· web viewassessment of risk management practice in manufacturing sector (evidence from addis...
TRANSCRIPT
Assessment of Risk Management Practice in Manufacturing Sector (Evidence from Addis Pharmaceutical Factory (APF))
Aregawi GideyDepartment of Management
College of Business and Economics
Adigrat University, Ethiopia
E-mail: [email protected]
Abstract
Risk management is a concept which becomes very popular in a number of business and non-business
organizations. This is because the survival and growth of any organization is impossible without effective
risk management practice. This is quiet true for manufacturing companies. Therefore, this study was
aimed to assess Risk Management Practice in Manufacturing Sector (Evidence from Addis
Pharmaceutical Factory (APF). The study used primary and secondary data sources to collect the
required data. Questionnaire and interview were the main tools used to gather primary data from the
respondents. The primary data for this study were collected from 250 employees. Respondents were
selected through stratified sampling technique from each department. The collected data was computed
and statistics tools such as Percent, mean and standard deviation were used to analyze the data.
Cronbach Alpha tested to ensure the reliability of the collected data and the result was found as
satisfactory. The finding of the study showed that market risk, legal risk, security/safety risk and
environmental risk are the most perceived risks in the factory. With regard to risk response techniques,
retention, mitigation and risk transfer/insurance are commonly practiced risk response tools. It was
suggested that the company should provide intensive training to employees so as to ensure good
understanding of all type risks. Furthermore, it is advisable that the company should invest its ultimate
effort to improve the risk management process as whole through taking experience from successful
organizations and creating a holistic commitment of employees.
Keywords: risk management, risk management process, risk monitoring and evaluation, Addis
Pharmaceutical Factory
Page1
1. Background of the Study
Risk is a term that has long been studied in different areas. According to Rejda (2004), risk is the
possibility unfavorable deviation from expectation. It is the possibility that some thing we do not want to
happen will happen or something that we want to happen will fail todo so. Risk management is a positive
and proactive process intended to reduce the likelihood of unsatisfactory consequences (Mills, 2001;
Rohaninejad & Bagherpour, 2013). Risk management is particularly vital for organizations since some
common losses such as theft, fire, disaster, flood, legal liability, injure, or disability can destroy in a few
minutes what may have taken for an entrepreneur years to build (Rejad, 2008).
Today every organization faces uncertain events that occur in different environments and with different
characteristics and impacts. These uncertain events can generate more or less severe consequences for the
organization (Aven, 2011).
In a dynamic environment characterized by increasing competition, and in the wake of the global
financial crisis, risk management as a formal practice is becoming a priority for firms (Bhimani &
Bromwich, 2010). The use of risk management practices has moved from a narrow financial perspective
to gain prominence as a critical facet of management control systems, where “timely identification,
assessment, and management of the portfolio of risks faced by an entity are linked with the achievement
of its goals and objectives” (Subramaniam et al., 2011). From this perspective, risk management is
typically viewed as an organizational process based on monitoring and feedback which owes much too
cybernetic control thinking (Power, 2007).
In recent years, a number of combined factors, such as regulation and corporate governance codes,
standards for internal control, stakeholders’ demands and business competitiveness have driven firms to
consider risk holistically from an overall corporate perspective instead of managing different risk sources
individually in different departments (Fraser &Simkins, 2016). Although organizations have always faced
risks, the attention of risk management increased significantly in the last decade, as shown in numerous
studies and books (Breen, 2008).
Over the last two decades, manufacturing industry in general tended to focus heavily on advanced
management and production activities to increase organizational flexibility, enhance product quality and
to increase innovative capability. In contrast, the majority of the manufacturing sectors in manufacturing
put less focus on the management of risks (Patterson et al., 1999).
It is clear that the pharmaceutical industry, like every other industrial sector, is exposed to various threads
that are internal or external by their nature. Other industries have already implemented effective
approaches to identify, mitigate and review those risks. Recently, it has become clear even in the
pharmaceutical sector that an adequate risk management system is not only required by regulatory
stakeholders but also result in a competitive advantage when appropriately implemented (Siegfried,
Page2
2013). The pharmaceutical industry is one of the most competitive businesses in the world. Besides the
fact that it improves health and life quality of patients around the world, it is also vital for the world
economy value (Statista, 2017). In the modern business world, where companies must quickly adopt to
changes on the market, the pharmaceutical industry started to face huge and complex changes which have
consequently broadened and deepened the risks in the pharmaceutical industry (Kesic, 2011).
Although much research has been made in pharmaceutical industry most of them are focused on the
supply chain risk or product quality risk. For instance, the study conducted by Brako et al., (2016),
confirmed that risks such as lack of inventory, theft, expiration of shelf life are closely linked with the
pharmaceutical supply chain. Nina & Borut (2017) also demonstrated that potential risks that arise in the
pharmaceutical supply chain don't affect only companies but also affect the general public. For example,
the occurrence of low quality drug or the absence of a particular drug on the market could endanger the
lives of patients.
