The Impact Of Risk Management On Organization Efficiency (A Case Study Of Dunlop Nigeria Plc)

The Impact Of Risk Management On Organization Efficiency (A Case Study Of Dunlop Nigeria Plc)
Abstract
This research was purposely carried out to appraise the Impact of Risk Management on Organization Efficiency as its being operated in Dunlop Nigeria Plc. The aim was to find out the kinds of Risk threatening the operation of manufacturing industry as in the case of Dunlop Nigeria Plc, and how risk are identified, measured or evaluated and how they are being handled and transferred to the insurance companies. The first chapter of the study dealt with the introduction of the research work where emphasis were placed on general introduction of the area of enquiry and statement of problem, objective of the study and hypothesis were all dealt within chapter one. In chapter two, review of related literature is dealt with while chapter three was designed to research methodology, research designed, population and sample instrumental, data collected and statistical analysis was not left out. The chapter four, data collection through the questionnaire were thoroughly analyze and finding were properly presented and for working earlier formulated hypothesis in chapter one were tested. Chapter five was conclusion with major research findings.
Chapter One
1.0 Introduction
1.1 Background of the Study
This is the age of experts. The amount of human knowledge has become accumulated at such a rate that greater specialization has become both a necessity and the pride of the experts. This pride has all too often led to the specialist erecting a fence around his own small property in the world of ideas; but fences that are too high to let neighbour see, it can also have the disadvantage of being too high for the householder to see what his neighbours are doing.
There comes a point, therefore, when it becomes an essential for someone to take a wider view and to point out that all these carefully separated properties are in fact` part of a single community. “Risk Management” is the result of our such wider view developed by some foreseeing insurance, who took the necessary step back from their particular specialization to realize that their work and that of many others, insecurity, fire prevention, health and safety and work, economics law, management and a wider range of discipline, all had something in common. Each was concerned to a greater or lesser extent with risk and identifying it, evaluating it, minimizing it, or dealing with its consequences.
Risk management, therefore sought from the start to bring together again an essentially simple concept which had become complicated out of all recognition by its fragmentation into separate discipline, the practitioners of which each had a few interlocking parts of the jigsaw and believed they had the whole picture.
Intellectual exclusiveness had played its part in this fragmentation, but to a large extent it was implicit in the development of human society. For primitive man, there was a clear link between the correct appraisal and treatment of the risks that threatened him and his survival. Broadly speaking, this awareness of the balances between risk and security in all he did was apparent to the individual until comparatively recent times. Industrialization, the division of labour and the advance of science and technology have however made it increasingly difficult to identify the risk threatening his personal safety or his economics well being. Risk management as an integrated procedure still much more often talked about the practiced, but there are encouraging signs that co-operation is replacing competition between some at least of those responsible for the practical implementation of various aspects of risk treatment. Similarly, in the financial sphere, there is growing recognition that conventional insurance is not the only, nor always the most appropriate way of providing for loss.
The new understanding that risk does not respect administrative demarcation lines has necessarily created new techniques. There is little that is new about the contents of most of these techniques for in many cases, they have long been used by one or other of the various specialists in the fragmented work of risk treatment. The novelty lies in their application to the field of risk as a whole and in the combination of different measures drawn from disciplines which in the past have had little to do with each other.
Since every individual, householder, association, company government department and local authority is exposed to a wider range of risks. It is inevitable, by the nature of probability, that bodily injury, property damaged or financial loss will occur sooner or later.
The degree of severity will vary according to circumstances but that some form of loss will occur is beyond doubt CIMA, RISK MANAGEMENT, LONDON.
The risk management is provides the necessary mechanism. “Risk management is therefore, a specialist management technique, evolved mainly in the U.S.A. to enable organization to combat ever-increasing exposures resulting from development such as automation, computation, concentration of values and the use of increasingly sophisticated and complex products”.
Risk management is not synonymous with insurance nor does it embrace the management of all risks to which a business is exposed.
Risk management is therefore, relevant to a wide spectrum of industry from major groups to modest undertakings to companies which operate worldwide and those confined to the developed countries; to organization involved with significant risk-generating activities externals to their own premises and those confining their activities largely to their own premises; and to enterprises manufacturing highly toxic or products as well as those producing innocuous or simply selling services.
