Major Risks That Face An Organisation

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SW Translations is a small translation company operating for 50 years with its headquarters in Slough, UK. It employs two people and has a network of 1.400 freelance translators. According to financial data its turnover for year 2009 was approximately 120.000. SW Translations has loyal clients in the field of energy companies and public authorities. My role in the specific company is that of the Business Development Manager.

According to Bartlett et al. (2007, pp.94-97), some of the most significant risk identification techniques regarding risks surrounding a company are: "checklists, prompt analysis, brainstorming, interviews, SWOT analysis etc".

For the purposes of this specific company the author chose to proceed with the checklist approach and the SWOT analysis.

One of the most characteristic checklists is the one: "(...) provided in the Boardroom Briefing to the Turnbull Report" (Coyle, 2004, p. 34). According to this checklist risks are categorized into four categories, namely business or strategic risks, financial risks, compliance risks and operational and other risks.

As far as the specific company, SW Translations is concerned, after carefully examining its situation in comparison to the Turnbull checklist what arises is that it faces business, financial and operational and other risks. The category compliance risks does not apply to this company as it is a small one, so it is not listed and moreover there is no possibility of breaching any regulations as this would mean the end of the company in terms of bad publicity.

Regarding business risks, the most important risk that this company is facing is the fact that it has no business strategy and relies mainly on its network of friends to provide the translation jobs. The fact that most of its friends are old is not assisting the situation for the fact that they will retire in a few years' time means that there is no real future for the company.

Furthermore, there is an extreme competitive pressure regarding price and market share that is particularly significant for small companies such as this one. This pressure increases with the dynamic entrance of technology in the translation industry because with the use of it, namely machine translation and terminology memories such as Trados and Deja Vu, which are mainly used by younger translators, prices decline. The fact that this translation agency does not use such technology and its translators' network includes mostly older translators is not helpful at all for its business performance.

A third risk facing this company is that it is too slow to innovate so that it differentiate from the other companies and acquire a competitive advantage. Its turnover is too low for it to be used in investments and expansion and the owner's will to retire in two years means that there is low interest for the company's expansion and innovation.

Moreover, the turnaround time of project requests is really high as the new Office Manager of the company has to advise the owner and director of the company in order to proceed to any business operation. In this particular industry time is of extreme importance as it takes a few minutes to acquire or lose a new job as competitors are waiting to take the chance.

As far as financial risks are concerned the first risk to play an important role for SW Translations is the market risk where one can observe market fluctuations. For example, the credit crunch has affected this industry as it has affected others and companies such as this should anticipate this kind of factors.

Additionally the increase and decrease of foreign exchange rates affects this industry as freelance translators as well as translation agencies may revise their acceptance of foreign currencies in order to benefit from this situation or to prevent an eventual loss.

As it appears by the balance sheets of SW Translations this company misuses financial resources because although it has a quite high turnover the net profit is extremely low. This is owed to the fact that the power of suppliers, in this case freelance translators is high as the company depends solely on freelance translators, who take advantage of their expertise and availability and charge really high rates. As a result, two thirds of the turnover is the cost of sales, which does not allow any investment or expansion possibility for the company.

One more category of financial risks that this specific company faces is going concern problems topped with decisions based on incomplete or faulty information. The fact that the owner is in retirement age and moreover wants to relocate to another country does not allow him to face the company's going problem. For the last three years the company is in decline but the owner is not willing to change his way of thinking so he continues to believe that everything is fine. If he checked the industry's environment challenges, analyzed balance sheets or took advice from financial experts the situation would be quite different.

Finally, concerning operational and other risks there is a wide scope to analyze. Regarding translation companies, what is really important to examine is project risks because the client's reliability, the project difficulty, the necessary software for the execution of the project as well as the word count, the deadline and human resources in general are of extreme significance to the survival of translation companies. Each of these risks has to be faced so that the final product is successful.

One further operational risk of SW Translations is that the owner is not familiar with new technology and this is an impediment to the normal operation of the company. One specific example is that he does not have a mobile phone so the Office Manager cannot reach him in cases of business emergencies.

Furthermore, the company's business processes are not aligned to customer/market demand as the company remains bound to a Paleolithic way of operating with hard copies of translators' resumes and folders in contrast to other translation companies, which work under fully automated processes so they decrease turnaround times to the minimum. For example, project managers do not have to dig out from folders the technical translators' contact details and rates as they already have electronic databases at their disposal.

Moreover, the owner of SW Translations has lost his entrepreneurial spirit and misses or ignores business opportunities as he is at an age where he only thinks about his retirement to another country and his entertainment. In addition he receives income from property lease so he does not rely mainly in the translation company in order to worry about its future.