Mentioned studies and others touch this topic slightly in the industry from a point of view of the supply
chain. However, there is still a lack of empirical evidence on what types of risks are frequently happened
and how risk management practiced, and what risk control techniques are mostly applied. Hence, this is
why the researcher believed that this study would contribute an important part in understanding the nature
and cause of risks that arise in the industry and the appropriate mechanisms implemented to mitigate the
risk.
2. Objectives of the Study
The study was focused and had been conducted:
1. To explore the attitudes of employees regarding risk and risk management
2. To find out the most important risk occurred in the factory
3. To assess the risk management mechanisms implemented in the factory
3. Literature Review
3.1 Concept of Risk and Risk Management
Risk is an important concept in a number of fields, yet there is no agreement on how it is to be defined
and interpreted Aven (2011). Some of the definitions are based on probabilities, others on expected
values, some on uncertainty and others on objectives. Risk is defined as ‘effect of uncertainty on
objectives and it aids decision making by taking account of uncertainty and its effect on achieving
objectives and assessing the need for any action. Risk management refers to the culture, processes and
structures that are directed towards realizing potential opportunities whilst managing adverse effects (MS
ISO 31000:2010).
Risk Management is defined in different ways. According to Anderson and Terp (2006), it’s a process
that can be used in eliminating. Reducing and controlling risk and enhancing benefits. The aim of the risk
Page3
management is to maximize the benefits by reducing the risks. According to the Project Management
Institute (PMI), Risk management is one of the ten knowledge areas in which a project manager must be
competent.
According to Kiochos (1997), the risk management process involves four steps: identifying potential
losses, evaluating potential losses, selecting appropriate risk management techniques for treating loss
exposures and implementing and administering the risk management program.
Definition by Williams et al., (2006), states the aim of risk management is to provide decision makers
with a systematic approach to coping with risk and uncertainty. Risk Management is about ensuring that
risks are taken consciously with full knowledge, clear purpose and understanding so that it can be
measured and mitigated to prevent a firm from suffering unacceptable loss causing it to fail or materially
damage its competitive position.
3.2 Risk management in Pharmaceutical Industry
It is widely accepted that risk has always been an inherent part of pharmaceutical industries’ operations,
as new products launches and clinical trials fundamentally involve some degree of risk. Moreover, risk is
present during the whole life cycle of a medicinal product, starting from the early attempts to find
promising molecules till routine manufacturing and product discontinuation. Hence, the pharmaceutical
sector faces an unprecedented number of risks as a result of a myriad of pressures and changes, including
steadily increasing regulatory requirements, globalization and operational efficiency (Spilker, 1998).
There are several risks the pharmaceutical industry has to face. Although there are a variety of different
stakeholders, including patients as well as governments and the industry, the protection to the patient by
managing the risk to quality should be considered of prime importance (The Chartered Quality Institute
(ed.), 2010). From a manufacturing perspective, anything that has a high impact or is close to the product will be high
risk162. A collective risk is a special case of a quality risk that has to be considered. This type of risk
results from a series of risks or failures that have been identified but may not appear serious if they
individually occur, however, collective appearance could have a remarkable product impact (Svensson,
2004). However, the risk to product quality is just one component of the overall risk. For instance,
discovery risks have to be addressed in early stages of pharmaceutical research and development where
noteworthy amounts of resources are spent to identify molecules with pharmacological activity. Market
risks would take into account that the sales forecasts will not be met.
Page4
3.3 Conceptual Framework of the Study
Figure 4.1: partially adopted from www.ich.org.
The first step in the risk management process is its initialization. This step is further used to plan the risk
management process. Under this step, the primary problem and the risk associated with this problem are
to be defined and background information on the potential risk is collected and compiled.
Risk assessment is the next step in the risk management process workflow and consists of risk
identification, risk analysis and evaluation. Risk identification requires the identification of potential
hazards with regard to the risk question of the problem description by systematically using available data
and information. Risk analysis is the estimation of the risk associated with the identified hazards. Hence,
the key activities to be performed during risk analysis include the understanding of the effect of risk to
rank the significance of risk.
Risk evaluation compares the identified and analyzed risks against given risk criteria. Risk below a
certain limit would be acceptable for the organization. Finally, in the phase of risk control the
organization must decide whether to reduce and/or accept a risk. Risk communication and monitoring
accompanies the whole risk management process. This is an important part of the process as information
about risk and the outcome of the risk management process are shared between the decision makers and
Page5
other relevant stakeholders. It is important to emphasize that the risk management process must be
monitored and reviewed to ensure that mitigating actions remain effective (Siegfried, 2013).
4. Materials and Methods
The study has the objective of assessing risk management practices in pharmaceutical industry in
Ethiopia; evidence from Addis Pharmaceutical Factory. The factory was selected on the basis of large in
size and its performance. Hence, In order to describe the current practice of risk management and to
analyze the result, the research adopts a descriptive method of research. Moreover, for the purpose of
gathering information that is useful in obtaining a clear understanding of the practical application and
process of risk management in Ethiopian pharmaceutical industry, it has been suitable to use cross
sectional survey method of descriptive research.
To come up with the required data, both primary and secondary data sources were used in this research.