1.2 Statement of Problem
The contribution with which the products emanated from Dunlop Nigeria Plc made toward the progress and the development of Nigerian economy cannot be overemphasized. This is the reason, it is highly imperative to delve into the process and procedure by which the company manage the risks that is peculiar to their company and to suggest, if any, other way of improvement in a cost effective manner.
However, the mistake that is often made in most of the organization which often culminated into various problems is that:
- Can the risk be managed effectively in an organization?
- Is the insurance companies, the only panacea to all the problem of risk that occurred in an organization?
- Can the organization effectiveness be enhanced with effectively management of risk only?
- Is the management of risk the responsibility of a single individual in an organization?
- Can the management in general runs needless risks which could be economically handled by insurance often without the impact increase in total premium cost?
1.3 Objectives of Study
The objective of this study is to find out the impact of risk management on organization in order to enhance their efficiency, with a particular reference to Dunlop Nigeria Plc, Ikeja.
The study is designed to:
- Determine the degree to which risk can be managed effectively in order an organization.
- Identifying the risk, analyze them and suggest ways and technique to be applied or take into consideration in managing the risk in a cost effective manner.
- Make recommendation for further improvement in the area of effective management of risk that would reduce the degree of catastrophe in an organization.
1.4 Significance of the Study
….
1.5 Research Hypothesis Test
Hypothesis are statements about the possible solutions to the problems investigating. They are intelligent gneisses which make about the likely solutions to the problem.
For the purpose of guidance in order to enhance this study, the following hypothesis would be used.
Hypothesis I
Ho: There is no significant relationship between risk management and total premium cost.
Hypothesis II
Ho: There is no significant relationship between awareness and the extent to which risk management can affect the economic activity of the industries.
Hypothesis III
Ho: There is no direct relationship between risk management evasion and the lost adjuster management.
Hypothesis IV
Ho: There is no significant relationship between the use of risk management and uninsurable properties.
1.6 Scope of Study
This study is specifically designed to cover all the area that are pruned to risk in Dunlop Nigeria Plc and to study the various process by which risks are being managed. But due to vast areas of risks to be covered, this study shall be limited to the productions section of tyres of various sizes, simply because risk exposure in this department are enormous than other departments/sections.
Also efforts are being made by the organization to manage risks in this departments to some extent.
1.7 Definition of Terms
Class Rating:
This is applicable in deciding the premium to change, to those risks where the insurer has in his portfolio a large number of broadly similar cases.
Experience Rating:
This applicable where the number of comparable insurance is small, or where one cover is so large by comparison with others in its class that its result would affect those of the class industry.
Subject Rating:
This term can cover anything from a rate based on detailed analysis of the probabilities involved to one based on pure guess work.
Price Risk:
This is the risk, that, a price may decline before an inventory can be sold at a reasonable profit.
Social Cost:
These are cost borne by the whole of society, example a situation where there is a short down of plant in a small town as a result of major fire.
Chapter Five
5.0 Summary, Conclusion and Recommendations
5.1 Summary
If we could know the future, there would be no risk and hence no need for risk management. In our perpetual state of uncertainty we must make the best guesses possible about what the future will hold and always be ready to modify our ideas in the light of events. This pattern applies to all human activity. Risk management sets out to provide an ordered way of making those guesses about the threats to the assets and earnings of a company, and of making plans to counter them based on the guesses. In this way, it seeks to increase the confidence a company can have in its ability to attain its corporate goals.
Risk that may threaten the operation of a business include natural perils which is due to the damage by fire, windstorm and natural catastrophe, loss of personnel due to an injury or death suffered by an employee, labour risk due to the availability of suitable labour, liability risk due to the injury sustained by the third party, technical risk due to the negativity and positivity result obtained from the introduction of a new process methods, marketing risk due to the introduction of a new product, political risk due to the nationalization or government intervention in the operation of the business, and finally, environmental risk due to the inadequate control of pollution, effect on the public.
The management risk in an organization is not the responsibility of a single individual and in order to enhance an organization effectiveness, the introduction of risk management must be incorporated into the policy statement of the organization and should be adequately supported by the top management. Also the company’s style must be adequately put into consideration.
