Enterprise Risk Management: A Case Study of Bauhaus HK Company

This project report focuses on the risk management process applicable to Bauhaus HK Company, covering the identification, evaluation, and impact of internal and external risks. It categorizes risks using a likelihood and impact grid and proposes risk-mitigating strategies to minimize both internal and external risks. The report emphasizes the importance of audit and managing financial, operating, and other risks through effective strategies to ensure smooth business operations. It details the five-step risk management process, including identifying, analyzing, prioritizing, assigning ownership, responding to, and monitoring risks. Furthermore, it distinguishes between preventable, strategy, and unavoidable risks, providing a SHELL model for risk analysis and mitigation. The report also outlines various risk mitigation strategies, emphasizing the need for thorough analysis and evaluation of potential threats and hazards to minimize their impact on operational activities.

ENTERPRISE RISK
MANAGEMENT

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1. Risk management process applied to Bauhaus HK Company................................................1
2. Identification, evaluation the nature and impact of internal and external risk........................2
3. Categorise the risks using the likelihood and impact grid......................................................4
4. Risk Mitigating Strategies to minimize internal and external risk..........................................5
CONCLUSION................................................................................................................................6
REFERENCES ...............................................................................................................................7

EXECUTIVE SUMMARY
This project report is intended primarily to focus on risk management process which need
to be applied by an organisation. It also covered internal and external risk which adversely affect
the performance of company. This project report also describes the importance of audit and
managing financial, operating and other risks through implementing effective risk mitigating
strategies which help company to run business operations smoothly.
INTRODUCTION
Enterprise risk management minimizes the effects on business's capital and earning
through planning, organising, leading, and controlling the activities of an organisation. The
manager of an organisation is held responsible to monitors the risk associated with accidental
losses as well as risk related to the operational, financial and others risk in effective and efficient
manner (Lin, Wen and Yu, 2012). Therefore certain steps need to be taken by companies such as
British Airways, Tesco Plcetc.to identify and evaluate risk whether the risk is internal and
external and later on certain strategies to be implemented for mitigating risk.
TASK 1
1. Risk management process applied to Bauhaus HK Company
Risk involve internal and external risk which adversely affect the strategic plan,
operational and financial objective of an organisation. Therefore manager of an organisation is
held responsible to take various steps in order to identify and evaluate these risk and implement
certain actions which helps in minimising these risk in effective and efficient manner. So there
are five risk management process steps which helps in monitoring the several types of risk:

 Identify the risk: The manager of Bauhaus HK Company should need to recognize and
describe the risks that adversely affect their fashion stores related project and its
outcomes. Through Brainstorming the manager can able to look at a problem and create
ideas in order to minimize that problem. After identifying risk, the manager of Bauhaus
HK company should assure that the risk that may arises during the completion of project,
is noted in their risk register (Aebi, Sabato and Schmid, 2012).The manager should not be
overconfident and need to concentrate on the complex situation that affects needs of
project. Analyse the risk: After listing the different risk that may arises in future in risk register,
the next step is to determine how these risks affects the performance of an organisation.
The nature of risk should also be mentioned in their risk register. The manager should
need to concentrate on avoiding potential litigation, addressing regulatory issues, and
complying with new legislation so that the risk cannot affects their available resources,
schedule and budget. Prioritize the Risk: The manager of Bauhaus HK company should need to be ranked their
risk based on their consequences. Some risk required immediate attentions and some risk
made a little impact in the overall activities of an organisation. Therefore it is must for
the management to devote their time according to the nature of risk and their
consequences. Assign an owner to the risk: To monitoring and handling the risk, certain person is need
to be appointed who is responsible to listing the risk in risk register(Smith and Watkins,
2012). Generally the manager of an organisation is authorised to take certain actions and
strategies in order to reduce the minimize the risk. Respond to the risk: The authorised person should need to develop strategies or some
preventative plan in order to handling the risk according to their consequences. The
employees and manager should need to communicate with each other and decide the
plans to implement to resolve the risk.
 Monitor and review the risk: This is the step where the authorised person should need to
monitor, track and review risks. It should be done through different means of
communication such as conducting face-to-face meeting, or through email or text or