Concerning brand management, although this company operates for 50 years, the owner does not take advantage of the brand name in order to advertise and expand his business. He is based only on word of mouth advertisement. And apart from this he is over relying on his key translators and clients. Especially in the case of clients, 85% of the company's turnover derives from three major clients; therefore if any one of them decides to stop cooperating with this translation company it will face definite destruction.

According to the SWOT analysis about SW Translations one can see that there are quite enough opportunities for this company to change its situation and expand. First of all the company can change its entire mentality and come into contact with new technology aiding translation projects such as a modern website that can offer the clients an online quote about their translation demands and generally follow a dynamic expansion. Furthermore, the company can expand its network through appropriate marketing and advertisement that has not done so far. Lastly, it can apply for membership to various professional translation associations, which can add to its status and attract more customers.

As far as threats are concerned, the most important of all is the company's persistence to operate in a dated and old fashioned manner, which does not allow its entrance into the new era and its development subsequently. Adding to this is the fact that the major percentage of turnover in the translation industry is acquired by large translation companies belonging to groups of companies (reference); therefore there is little room for small companies to gain an adequate share of translations. Moreover the fact that there is a low barrier to entry permits many new small companies to enter this industry and attract clients as there is no switching cost for them.

Undertake a structured assessment, using perhaps, a risk map or risk matrix of the impact of the particular risks and the likely occurrence of these risks.

According to Ansell and Wharton (1995, p.7) "The process of estimating the probability and size of possible outcomes, and then evaluating the alternative courses of action is one of risk assessment". If one classifies risks according to their probability they can be divided into: frequent, likely, occasional, seldom and unlikely. If on the other hand, one uses impact to classify them there can be categories such as: extremely high risk, high risk, moderate risk and low risk (Bartlett et al., 2007). There is a risk map that combines the probability of risks with their impact and allows a researcher to assess the importance of each risk and how he/she must react to it.

For the purposes of SW Translations the author of this specific assignment drafted a Risk Assessment Table (Appendix 2) where risks were rated according to their probability and their significance to the company. The rates of risks were subsequently inserted in the table below combining their probability and impact (South Texas College, 2008).

Risk Assessment Matrix

PROBABILITY (1-5)

IMPACT(1-10)

Frequent (5)

Likely (4)

Occasional (3)

Seldom (2)

Unlikely (1)

Extremely High Risk

9-10

14,15

1,5,9,11,13

High risk

6-8

4,8

2,3,7,10,12,17

6,16

Moderate Risk

3-5

Low Risk

1-2

According to both tables, risks characterized as extremely high and frequent are:

Owner lost his entrepreneurial spirit Company's business processes are not aligned to customer/market demand.

Owner misses or ignores business opportunities.

The next category according to the table above is extremely high risks but likely:

No business strategy

Turnaround time of project requests.

Going concern problems.

Project risks.

Company's business processes are not aligned to customer/market demand.

Both these categories are extremely risky, which means that they have to be controlled so that they do not threaten the company's future. Therefore there have to be evaluations and testing to find appropriate solutions for them. If this does not happen in the near future then the company's problems will increase and this may lead to disaster.

Regarding the remaining risks, one can notice that they fall in the category of high risk but the probability of them happening varies from likely to seldom. This means there should be a situation between detecting and monitoring before moving to preventing them. As a result, the risks mentioned below are not the first priority of the company:

Too slow to innovate.

Misuse of financial resources.

Dynamic entrance of Technology

Decisions based on incomplete or faulty information

Owner not familiar with new technology

Over relying on his key translators and clients

Competitive pressure

Foreign exchange rates

Brand management

In conclusion, what one can understand from the risk identification and assessment parts above, SW Translations is a company that faces and will face in the near future high risks. This is mainly owed to the owner's denial to adjust to the new reality and adopt modern management methods. The fact that he intends to retire soon has influenced the entire company as there is no possibility of growth.

Part B

3. Formulate strategies for taking advantage of the opportunities, or strategies for controlling the identified threats that you have identified and discussed in Part A.

In terms of literature surrounding strategies to take advantage of opportunities or control threats, there is a plethora of options and methods that can apply from the largest company to the smallest one. Regarding SW Translations and according to the risk identification and assessment drafted for the purposes of the specific assignment, this company will face a series of threats but there are also opportunities to take advantage of.

Coyle (2004) supports the latest method for risk controlling is the Enterprise Risk Management (ERM), where companies decide to "measure, control and manage all risks of the organization across all risk categories and product lines" (Coyle, 2004, p.79). Specifically for SW Translations, the risks identified are controllable risks, namely those risks that relate to "poor management and supervision, a lack of organization and communication, poor procedures and policies and operational errors" (Coyle, 2004, p.80). In order for the company to avoid the risks identified or reduce their impact it should handle them at source. In other words, the company should change its overall policy and mission so that it confronts with the root of problems.