However, the introduction of risk management cannot but involve some psychological problems which arise as a result of the reaction of people charged with the responsibilities, but with the diplomacy quality of the risk manager the problem can be solved.
The operations of any manufacturing company is therefore prone to various kinds of risk which are common to business in general. Some of the risk threatening the operations of Dunlop Nigeria Plc are risk of fire, explosion, accidents (both transportation and industrial) product adulteration and environmental pollution.
The study of risk management to enhance organization effectiveness was not limited to Dunlop Nigeria Plc, time was also taken to study the process and manner of the management of risk in other manufacturing industries which are associated Match Industry and Tower Aluminium Nig. Plc.
After carrying out adequate research both companies were facing similar or even the same type of risk which are being experiencing by other companies and the process of managing risk in the industry are similar.
5.2 Conclusion
In conclusion, it has been demonstrated that risk management entails more than insurance management. Insurance focuses on risk financing while risk management first identifies the risk, measure the frequency and severity of the risk and then employs insurance and other risks financing methods to handle the risks so identified and measured.
What is clear is that the days when a company and its risks were its own affair are gone. It is a part of the community and the community will increasingly demand a say in how it is managed. The consumer will decide more and more what it is to be produced, society will control ever more rigorously how it shall be manufactured, the employees will participate more and more in the company’s management. Risk management then will become more and more obviously a matter of charting a path for a company which avoids it getting so far out of line with what these various forces requires of it that it incurs crippling penalties, whether in the form of compensation for a legal liability, or of being prevented from operating in some way.
The researcher, therefore, arrived at a conclusion that the management in general do not run unnecessary risk which could be handled by the insurance economically and in order to enhance an organization effectiveness, the management of risk should not be the responsibility of a single individual in an organization but the responsibility of everyone.
5.3 Recommendations
The researcher, after conducting a thorough research study into the management of risk in the Dunlop Nigeria Plc, came up with important recommendation which the sincerely hope will be of immense help and assistance to the management in the manufacturing industries most especially the management of Dunlop Nigeria Plc.
The risk manager assumes an executive and advising role to and in conjunction with production engineers, transportation and distribution functionaries and other specialist in the manufacturing industry. For the efficient and effective performance of risk manager, co-operation, motivation and communication should be made essential that is why it is been said that the role of risk management is a staff function.
The risk manager should liaise with the finance and legal managers so as to determine appropriate techniques of risk financing and protection. He must ensure that the cost of pure risk are included in the capital budget decision of the industry and are provided for all contractual documents.
The speculative risk, which is the commercial risks, is the sole responsibility of the entrepreneur. With the introduction of proper risk management, it allows the entrepreneur to concentrate on the commercial aspect of the business with a peace of mind that the pure risk have been adequately handled by risk managers.
When risk management principle and practice are adopted, the amount spent on insurance and the subsequent direct and indirect cost of making claim to reduced. When insurance is the only option left, the risk management will with assistance of the insurance experts determine the type of cover and negotiate the best terms and conditions; appropriate price or premium to be charged.
It has been observed in the course of this research that the recent development in risk retention has been the formation of captive insurance companies in Nigeria are been enough to insure some of their risks themselves and in this way save the element of premium that would otherwise go towards the insurance companies, cost and expenses. A subsidiary should be set up and some risk should be pause to it with the premium paid to the parent company.
One of the important and profitable areas of risk control that has to be looked into by the management of manufacturing companies is the possibility of the captive transacting insurance for firms other than its parent company and can becomes profit making in the same way as any other subsidiary that the parent company may establish.
It is advisable that the manufacturing industries in Nigeria, as the case of Dunlop Nigeria Plc, should put resources together to establish a multi-parent captive insurance company for greater risk bearing capacity and wider spread of risk.
5.4 Recommendations for Further Research
As a result of certain constraints in the course of carrying out this research such as time, money and lack of cooperation among the employee when visit the company. Due to this, we could not touch some aspects in the organization and other private parastatals.
The study was limited to a section in the organization i.e. Insurance Department of Dunlop Nig. Plc Lagos. Due to the above mentioned constraints, I recommend the following for further studies to cover certain areas that this research is not up to cover.


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