4.1 Introduction
Risk management is a process of managing the firm’s risk to an acceptable level through identifying and evaluating the risks at the beginning[1]. It emphasises on economical and coordinated use of the available resources in monitoring, minimizing and generally controlling the impact and the probability of events considered unfortunate, in making sure that spotting opportunities are highly elevated[2].Therefore, a good risk management is to stabilize, maintain, and increase the growth of the enterprise. In terms of Bellway, it has listed several areas of risks in its risk indicator such as environment, health and safety, information technology, asset protectionand legal and regulatory compliance[3]. These risks are regarded as non-financial risks which have no direct relation with monetary items. This chapter will emphasis on how these areas influence the company’s performance, possible management methods and perspectives of Bellway.
4.2. Environment, Health and Safety
The risk in environmental as well as health and safety is regarded as the ethical risk. Business ethics is identified as the moral philosophy and principles for guiding a company’s conduct within society[4].It is argued that ethical principles emphasis on taking considerations on the interests of others like customers, employees and even public[5].For house building companies, they are responsible to environmental protection as the natural vegetation will be cleared and large amount of waste will be produced during construction. The health and safety also draws people’s attention because of dangers involved in the house building process.
There are researches concluding that good management in treatment of employees and care of the environment will help the company generate reputation[6]. At the same time, the firm’s market value and financial performance are improved. It is identified to be able to attract investment and maintain competitive power for reputable companies[7].
Efforts to mitigate some of the environmental risk in the housing industry have been developed. One of those concerns building of green houses to enhance sustainability in the conservation of the environment, a model critical in offering long term and immediate economic benefits to the occupants, building owners and to the developers[8]. Building companies can address issues of environmental risks that influence the shares by enhancing corporate governance and encouraging transparent and open reporting of the metrics pertaining to the environment[9]. Some of the critical issues to be addressed identify with training the people on environment, recycling wastes in the construction sites, reducing emissions of the greenhouse gases (GHGs), enhance certification from the authorities, organize programs designed at improving the environment, reporting on the performance of the environment and in sharing information on green building[10].
Moral obligations are pegged to the protection of the health and the lives of the workers[11]. It is argued that the legal issues detailing on health and safety is geared at developing punitive, preventative and compensatory effects that protect the rights of the workers. Building companies motivate and treat their human capitals in the best way possible; this has contributed to the community building trust with companies[12], to an extent that the share prices of house building companies are improved. Health and safety is also extended to the consumers. The houses must be built to the required standards to guarantee safety of the inhabitants.
4.3 Information Technology
Information technology (IT) has shaped the way companies are run in the twenty first century. IT is an integral and a vital tool in the business plan of building companies. Computer technology in building companies have enabled the organisations to lead to a number of benefits identifying with easy communication, inventory management of the building materials, data management, and management of the information systems and enhanced customer relationship management[13].
Inventory management has enabled house building companies to build houses depending on the tastes and preferences of the target market. Inventory management has enabled the organisation to produce the number of houses needed in the market without over producing or over investing. The systems used in the inventory management tracks each items, it is connected to the point of sale system that allows creation of a closed loop depending on the sales and the production departments[14].
Data management in building companies is done through digitized version; the old model of keeping information in files and cabinets has faded away with time. The information is easily and instantly available to the employees and to the customers irrespective of the geographical position[15]. Management information systems has encouraged building companies to use past data in generating strategic decisions in the organization. IT has enabled companies to track expenses, sales and the productivity levels. Building companies have managed to track productivity over the past years, identify areas in need of improvements and enhancing maximum return on investment[16].
For the information system linking all the company’s business effectively, any risk in this area will cause its loss in mission capability and competitive power[17]. To manage this risk, it is listed four basic strategies which are mitigation, transference, acceptance and avoidance; every risk strategy is devised to reduce the risk to an acceptable level[18].
Contingency plan is one of the recommendation strategies that companies are advised to have to deal with emergencies[19]. The IT system needs to have plan B to deal with emergencies that occur in the organization to avoid unnecessary inconveniences. Example of this plan is to put in place a parallel system or a backup system that stores confidential information of the company[20]. Enhanced security measures are also fundamental is safeguarding the systems. Another mitigation strategy adopted is promoting higher training of IT staffs to equip them with necessary skills to curb any cases of hackings of the system[21]. Ensuring that staffs handling IT systems are well trained with IT skills is prudent in reducing crimes related to technology. Furthermore, the company can set up a wide system that is centrally controlled with an outsourcing support to enhance efficiency in service delivery. This will help in mitigating the risks associated with IT.
