Abstract
The risk management approach refers to the techniques, processes tools and the team roles and responsibilities that are employed on a general scale or on specific issues to help address issues such as loss of lives, destruction of property, financial losses and any other relate losses. This essay compares the organizational approaches between private entities as represented by BP and the public entities as represented by Minnesota State’s Department of Administration. The risk management by the State government of Minnesota is operated through its insurance program as well as the programs that cover the safety of the state’s workers and their compensations. It also covers the safety and liability of state agencies and their property. The goal of having a risk management approach under in Minnesota’s administration is to reduce the liabilities, legal battles, compensations that could result if risks occur and also to ensure that the state government delivers quality services for the wellbeing of its people. Private entities such as BP on the other hand are guided by the quest for profitability, growth, market shares and other related issues that target to reduce liabilities while raising the asset and revenue base sustainably.
Discussion on the organizational approaches to risk management by private and public entities
Risk management refers to the process of identifying the risks, assessing them and taking the necessary steps to bring down the risk to acceptable levels. The risk management approach refers to the techniques, processes tools and the team roles and responsibilities that are employed on a general scale to all operations and those that are crafted to handle specific issues. In regard to global companies and general private businesses, the approach to risk management centers on emphasis on either risk prevention or the company steeling itself to handle any disasters or risks that might occur. Public entities also employ a similar approach and the main difference between their approaches lies in the motivations for risk management. Whereas private entities target to avoid losses and liabilities that can compromise the profitability and business sense of the company, the public entities are about the protection of state assets, public health and general wellbeing of the society they serve. This essay compares the risk management approach between British multinational petroleum company BP as a private entity and the Minnesota State’s Department of Administration.
Minnesota’s Department of Administration takes charge of the government services such as construction projects, buildings and grounds, continuous improvements, and many others where various risks could occur. The risk management in this case is operated by the State government of Minnesota through its insurance program as well as the programs that cover the safety of the state’s workers and their compensations. For instance, the state insures the state vehicles for auto liability and also physical damage to the vehicles while most of the state’s property and agencies are insured under general liabilities.
The state of Minnesota also approaches the risk management of its employees and agencies by enlisting the services of full-service workers’ compensation insurance. The insurance covers some of the most pertinent issues so address the plight of state employees through disability management services, facilitations for employees to return to work after lengthy periods of sickness or other related causes. In addition, the state of Minnesota also offers legal services to its employees to ensure that they are capable of discharging their roles effectively. It is considered as a heavy risk when employees of a public entity boycott work for one reason or the other and fail to discharge their duties with the expected efficiency. The risks come in the form of unattended duties say negligence by public health officials which could lead to the health of many people being out at risk. The state’s building inspectors could approve unsafe public buildings for habitation thereby putting the lives of many people at risk. These are some of the issues that lead public entities to approach risk management from highly diversified angles ranging from insurance covers to frequent staff trainings.
Other risk management issues handled by Minnesota’s Department of Administration include safety and loss control. In this case, the state has set up a team which provides consultations on industrial hygiene and safety to all state agencies. The team identifies and controls the sources of occupational illnesses and injuries thereby reducing the resultant losses. The State government has set up the State Worker’s Compensation Program as a self-administered and self-insured program the covers approximately 54,000 state government employees. The team is tasked with helping address claims, disability management and it also manages healthcare for employees who get injured while on the job.
BP is a British petroleum multinational that operates in more than 70 countries and generates economic value in excess of $227 billion. It is an integrated oil and gas company which provides customer with fuels for heating and lighting, transportation and a variety of lubricants. In addition, they offer petrochemical products used in paints, packaging and clothing. The company which currently has more then 78, 000 employees worldwide was founded in 1908 and it has experienced vast growth and significant challenges as to offer valuable lessons risk management approaches by private entities. To begin with BP recognizes that market volatility and the opportunities that market holds for growth come intertwined with rick. Contrary to public entities which have less consideration on market volatilities and uncertainties wherein the opportunities for growth are, private entities such as BP seek to exploit the opportunities maximally and lower the risk to a bare minimum.
