Risk Management

By Author: Henry Ford
Total Articles: 189
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In any organization, effective risk management is one of the major determinants of whether or not the organization will be successful. This is the case in the healthcare sector and as such, risk management is one of the management issues that managers in the sector prioritize. This is done in order to facilitate the provision of quality services to clients as well as ensure that health institutions are able to cover their costs and even generate profits that help towards the provision of better services to patients in the future (Emslie & Hancock, 2008, pp. 118-119).
In spite of the caution and alertness that is exhibited by mangers in the sector, sometimes disasters occur as a result of poor planning in risk management. Even when a risk management plan is thought to be foolproof, there is always the possibility that such a plan could be ineffective if the implementation of the plan does not focus on ensuring that each cycle of the risk management plan is implemented according to the required standards (Roberts, 2002, p. 74).

Recently, the finance manager at the healthcare institution I work for (for the purposes ...
... of this paper, the organization will be referred to as Organization X) discovered that there had been an oversight in the implementation of the organizations risk management plan. As a result of this oversight, Organization X was on the verge of being subjected to very high insurance premiums in the next year. I this risk is not managed in time and plans made to ensure that it does not occur again in future, Organization X risks sustaining great financial losses which could compromise its ability to provide quality service delivery to clients in the next financial year. This paper identifies some of the mistakes as well as the best practices that are reflected in Organization X’s risk management cycle and also offers suggestions that the financial manager could use to manage the current risk and avoid future risks.

Risk management
The following is an analysis of Organization X’s risk management cycle. This analysis is presented for the financial manager’s point of view. It is important to note that even if this review is from a financial point of view, the benefits of implementing the positive changes that will be suggested in this review will enable organization X to carry out its primary objectives (care giving, treatment) to its patients/ clients much more effectively.

First of all, any effective risk management cycle consists of at least 6 stages which must be addressed with the same level of dedication and alertness in order to make sure that each stage of the cycle yields positive results. These six stages include; identifying possible organizational risks, evaluating the identified risks, identifying the possible solutions for each of the highlighted risks, selecting the most viable solution for each risk, formulating a risk management plan that covers all the risks identified (and allocating the required resources for such a plan). The final stage is monitoring the established risk management plan (Doherty, 2000, p. 541). The following is an evaluation of the risk management cycle in Organization X.

Stage 1- Identifying the Risks
In view of the current risk faced by Organization X whereby an anticipated rise in insurance profits could lead to the detriment of the organizations financial future, it is important to understand if this risk had been noted as a potential threat in the past. The current risk management cycle in organization X is based on several assumptions in regard to the financial risks that the organizations should be prepared for. The main assumption is that the most important financial risks that organization X needs to be prepared for are compensation for workers and clients who may file liability suits against the institution. Admittedly, identifying this risk as a primary risk is based on sound reasoning especially since the healthcare is a service-delivery oriented sector and the chances of clients/ patients expressing dissatisfaction are very high (Pozgar, 2007, pp. 342-343). The sensitive nature of services offered by organization X such as experimental surgeries/ treatments are also likely to put the organizational at an increased risk of being asked to pay liabilities/damages awarded after litigation cases initiated by patients.

However, while the above risk is undoubtedly very important and should be addressed adequately, the criterion used to prioritize this risk while neglecting to take into consideration the risk of the rising rates of insurance premiums in the healthcare sector is questionable. It is, nevertheless, important to note that though the current cycle neglects to identify the rising cost of insurance as a major risk, it points out the high cost of organizational X’s administrational costs and equipment/ medication purchasing costs as possible risks. The risk identification stage of the cycle in the current risk management strategy notes that the constant inflation of such equipments could be a lethal threat and therefore risk planning is needed. Indirectly, the contingency plans that have been put in place to deal with the high costs of running organizational X can be applied to the insurance premiums threat that is currently at hand. However, in future, identifying the rise in insurance premiums as a direct threat would be preferable in order to avoid dilemmas such as the present one.
There are several suggestions that could help to improve the risk identification strategy that organization X is currently applying in risk management. First of all, it is important to ensure that while identifying risks, extensive consultations should be carried out among all senior staff at organization X. For instance, risk identification should include the opinions of staff in the finance department, human resources department and the equipment supply department (Sanfilippo, 2002, p. 214). The incorporation of multiple opinions in risk identification will ensure that the likelihood of an oversight occurring during the process is greatly minimized since each department will offer the risks in their line of work in order of priority (Jorion, 2007, p. 185).

