRESSSD

Pristine capitalist - shareholders most important
Radical feminist - do not fellow male dominate, soft treatment of female
Expedients - opportunities for business > SR is secondary
Social contract - entity exists till it serves the society
Social ecologist - recognise social & environmental footprint
Socialist - SR is first, good production is second
Deep ecologist - attention to nature, save planet for the future generations

Pristine capitalist:

• underpinning value is shareholder wealth maximisation.
• anything that reduces shareholder wealth (such as acting in a socially responsible way) is theft from shareholders.

Radical feminist:

• society and business should be based on feminine characteristics such as equity, dialogue, compassion and fairness.

Expedients:

• recognise some social responsibility expenditure may be necessary to strategically position an organisation so as to maximise profits.
• this is back to the concept of 'enlightened self-interest'.

Proponents of social contract:

• businesses enjoy a licence to operate granted by society so long as the business acts in an appropriate way.

Social ecologist:

• recognises that a business has a social and environmental footprint and therefore bears responsibility for minimising that footprint.

Socialist:

• actions of business are those of the capitalist class oppressing other classes of people.
• business should be conducted so as to redress imbalances in society.

Deep ecologist:

• humans have no more intrinsic right to exist than any other species.

AAA model
FEN ABCD

Fact
Ethic
Norm

Alternative course
Best course
Consequence
Decision

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tucker's model - 5 questions

Please Look For Red Shoes

Profitable?
Legal?
Fair?
Right?
Sustainable? (or environmental)?

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mendelow framework
influence of stakeholder = Power * Interest

Low power * Low interest = Minimal effort
Low power * Hight interest = Keep informed
High power * Low interest = Keep satisfied
High power * High interest = Key players

Instrumental & normative motivations of stakeholder theory

Instrumental - take into account stakeholders opinion only if they are consistent with other, more important objectives (profit maximisation, gaining market share, etc.)

Normative - Kant's theory based, moral framework, see shareholders as ends in themselves, not to achievements of other ends)

Category of stakeholders - PINK LAVR

Primary / secondary
Internal/ external
Narrow / wide
Known / unknown

Legitimate / unlegitimate
Active / passive
Voluntary / involuntary
Recognised / unrecognised

Approaches to Corporate Social Responsibility (CSR) - PRAD

Proactive - promote interests of stakeholders & stakeholders
Reactive - avoid CSR, try to hide from stakeholders / society
Accommodative - balance the interests of shareholders with other stakeholders
Defensive - rely only on legally established rules to take minimal CSR

Corporate Social Responsibility (CSR) - PELE

Philanthropic - what is desirable?
Ethics - what is right?
Legal - compliance with law
Economy - focus on profitability

Kohlberg's stages of moral development

3 levels (6 stages)

Level 1 - Pre-conventional
1. Obedience & punishment orientation (How to avoid punishment)
2. Self-interest orientation (What's in it for me?)

Level 2 - Conventional
3. Interpersonal accord & conformity (social norms, good boy/girl attitude)
4. Authority & social-order maintaining orientation (Law & order morality)

Level 3. Post-conventional
5. Social contract orientation
6. Universal ethical principles


Pre-Conventional Level:

Stage 01: is generally found in the elementary school level where people behave according to generally accepted norms. Because they are ordered to do so by someone with authority e.g. school teacher or their parents and non-obedience is generally met with punishment.

Stage 02: is where they behave according to their own interests so that they are rewarded. E.g. a parent may encourage a child with potential rewards for good behaviour or grades.

Conventional Level: Generic norm of thinking within our society.

Stage 03: Good boy / girl attitude where the approval others are sought so as to be accepted within the society or culture.

Stage 04: Obedience to law and order as an obligation by an responsible corporate citizen.

Post-Conventional Level: This level of thought or moral attitude are not reached by most individuals within our society as per Kohlberg.

Stage 05: Social Contract is mutual dependence and having an genuine interest in the betterment & welfare of others in general. Have a understanding between moral and legal rights and the recognition that rules should not be followed where it is deemed ethically & morally wrong.

People believe that rules & regulations should exist for their general good and where this is deemed otherwise, under Social Contract obligations they must be broken.

Stage 06: Principle Conscience is where universally accepted ethical principles are followed and this may sometimes not fit the law. Examples of such are: Human Rights, Justice and Equality. Some individuals will be prepared to break the law, in order to defend such principles.


http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Theories%20of%20Corporate%20Social%20Responsibility.aspx

Ethical Theories: Absolutism and Realavitism similar to Deontological and Teleologocal - ACCA P1

PRINCIPLES > ACTIONS > OUTCOMES

Absolutist……………………Relativist
“it’s always wrong to steal”…….. “Robin Hood was Ethical.”
Absolutist and Relativist are two categories of ethical decision making:

Absolutist: Actions are ethical if they follow moral principles of right and wrong (e.g. the 10 commandments). The outcome of the decision is not considered. E.g. the statement, “It’s wrong to steal,” is following an absolutist approach to ethics.