As mentioned in Part A of the assignment, the highest risks for SW Translations are the owner's loss of entrepreneurial spirit and the fact that he misses or ignores business opportunities. These two risks are difficult to be prevented from obstructing the company's future as the owner has to change his entire mentality in order to stop destruction from happening.

However, for the purposes of this specific assignment the author will not take into consideration that the owner wants to sell the company and retire and it will be supposed that he really wants the company to develop. Therefore the author will take as granted that the owner of the company has renewed his interest in the company's success and will handle threats to company and exploit opportunities.

Enterprise Risk Management is what this company should apply since it has to deal with a number of risks and tackle them all in order to change its entire dynamic. As a result, the owner of SW Translations will develop controlling methods for every risk threatening the company's future.

First of all, there has to be a clear business strategy so that both the owner and the manager of the company know what they want this company to achieve and decide what to do to handle it. If there is a clear vision and mission, there will be no misunderstandings as to the way the company has to operate efficiently.

The second step is to allocate responsibilities in order for each person to know what he/she is responsible for. This way, risks such as high turnaround time of project requests will seize to exist. The manager will decide on her own and will not need the owner's approval to proceed to a project; therefore the quote to the prospective clients will be delivered in half the time it needed previously. To this method of risk control, risk transfer may also apply since it "involves passing on the responsibility for bearing the impact of a threat to another party" (Bartlett et al, p. 110). Since the company's manager has better methods to handle the turnaround time of projects this means that the risk will be reduced.

The company's procedures will have to be reinvented as they do not contribute to any efficiency and they threaten to bring about project losses. The new technological opportunities will be of great assistance in controlling this particular threat to the company. The archiving of files as well as the entire project handling will have to be automated to the point that it will decrease waste of working time by the manager. In other words, instead of trying to dig out translators' resumes from old files she can deal with more significant issues such as the business development.

In addition, in terms of opportunity exploitation, the owner should strategically respond to competitive pressure and find the way to decrease translations' expenses and delivery time. The most expensive and time consuming factor is the fact that the company cooperates with freelance translators who are generally expensive. This can be handled strategically, if the company hires at least one in-house translator who will deal with the most demanded language combination and will be remunerated at a lower level than freelancers do. This will also solve the problem of turnaround time, as for the specific language combination the company will not have to wait for a freelancer to be available.

Finally, the owner of SW Translations should stop relying only on his network of acquaintances to attract customers and start using marketing and advertising tools to expand to new markets. The fact that the company's manager is young and willing to deal with such issues facilitates this strategy. If tools such as Search Engine Optimisation (SEO) or participation to professional associations and conventions are used then the company's name that exists for over fifty years will be ideally exploited.

In general, what experience shows and as Bartlett et al (200, p.) support "(...) proactive approaches produce a more effective control over risk than an exclusive reliance on reactive approaches". Therefore, it is better to handle a problem before it becomes gigantic or affects other operational areas than to try and limit its effect after its manifestation.

4. If a director/ executive/ manager of your organisation was heard to say, "All of this governance regulation, reporting and form-filling is a waste of time. Of course the stakeholders can rely on the directors/ executive/ managers to take care of their interests. All of this extra paperwork only encourages us to take our eye off the organisational strategy and probably leads to greater risk for stakeholders."

Indicate how you would respond to this hypothetical statement concerning the relevance of governance regulation.

If a director/ executive/ manager of my company expressed the opinion that governance is a waste of time and leads to greater risk for stakeholders I would try to convince him/ her that it is not true since both theory and practice have proved otherwise. According to Bartlett et al (2007, p.61): "Risk governance is the ability to review and control the results of risk management activities in relation to a project, a programme of projects or the business as a whole". Therefore, as it appears by the definition alone it is of great importance to apply risk governance procedures to a company if the desirable result is for everything to operate smoothly.

Following respective literature research it becomes evident that companies are under pressure by governments to incorporate due diligence in their practices and governance will surely assist as it will prevent the negative effects of risks that would appear in a due diligence control. Especially after collapses of companies such as Enron and Worldcom, corporate governance has obtained greater importance on the part of shareholders as well as stakeholders. Attempts of institutions to set regulations for the protection of stakeholders and shareholders were the Combined Code that was issued in 1998 or the Cadbury Report of 1992 and the Greenbury Report of 1995 (Financial Reporting Council, 2009).