through management software tool. The transparency is must which allows them to get
specific information about the risks.
2. Identification, evaluation the nature and impact of internal and external risk
A company can reduce negative exposure to business risk by identifying internal and
external risk.
Internal risk: Risk that arises within the organisation in the form of personnel issues or
infrastructure problems etc. is known as Internal Risk.
The three internal risk factors which influences the performance of an organisation are as
follows: Human Factors: Risk that may arise in an organisation from human factors can includes
union strikes, dishonesty by employees, ineffective management or leadership, and
failure on the part of external producers or suppliers. Technological Factors: Risk that arises in an organisation from technological factors
includes unforeseen changes in delivery or distribution of goods and services of company
(Blome and Schoenherr2011). Physical risk: This risk is related to the loss of damage to the assets of a company.
Analysis and impact of one Internal Risk:
Human Factors: Risk related to the Human factors affect the operational activities of an
organisation in the form of union strikes, dishonesty by employees, ineffective management or
leadership, and failure on the part of external producers or suppliers. Therefore it is important to
understand that individuals and groups act differently in different situations. If there is any
misunderstanding or misbehave with their employees may lead to dissatisfaction . Therefore the
incentives must be provide to their employees and stakeholder in order to provide them
maximum level of satisfaction.
External Risk: Risk that arises form outside of a company's organisation are known as
external risk. This type of risk cannot be controlled, or forecasted therefore difficult to minimize
these risks (BoltonChen and Wang,2011). This type of risk includes: Economic Factors: The risk that arises outside of the organisation includes the changes
in market condition which influences their activities or task.

 Natural Factors: It includes risk related to the natural disaster that affect normal business
operations. Political risk: It includes risk related to the changes in the political environment.
Evaluation and impact of one external risk:
Natural factors: This risk is related to the natural disaster that adversely affect the
normal operations and it cannot be controlled and managed. Therefore the management cannot
make any strategies or plans for minimizing this risk (Liu, Low and He2011.). Thus this risk if
arise can damage and exploit the operational activities through which the probability condition of
an organisation may also affect. As this type of external risk is unpredictable and uncontrollable
so it is required for the management to concentrate on their identification and the mitigation of
their impact. Identifying possible catastrophes and preparing a plan in order to perform before
this type of risk occur. For example Insurance is one of the instrument that deals with some
uncontrollable risks but having insurance for covering the unpredictable risk helps in preventing
the damage that made by these types of external risks
3. Categorise the risks using the likelihood and impact grid
Risks may fall into three categories therefore risk arises from any category can be fatal to
a strategies of company and even its survival.
Category I:
Preventable risk:
These are the internal risks that arises within the organisation which are controllable and
need to be eliminate or avoided. Examples of such risks are the risks from employees' and
managers' unauthorised, illegal, unethical, incorrect, or inappropriate actions and the risks arise
through breakdown in operational processes. The companies should take care of the defects and
errors so that they cannot damage to the enterprise otherwise avoidance of such errors will result
more costly to the enterprise. The risk category is well managed through active prevention,
monitoring operational processes and guiding behaviour of the people and the decisions towards
desired norms.
Category II:
Strategy risks:
In order to generate superior returns form the strategies, a company should accept some
risk voluntarily. Strategy risks are different from the preventable risk as these risks are not

inherently desirable. A strategy with a motive of getting high expected returns generally requires
the company to take on significant risks and managing or monitoring these risks in order to
capture the potential gains. In order to manage this type of risk, the cost benefit of undertaking
the risk should need to be fully understood and analyses and thereafter a contingency plan must
be made in order to deal with a disastrous situation. Therefore the better company should be
considered if they understood and make plan for strategic risk in order to get cost benefit which
helps them to compete with their competitors.
Figure 1: The Risk Impact Chart, 2017
The given chart have following characteristics:
Low impact/ low probability: Risk in the bottom left corner are low level so company
cannot ignore them.
Low impact/High probability: Risks in the top left corner are of moderate importance -if
these things occurred the company can cope with them effectively.
High impact/low probability: Risk in the bottom right corner occurred then it will badly
damage the operation of business therefore company need to implement contingency plans to
reduce them.
High impact/High probability: Risk towards top right corner need to be pay attention by
top authority of company in order to minimize the risks.
SHELL model:

Figure 2: SHELL model, 2017
Software: Software includes documentation, procedures used by company to eliminate risks.
Hardware: It includes machinery, equipment which is to be implemented by manager of
company.
Environment: Both external and internal environment exist in workplace.
Live ware: It involves the human element who contribute their efforts in order to eliminate
different types of risk.
Category III.
Unavoidable or external risks:
Some risks arises from activities outside the company which is uncontrollable. Such risks
include natural and political disasters and major macroeconomic shifts. As such risks are hardly
to control or manage therefore it is required for the management to focus on their identification
and mitigation of their impact. There are many risks who arise without giving any warning or
difficult to forecast about these risks such as storms and political upheaval. Identifying possible
catastrophes and preparing a plan in order to perform when this type of risk occur. For example