Relativist: The outcome of a decision determines if it is ethical–principles are ignored. E.g “Robin Hood was Ethical–he stole from the rich, and gave to the poor.” No mention of principles, only the outcome–that he helped poor people. This is a relativist approach.

Deontological: This is in the absolutist category–ethics based on an “inner sense of duty” to follow a moral code. (Another absolutist approach would be the “normative” approach towards stakeholders, which also comes up in the exam.)

Teleological is in the relativist category (you could argue these terms are actually synonyms). What is ethical is either (a) what is best for me, or (b) what is best for society. (the instrumental view towards stakeholders is another example of a relativist approach).

You can explore these concepts more deeply by looking at Kant and other theorists. But for P1, it’s more important that you can dissect the case study and explain which of the characters is taking the absolutist approach, and which is taking the relativist approach, and why.

Copy Extracted & Retrieved from: 

http://opentuition.com/topic/ethical-theories-2/

Kohlberg's Three Levels of Moral Development

Lawrence Kohlberg was an Harvard University professor, and is famous for his work on the theory of moral development, which became popular via his research work during his time in Harvard Moral Education Center.

Kohlberg said that most people progressed with their sense of moral reasoning in relation to ethical behaviour through three stages or levels.

These three stages can be further broken down into six identifiable levels, but mostly generalized as three stages.

This article will be useful for students studying the ACCA P1 Paper: Governance, Risk and Ethics.

Kohlberg's classification can be outlined in the following manner:

Pre-Conventional Level:

Stage 01: is generally found in the elementary school level where people behave according to generally accepted norms. Because they are ordered to do so by someone with authority e.g. school teacher or their parents and non-obedience is generally met with punishment.

Stage 02: is where they behave according to their own interests so that they are rewarded. E.g. a parent may encourage a child with potential rewards for good behaviour or grades.

Conventional Level: Generic norm of thinking within our society.

Stage 03: Good boy / girl attitude where the approval others are sought so as to be accepted within the society or culture.

Stage 04: Obedience to law and order as an obligation by an responsible corporate citizen.

Post-Conventional Level: This level of thought or moral attitude are not reached by most individuals within our society as per Kohlberg.

Stage 05: Social Contract is mutual dependence and having an genuine interest in the betterment & welfare of others in general. Have a understanding between moral and legal rights and the recognition that rules should not be followed where it is deemed ethically & morally wrong.

People believe that rules & regulations should exist for their general good and where this is deemed otherwise, under Social Contract obligations they must be broken.


Stage 06: Principle Conscience is where universally accepted ethical principles are followed and this may sometimes not fit the law. Examples of such are: Human Rights, Justice and Equality. Some individuals will be prepared to break the law, in order to defend such principles.


I have shown some examples below for better clarification and understanding:

Sources:

https://explorable.com/theory-of-moral-development

https://en.wikipedia.org/wiki/Lawrence_Kohlberg's_stages_of_moral_development

http://www.simplypsychology.org/kohlberg.html

https://www.csudh.edu/dearhabermas/kohlberg01bk.htm

References

Bee, H. L. (1994). Lifespan development. HarperCollins College Publishers.

Colby, A., Kohlberg, L., Gibbs, J., & Lieberman, M. (1983). A longitudinal study of moral judgment. Monographs of the Society for Research in Child Development, 48 (1-2, Serial No. 200). Chicago: University of Chicago Press.

Gilligan, C. (1977). In a different voice: Women's conceptions of self and of morality. Harvard Educational Review, 47(4), 481-517.

Kohlberg, L. (1958). The Development of Modes of Thinking and Choices in Years 10 to 16. Ph. D. Dissertation, University of Chicago.

Kohlberg, L. (1984). The Psychology of Moral Development: The Nature and Validity of Moral Stages (Essays on Moral Development, Volume 2). Harper & Row

Piaget, J. (1932). The moral judgment of the child. London: Kegan Paul, Trench, Trubner & Co.

Rest, J. R. (1979). Development in judging moral issues. University of Minnesota Press.

Rosen, B. (1980). Moral dilemmas and their treatment. In, Moral development, moral education, and Kohlberg. B. Munsey (Ed). (1980), pp. 232-263. Birmingham, Alabama: Religious Education Press.

Strategic Risk Management within an Organization

By: Mohamed Sanih, Gn. Fuvamulah, Maldives

What is Risk Management?

Organization should be able to identify and mitigate risks prior to their occurrence and have a strategy in place to deal with most possible scenarios or outcomes, where the probability of such risk occurring is high or medium.

Improper or poor handling of a major risk incident within an organization could ultimately result in it's failure or demise.

This article will be useful for students studying the ACCA P1 Paper: Governance, Risk and Ethics.