There are companies that do not apply any form of governance but operate under the wishes of the owner. This is most usual in the cases of small companies such as SW Translation mentioned in Part A of the assignment. It has been proved however that the fact that there were no particular methods to deal with clients' requests, translators' difficulties and other issues had a purely negative effect on the company's performance. This is the result of people thinking that governance is a strict control of their actions and just report drafting and form-filling that wastes managers' precious time.

The purpose of corporate governance is not to control managers/ executives/ directors because they may engage into fraudulent actions but to make sure that the interests of stakeholders will not be negatively affected. Sometimes even if the directors act upon good intentions they fail to take into consideration possible risks stemming from some investments. Efficient corporate governance is a way to avoid such circumstances.

Stakeholders can assist managers in employing efficient corporate governance. However in order for this to happen as Hess (2007, p.471) maintains "To have meaningful stakeholder engagement requires that we first have a robust information-based transparency policy with comparable data". If stakeholders have access to essential information then they will be able to provide their insights on possible strategies for the company to perform under success mode. This will also take some of the burden from the managers/ directors/ executives' and allow them to deal with organizational strategy more efficiently since they will not have to wonder if their strategies will ensure stakeholders' interests as they will have a more immediate response from them.

If risks are managed and there is internal control there are few things that can harm a company without the managers/ executives/ directors noticing. However, as Coyle (2004, p. 252) supports "The review of controls by the board of directors (…) should include operational controls, controls to ensure compliance with laws and regulations and risk management (…)". As a result, it is not enough to check the finances of a company but operational and law compliance controls should occur regularly.

Many large companies appoint audit committees inside their company to control operations, finances and law compliance. This is an effective way to release managers from the burden to prepare reports of various forms. However, this does not mean that they do not have to deal with governance at all. The final responsibility lies upon them and they have to be part of decision making. Committees just prepare what managers should analyze to serve the purposes of stakeholders.

Therefore the answer to the question would be to appoint some experts to deal with the preparation of reports so that managers would not be distracted from organizational strategy without there being reason but still make sure that the managers understood that the final decision and responsibility would lie in their hands. To conclude, efficient corporate governance certifies that there is transparency in the business environment, which enables stakeholders to know who to blame for a possible loss or who to congratulate on a possible success. Lastly, it is worth mentioning that although corporate governance appeared as a way to control large corporations, in essence it can be a useful tool for companies of any size and type, if their purpose is efficient business performance.

Appendix 1

SWOT ANALYSIS

STRENGTHS

Established company for many years

3 major clients (Alphatrad, GE, CWGC)

Personal character

Loyal translators

WEAKNESSES

No advertising (dated and dysfunctional website)

Dramatic drop in figures (lost all its automobile clients)

3 major clients (Alphatrad, GE, CWGC)

No in-house translators= danger of losing clients as there is no exclusivity by our network of freelance translators

No cooperation with pharmaceuticals

No contact with technology (loss of projects and working hours)

OPPORTUNITIES

Expansion of network through appropriate marketing

Membership to various translation associations

Change of the company's mentality ( dynamic expansion, technology, online quotation)

THREATS

Economic crisis

Major translation groups

Technological advancements (Trados, DejaVu)

Appendix 2

Risk Assessment Table

A/A

Risk

Impact (1-10)

Probability (1-5)

1

No business strategy

10

4

2

Competitive pressure

7

3

3

Dynamic entrance of Technology

8

3

4

Too slow to innovate

8

4

5

Turnaround time of project requests

9

4

6

Market risk

6

2

7

Foreign exchange rates

7

3

8

Misuse of financial resources

8

4

9

Going concern problems

9

4

10

Decisions based on incomplete or faulty information

8

3

11

Project risks

9

4

12

Owner not familiar with new technology

8

3

13

Company's business processes are not aligned to customer/market demand

9

4

14

Owner lost his entrepreneurial spirit

10

5

15

Owner misses or ignores business opportunities

10

5

16

Brand management

6

2

17

Over relying on his key translators and clients

8

3

References

Ansell, J. and Wharton, F. (1995) Risk: Analysis, Assessment and Management. Wiley Publishers: England.

Bartlett, J. et al. (2004) Project Risk Analysis and Management Guide. 2nd edn. APM Publishing: England.

Coyle, B. (2004) Risk Awareness and Corporate Governance. 2nd edn. Institute of Financial Services: United Kingdom.

Financial Reporting Council Available at: http://www.frc.org.uk/corporate/combinedcode.cfm

Accessed: 01.12.2009

SOUTH TEXAS COLLEGE (2008)Risk Management Process [www].Available from:http://finance.southtexascollege.edu/businessoffice/forms/roundup/AARoundup_03.26.08_Risk_Mgmt.pdf

[Accessed:17/11/09]

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