Insurance is way of dealing with some uncontrollable risks but having insurance for covering the
unpredictable risk helps in preventing the damage that made by these types of external risks.
4. Risk Mitigating Strategies to minimize internal and external risk
Risk management includes front-end planning about the managing and mitigating the risk
after identifying certain risk. Therefore risk mitigation strategies and specific action plans should
be incorporated in order to managing the risk in effective manner. Risk mitigation plans should:
 Characterise the root cause of risks that have been identified and quantified as early as
possible in order to find out the information about the risks.
 Evaluate risk interactions and common cause
 Identify alternative mitigation strategies, methods and tools of each major risk.
 Assess and prioritize mitigation alternatives.
 Select and utilize the resource requires for specific risk mitigation alternatives.
 Communicate planning should be done to all factors for implementation
Risk mitigation strategies is necessarily required after making a thorough analysing and
evaluation of the possible threats, hazards that can affect or influence business operations. The
purpose of such strategies is to eliminate and reduce risk before it damage the operational
activities (Alhawari and et. al., 2012.). The best practices require that known and perceived risks
be analysed according to the degree and likelihood of the adverse results that are anticipated to
take place. All such risk analysed should need to be documented according to their priorities.
There are five ways through which organisation can manage internal as well as external: Accept the risk: It means that management should first identified the risk and resolve
according to their consequences. This is a good strategy to use for every small risk that
wont have much impact on the operational activities (Alhawari and et. al., 2012). Avoid the risk: When the risk is uncontrolled and cannot managed then the management
should need to avoid the risk and put their efforts to solve those risks which are
controlled and managed in effective and efficient manner. Transfer the risk: It means if authorised person is unable to control or managed the risk
then they should need to transfer their risk to someone who is capable in handling the
risk.

 Mitigate the risk: Certain actions and tools are ned to be implemented to reduce the risk
in effective and efficient manner (Brustbauer, 2016.). Proper training and guidance
should need to provided which helps in control and tackle the risk without facing any
problems. Exploit the risk: The acceptance, avoidance, transference and mitigation are required to
use when the risk has a negative impact on the operational, financial related activities.
Overview of Financial position of Bauhaus HK company:
Financial review:
As indicated above, the traditional offline retail business becomes the largest sales contributor,
accounting for approximately 97..%(2015: 97.2%) of total turnover while recording a negative
year-on-year growth of about 4.8% whereas the group's online retail business has achieving
remarkable growth in sales of approx. 76.3% during the year. Therefore it has clearly observed
that company faces financial risk in offline retail business where attain strong financial position
in online retail business.
Financial ratios:

As indicated above, the company's profits has been decreased as compared to previous financial
year as well as return of average assets also become negative. Whereas the current asset of
company increases by 4% as compared to previous financial year.
CONCLUSION
With the help of this report it can be concluded that it is required for management to
identify and evaluate the different types of risk that may affect and impact on the financial and
operation related actions. The proper planning should be made in order to manage and control
the avoidable risks effectively and efficiently. And for the external risk the management should
need to concentrate on identification and mitigation of impact. Therefore certain risk mitigating
strategies should need to be implemented according to their consequences and priority so that

there is no hindrance come in organisational activities which helps in achieving their desired
objectives.

REFERENCES
Books and Journal
Lin, Y., Wen, M. M. and Yu, J., 2012. Enterprise risk management: Strategic antecedents, risk
integration, and performance. North American Actuarial Journal. 16(1). pp.1-28.
Aebi, V., Sabato, G. and Schmid, M., 2012. Risk management, corporate governance, and bank
performance in the financial crisis. Journal of Banking & Finance. 36(12). pp.3213-
3226.
Smit, Y. and Watkins, J. A., 2012. A literature review of small and medium enterprises (SME)
risk management practices in South Africa. African Journal of Business
Management. 6(21). p.6324.
Blome, C. and Schoenherr, T., 2011. Supply chain risk management in financial crises—A
multiple case-study approach. International journal of production economics. 134(1).
pp.43-57.
Bolton, P., Chen, H. and Wang, N., 2011. A unified theory of Tobin's q, corporate investment,
financing, and risk management. The journal of Finance. 66(5). pp.1545-1578.
Liu, J. Y., Low, S. P. and He, X., 2011. Current practices and challenges of implementing
enterprise risk management (ERM) in Chinese construction enterprises. International
Journal of Construction Management. 11(4). pp.49-63.
Brustbauer, J., 2016. Enterprise risk management in SMEs: Towards a structural
model. International Small Business Journal. 34(1). pp.70-85.
Alhawari, S., and et. al., 2012. Knowledge-based risk management framework for information
technology project. International Journal of Information Management. 32(1). pp.50-65.