4.4 Asset Protection
Asset protection has been a risk factor to house building companies. It has been noted that there are diverse challenges that surround the property industry. Findings argue that asset protection is part of the debtor-creditor law that guides the best judgements in cases of disputes[22]. Asset protection planning has powers of insulating assets that are claimed by the creditors in ways that both parties do not conceal or evade tax. Asset protection has an important part to play in disallowing civil judgements of money as stated in the statutory and common law. The legal techniques ensure that sound judgements prevail between the creditors and the debtors[23].
Protection of shares is part of the asset protection, in the sense that the investors expect companies to give returns of the money invested in the organization. In cases of bankruptcy, the shareholders must be accorded priority in disbanding back their investments[24]. There is a protocol to be followed in such cases. Shareholders feel satisfied with the operations of building companies, which has enabled the organisation build trust and confidence among the target market. If companies have poor models of dealing with the asset protection, there are high probabilities that the value of the shares would go down.
Assets in the building industry are also protected and safeguarded through insurance cover[25]. The important assets in the industry such as lifts, mixers and vehicles must be covered to cover the risks associated with fire or theft. Such initiatives instil confidence among the shareholders as they are guaranteed of their investments in case of any eventualities. Furthermore, assets are protected through viability assessments[26]. Under these assessments, various assets such as land purchases and construction projects are regularly reviewed to ensure that they safeguarded.
4.5 Legal and Regulatory Compliance
House building companies have the responsibility of ensuring that legal and regulatory compliance is part of the organization priority. Regulatory compliance focuses on respecting the available rules and regulations in the building industry[27]. The house building industry has diverse regulations that call for operational transparency. There are a number of harmonized and consolidated compliance controls set by building companies. The benefit of the moves is in making sure that governance requirements are adhered to without necessarily duplicating activities and efforts within the organization[28].
Failure in legal and regulatory compliant will result to a number of risks associated with legal battles in the courts of law, which are time consuming and expensive. These will reduce the company’s profit and even reputation. Hence, in order to avoid such risk, companies have to comply with all regulations involved in the house building industry. Companies need to obey the international standards preset by the international organization for standardisation (ISO). The regulation codes and standards are critical in defining the quality, safety, design and security of the buildings. UK has conformed to the European Union (EU) legislation. Surveys indicated that diverse areas are manned by diverse bodies, taking into account of the Information Commissioner’s Office, Financial Conduct Authority (FCA), Scottish Environmental Protection Agency and Environment Agency among others[29].
Findings have shown that Freedom of Information Act 2000 and the Data Protection Act 1998 have a critical role to play in enhancing compliance of organisations in the country. The United Kingdom Corporate Governance Code is regulated by the Financial Reporting Council (FRC). FRC ensures that organizations have set the right standards in the good practice based on effectiveness, leadership, accountability, remuneration, relations and accountability to the shareholders[30]. Building companies are expected to report clear accounts in annual accounts and reports.
4.6 Perspectives of Bellway
Bellway has been committed to protecting the environment through its regulated use of natural resources. This is a mitigation approach aimed at enhancing the environment. The timber used in construction of homes is usually sourced from managed forests. The floor coverings and joists are also constructed using waste timber products. These initiatives have proved successful in preserving the environment and this has impacted on its share prices.
For an aspect of information technology, the Group is required to have a contingency plan to ensure the system failure not affecting the services. Thus it has set up group wide systems that is centrally controlled and has an outsourced support function to ensure efficient service provision. Effective services contribute to the performance of the business and affect the share prices of the company positively.
The company has developed a mitigation plan to safeguard its assets through preparation of viability assessments on all its land purchase and construction projects. It also ensures that these purchases are kept under regular reviews to protect the value of its assets.
4.7 Conclusion
In conclusion, risk management has become a key area in smooth operations of business. There are many challenges in the operation of the business, which requires effective techniques to mitigate the risks, these risks are in almost every areas including, IT, asset management, personnel, healthy and safety of employees and environmental issues.
References added
Chen, P., Kataria, G., & Krishnan, R. (2011). Correlated failures, diversification, and information security risk management, MIS Quarterly, 35(2):397-A3
Emilia, C., & Mitran, D. (2012). Risk management in the financial and accounting activity, Internal Auditing & Risk Management, 7(1):13-24.
Lee, H. Et al (2012). Portfolio insurance with ratcheted floor as a long-term asset management strategy: implications of loss aversion, Applied Economics Letters, 18(15):1449-1454.
Rainer, R. (1991). Risk Analysis for Information Technology, Journal of Management Information Systems, 8(1): 129-147.
Parent, M., &Reich, B. (2009). Governing Information Technology Risk, California Management Review, 51(3): 134-152.
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[20] Chen, P., Kataria, G., & Krishnan, R. (2011). Correlated failures, diversification, and information security risk management, MIS Quarterly, 35(2):397-A3
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[26] Emilia, C., & Mitran, D. (2012). Risk management in the financial and accounting activity, Internal Auditing & Risk Management, 7(1):13-24.
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