BP recognizes its importance in the world’s energy industry. It owns physical assets and also deals with energy commodities that have a high risk to safety and since the products are highly valuable and in great demand, there is huge risk in the economic sense of any risk materializing. The company has had some global scandals such as the Deepwater Horizon oil rig explosion in 2010 but it has successfully managed to resolve such issues and strengthened its approaches to risk management.
The following energy risk management framework by BP shows some similarities in risk management for private and public entities. The first issue is in identifying and quantifying risk. In the case of the private entities, risk can come from market factors such as demand, supply and liquidity. It can also come from price volatility, internal physical operations, credit availability, interest rate fluctuations as well as the changes in the regulatory environment and the internal physical operations. Many of the issues stated here do not apply to the public entities which are not in business such as the State government of Minnesota’s Administration department discussed earlier. However, the second aspect concerning assessing risk profile matters with the overall goal of the entity; private entities such as BP are looking for stable cash flows, budget certainty, and adequate protection on the profit margins. The private entities and the public ones are on the same level of concern in regard to avoidance of catastrophes. In all these issues, each of the entities determines the level to which it is comfortable with any risk.
The third issue that concerns both the private and the public entities is the development and execution of a hedging strategy and a compliance plan. In this case, each entity must evaluate its objectives so that it can select the best strategy such as long-term financial hedges or simple swaps. The fourth item in the risk management framework by BP regards the creation of benchmarks and reviews. In this case, BP recognizes that market dynamics never remain the same for long and the same issues that lead to increased productivity and profitability have an angle to themselves which spells risks. As such, it is critical that BP and other private entities create rick benchmarks and assess the risk profile regularly to settle on the moist beneficial strategies that are associated with minimal risks.
BP recognizes that it works in a highly risky industry unlike many other private entities. The company has categorized its potential risks into two (1) strategic and commercial risks (2) operational risks. In regard to the strategic and commercial risks, BP and many other private entities consider geopolitical risks, climate change and financial resilience. The public entities such as the state government of Minnesota also consider the strategic risks brought about by geopolitics and climate changes. The consideration of the public entities regarding finances is on how well or accountably finances are used to better the lives of the people. However, the same issues mean different things to BP and other private entities. The public policies that relate to carbon pricing and climate change for instance means increased costs of operating in the oil industry and this translates to reduced revenues and growth opportunities. As such, BP and other private entities have to adopt rick management approaches that assure them of business survival as they also better the environment. In regard to the operational risks, BP prioritizes the safety and reliability of its operations so that the welfare of the environment, workforce and the local communities are enhanced. In this regard, the goal is to have zero accidents and no harm to the environment.
It is normal for many public entities such as the state government of Minnesota to operate under a strict regulatory framework so that it remains accountable to the public and the national government. However, when many regulations and laws are placed on the private companies they consider it a risk as they are gagged and their innovativeness and freedom to do business curtailed. As such, any issue considered to come from these quarters is treated differently by the private entities on one hand the public ones on the other.
Conclusion
The state of Minnesota also approaches the risk management of its employees and agencies by enlisting the services of full-service workers’ compensation insurance. The insurance covers some of the most pertinent issues so address the plight of state employees as well as covering the state from liabilities such as negligence. The main difference in the risk management between private agencies such as BP and public ones such as State Government of Minnesota’s Department of Administration is that the former targets to safeguard profitability by minimizing liabilities while the former targets to enhance public livelihoods.
References
BP. (2017). Risk management approach. Retrieved January 15, 2017, from http://www.bp.com/en_na/gas/north-america/Financialproducts/Ourriskmanagementapproach.html
Hampton, J. J. (2009). Fundamentals of Enterprise Risk Management: How Top Companies Assess Risk, Manage Exposure, and Seize Opportunity. AMACOM Div American Mgmt Assn.