The use of brainstorming sessions in each department of the organization to identify risks within the organizations would be a good idea in order to further minimize the likelihood of failing to plan for major risks (Claessens, 2005, p. 67). Secondly, the current risk identification strategy at organization X could greatly be improved if all the risks that are identified are categorized according to the department from which they were collected. For example, all risks identified in the finance department could be categorized as such. This categorization would ensure that during the evaluation stage of the risk management cycle, the concerns / risks identified in certain departments are not ignored. This also ensures that the solutions suggested in the response stage of the cycle are aligned with the specific department that is directly affected by the risk being resolved. Risk identification operations should also be conducted within a reasonable time framework in order to avoid hurried and inconclusive results (Kraus, 2000, pp. 316-318).

Stage 2- Risk Evaluation
In most organizations, the activities in this stage of the risk management cycle involve assessing the risks identified in stage one in order to determine which risks are more urgent and critical to the organizations prosperity. Risk evaluation often involves taking into consideration factors such as the probability of each risk occurring and the frequency with which the occurrence of each risk is likely to take place. However, the magnitude of the impact that the occurrence of each risk is likely to have on the organizations’ operations is undoubtedly the most critical aspect of risk evaluation (Donn & Fisher, 2001, pp. 113-114). In the healthcare sector, failure to accurately assess the impact of each threat could have devastating effects. For instance, if the impact of risks such as arbitrary electrical power cuts are is not assessed, operations such as life threatening surgeries could be interrupted and this could lead to loss of life. Once the impact of such a risk is recognized, it is much easier to respond to the risk. In organization X, the reason why the current risk (increase in insurance premiums) is likely to have dire effects on the organizations future is because the current risk evaluation processes fails to take into account all the possible impacts of this risk.
While a risk evaluation which took place last year evaluated the risk of high insurance premiums concluded that the risk should be given urgent attention, the fact that this evaluation did not vividly outline the impacts of this risk can be blamed for the unpreparedness that the organizations risk management department is currently demonstrating in addressing this risk. In order to improve the risk evaluation mechanism that the current risk management plan in the organization utilizes, there are several suggestions which have proven to be successful in other organizations. For example, the process to be used in evaluation of the risk in the future should be used to evaluate the impact of every identified risk putting into consideration the time take to resolve the risk and the possible effect of the risk on the organization. Considering the resources that will be lost in addressing the risk if a proper contingency plan is not put in place is also important (Kavaler & Spiegel, 2003, pp. 45-46). An effective framework for evaluating the risks should also ensure that all the risks which were identified are evaluated thoroughly irrespective of how improbable their occurrence seems.

Stage 3- Identifying Effective Response to Each Evaluated Risk
This stage involves seeking responses for each of the risks that have been evaluated in order to ensure that these risks do not have a negative impact on the organization. When seeking a response to risks that have been identified and monitored, there are several points that should be considered. The method(s) that could be used to prevent each risk must be considered. This is one of the shortcomings of the current risk management cycle at organization X. even if the rise in insurance premium rates was identified and evaluated, there was no effective preventive response that was offered to deal with the eventuality of this threat becoming a reality. While seeking a response to risks that are identified in a healthcare industry, it is critical to keep in mind the fact that, timeliness is very vital since a slow response could lead to serious harm of patients. Responses to risks should also take into consideration the methods that can be used to reduce the impact of the risk if it has already materialized (Carroll, 2009, pp. 17-18).
Other vital considerations in this stage of risk management include exploring options such as risk transference and formulation of contingency plans (Chan & Wong, 2006, p. 8). If organization X had explored the option of risk transference, it would have been relatively easy to resolve the current risk of high insurance premiums since the financial losses that are associated with the risk could be shared or totally transferred to a third party. It is however important to acknowledge that sometimes, there are no cost-effective means of responding to some risks and as such organizations should be prepared to bear the burden of the loss and move on. This fact can be illustrated by the current risk since organization X had very little control in the decision by the insurance company to raise premiums for the next financial year.

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