Corporate Risk Management: Adverse Effects

Corporate Risk Management: Adverse Effects

An organization functions in much the same way as an organic human or animal body. Each department has a widely differing set of functions. Yet these integrate in such a way that the whole cannot survive without the complete well-being of each part. If a single organ in the body is unwell, it affects the body as a whole. The same occurs within an organization. If one department does not function properly, the whole business is affected, as seen below.

An example of the effect of the part on the whole is the financial department of an organization. Finance is one of the most important aspects of an organization, and could be compared to the heart or the blood of a biological entity. This department ensures the survival of the company in both the short and the long-term. Financial departments can however be threatened by unscrupulous, greedy or desperate employees who choose to steal or otherwise corrupt the financial department. The financial department suffers as a result of such practices, as calculations are no longer accurate. The rest of the organization is influenced in terms of survival. When the financial department conceals its dishonest practices for a length of time, the rest of the organization suffers from a lack of resources. If the fault is not discovered, the loss can be severe and even result in the complete demise of the company. Each employee is then also influenced in terms of well-being, in that many jobs will be lost. In this way, the desperation of a single employee can result in the misery of hundreds or even thousands, depending upon the extent of the dishonesty and the size of the company.

Another important function in an organization is fulfilled by the research and development department. The purpose of this department is to provide the organization with sound advice and estimates relating to market demands, trends, and future projections. Furthermore, the department is responsible for the development of new products, and should therefore be optimally creative and innovative in its functions. The greatest risk to the research and development department is therefore a loss of creativity, innovation, and accurate estimation of market trends. Internal factors that could influence these functions include stress. Employees who are required to be innovative and creative on a constant basis may suffer from burn out and stress, severely affecting their work. Internally, the demands of the department may therefore affect employees adversely. The rest of the organization is then affected in terms of product quality. When research and development are not carried out effectively, new products and services may not meet market demands in a sufficiently targeted manner. The result is then financial losses to the company, as the market interest diminishes. Furthermore, threats from competitive companies are increased when the research and development department does not function on an optimal level. The rest of the organization is then at risk of financial hardship, which may affect individual employees in terms of job cuts. This in turn may lead to further stress, completing the cycle of stress and lack of creativity.