Various Definitions of Risk Management exist and i am going to highlight a few which i came across during my research:

Risk can be defined as: 

• Hazards / Safeguards (Hazards over safeguards or controls in place within the organization)

• Likelihood / Consequence (Likelihood of its occurrence Vs. the consequence of such an incident happening)

• From Wikipedia: Risk is any particular type of hazard (H), which is equal to probability (P) multiplied by it's consequence (C) of occurring. (H)= (P)*(C)

• Risk= Uncertainity*Consequence. Risk can be also defined as the potential uncertainity of something occurring and the subsequent consequence of such hazard. 

Best tool to measure risk management within an organization is the Risk Matrix:

Let's define some the terms mentioned above:

Likelihood of Occurrence: is the probability of such an incident occurring within the organization.

Negligible: means we can either ignore it or the incident is very minor and not of material value.

Marginal: means, several minor injuries or loss to the company and is not very material.

Critical: means: death of an employee or worker with a major loss or public or media backlash to the organization.

Catastrophic: is when the company will file for bankruptcy or there is several deaths of employees and the recovery process from such an incident is unlikely and will result in the ultimate demise of the company.

Now the question arise:

How do we mitigate such risk? Or 

Minimize / Reduce such risk within an organization?

The best approach is the TARA model, where we can either Transfer, Avoid, Reduce or finally Accept such risk by the company.

TARA can be best described as:

T: Transfer the risk if:    High probability * Low impact 

A: Avoid the risk if:       High probability * High impact

R: Reduce the risk if:    Low probability * High impact

A: Accept the risk if:    Low probability * Low impact

Transfer of Risk: occurs when an company wants to wholly or partly transfer the risk to another party e.g. third party and so that in the event of an adverse consequence the organizational doesn't suffer a loss or damage. And the third party bears the loss or damage.

      Example: of an transfer of a risk by the company is by taking out an insurance policy for protection against possible losses.

This is an company strategy where the risk is shared, and this can also be done via the use of joint-ventures or franchises where the business risk is shared or transferred.

Avoidance of Risk: A company can choose to avoid an risk by not investing in an risky venture or business proposal or area completely or in the case of non-profit organizations the activities they undertake.

Business risk is unavoidable in joint ventures or franchises however, as mentioned above they can be avoided only by not investing in an risky venture or business proposal or area.

Reduction of Risk: Risk can be reduced in three possible ways which is by:

• Risk Minimization: Organizational controls implemented to reduce risks but this will not prevent them from happening. However, this will reduce the risk of impact.

• Risk Pooling: Pooling of risks is to combine the business risk from various transactions and some make a loss and some make a profit. Although they are treated as part of the same portfolio of risks and overall risks or loss or profit is measured. A typical example can be a stock market portfolio or various company shares traded on a stock exchange, where some make a loss but others may make a profit but the overall portfolio makes a profit or gain for the organization and by the combining the risks of the portfolio or pooling of risks the potential loss for the company is reduced.

• Reduce the Financial Risk: Techniques such as hedging can be used to avoid a future loss or risk for the organization. Example: In negotiating a long term contract with a client we can have a fixed price in order to avoid market volatility and eliminate or reduce the price risk with reasonable price variation clauses for the benefit of the other party.

• Forward exchange contracts and fixed price contracts for transactions which occur in the future are commonly use for the purchase or sale of business currency transaction one for another.

Acceptance of Risk: The last option is to simply acceptance of such risk and the possibility of it occurring. The organization should have a proper plan and strategy in place for dealing with such risks.

Acceptance of risk occur when the damage to company is minimal or is negligible and can be ignored or accepted. This can be best evaluated via the risk matrix shown above.

Examples of Acceptance of Risk are:

Employee being absent to work, there is an always an risk of an employee being absent to work or not coming to work. This is an risk which the company has to accept and have a tolerable level against.

Another example can be a change in weather or if it rains or snows, there is always a risk of change in weather, according to monsoons and seasons, unless the business cannot operate when the weather is bad, the risk is normally not insured against. 

Creating an Risk Management Strategy & Map

It is critical and vital to an organization that they have adequate and appropriate internal controls and a proper risk management strategy in place, which ensures the long term success of the company.

A company should always consider the following Macro Risk Factors, best analyzed through an PESTEL analysis, when considering company risk management strategy:

The company should also consider the Risk Factors within their Industry and this can be best analyzed through Porter's five forces:

The company should also consider the Risk Factors within the company and this can be best analyzed through SWOT Analysis:

Organization Risk Map:

This can be useful way to determine the risk factors and areas within an organization, below is another example of an TARA Map:

TARA: Transfer, Avoid, Reduce or Accept risk by the company:

Sources:

http://smallbusiness.chron.com/business-risk-measurement-methods-68122.html
https://www.mindtools.com/pages/article/newPPM_78.htm
http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Risk%20management.aspx
https://en.wikipedia.org/wiki/Risk_matrix
http://www.hkarms.org/web_resources/20101116_risk_matrix_hkieb_print.pdf
http://www.brighthubpm.com/risk-management/88566-tool-for-assessing-project-risk/