THE IMPACT OF RISK MANAGEMENT ON ORGANIZATION EFFICIENCY

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:

1.          Can the risk be managed effectively in an organization?

2.          Is the insurance companies, the only panacea to all the problem of risk that occurred in an organization?

3.          Can the organization effectiveness be enhanced with effectively management of risk only?

4.          Is the management of risk the responsibility of a single individual in an organization?

5.          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:

i)            Determine the degree to which risk can be managed effectively in order an organization.

ii)          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.

iii)        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.