To collect the data self administered structured questionnaire and semi-structured interview were
employed. The interview was conducted with the one deputy manager and five department heads of
(production, marketing, finance, procurement and internal audit). Reliability analysis is necessary to
measure the consistency or reliability of a questionnaire. Cronbach’s alpha is the most common measure
of reliability. For this study, Cronbach’s Alpha coefficient for the overall scale calculated as a reliability
indicator is 0.865, which is above the satisfactory level.
The target populations of the study were all permanent employees of the factory. Hence, 776 employees
including all managers of different level were considered as the target population for the study.
Probabilistic sampling technique was used for this study because of its ability in giving equal chance for
selecting respondents from the total population. Thus, in order to collect the relevant data from the
appropriate respondents the study employed a probabilistic sampling technique known as stratified
random sampling that is computed proportionate to the size of employees in each department or division
of the factory. The sample size for this study was 258 which was determined using the simplified formula
developed by Yamane (1967)
The data gathered from various sources were processed using Statistical Package for Social Science
(SPSS) version 20. Different descriptive statistical tools such as percent, mean, standard deviation and
ranks have been used to analyze and interpret the results. The computed data are presented using tables,
bar graphs and pie charts followed by the corresponding interpretations. Qualitative data obtained using
interview were discussed in narrative way. In addition to the primary data, secondary data was collected
from the factory and used to support the investigation.
5. Results and Discussions
This section provides results and discussions of findings on risk management practice in the selected
factory. All data gathered through questionnaire and interview has interpreted and discussed under this
Page6
section. In order to collect the relevant data, 258 questionnaires were prepared and distributed according
to the number of samples. However, 250 questionnaires were returned duly completed. This constituted
96.9% of the total number of questionnaires distributed. This response rate was considered as very good.
6.1 General Background Information of Respondents
The background information of respondents was deemed necessary because the ability of the respondents
to give satisfactory information on the study variables greatly depends on their background. In the
following table, the demographic information of respondents is presented. The profile of the respondents
covers the respondents’ sex, age, education level, work experience and their position held in the
organization. To get information on these issues the respondents were asked a structured question and
their responses are presented and analyzed as follows.
Table 6.1: Profile of respondents (sex, age, educational level and position)
S.N0. Item Category Frequency Percentage
1 Sex Male 184 73.6
Female 66 26.4
Total 250 100.0
2 Age 18-30 years 110 44
31-40 years 98 39.2
41-50 years 36 14.4
Abov50 years 6 2.4
Total 250 100.0
3 Educational
level
A Certificate 28 11.2
B Diploma 78 31.2
C Bachlor degree 130 52
D Master and Above 14 5.2
Total 250 100.0
4 Position Top management 12 4.8
Middle level management 24 9.6
Supervisor 36 14.4
Operational level 176 70.4
Total 145 100.0
Source; Own survey result, 2020
The study captured gender of the respondents in order to establish the most dominant working group of
the employees in the organization. The findings revealed that 184(73.6%) of respondents were male while
Page7
66(26.4%) were females. This shows that the organization is highly dominated by males as indicated in
the above table 1. These findings represent the views of the two sex groups about risk management
practice. Hence, this was necessary for the study to get a balanced picture of the respondents. As
indicated in above table, majority of the sampled respondents 110 (44 %) was in the age range of 18-30
years, following by the age range of 31-40 (39.2%). This statistics depicts the fact that the company has
young and energetic work force.
The study sought to establish the background information of the respondents in terms of level of
education. Accordingly, out of the total number of respondents, 130(52%) of respondents bachelor
degree, followed by 78(31.2%) and 28(11.2%) of the respondents are college diploma and certificate
holders. The remaining 14(5.2%) of respondents are master’s degree and above holders. These results
indicated majority of the respondents have a good level of educational qualification and also they were
equipped with the information concerning risk management practice and they were able to respond
accurately on the questionnaire given to them by the researcher.
It was important to analyze the position held by the respondents. From the findings, majority of the
respondents were working at operational and supervisor levels that scored as 176 (70.4%) and 36 (14.4%)
respectively. However, very significant number of respondents 24 (9.6%) and 12 (4.8%) of staff
respondents were held middle and top level management positions. Therefore, this can show as a best
representative of respondents to get holistic views regarding the risk management practice in the
company.
Figure 6.1: Working experience of respondents
Less than one year
1-5 years 6-10 years 11 and above years
Working experience
020406080
100120
5.2
40.4 3222.4 Frequncy
Percentage
The other background information of the respondents is years of working experience. As it is shown in
the above figure 4.1, out of 250 respondents, 40.4% of total respondents represent a group that covers 1-5
years of experience, 32% of total respondent-s represent a group that covers 6-10 years of experience.
The rest 22.4% of respondents were under the ranges of greater than 11 years of experience. As we can
observe from the chart, only 5.2% of respondents had less than one year. Therefore, from the total
number of respondents 54.2% which is above half number had more than 6 year experience. This implies
Page8
that most of the staff has enough experience to experience the type of risk happened and to perform
different risk management activities effectively.
6.2 Level of Knowledge Regarding the Following Different Type of Risks
It is obvious that without having adequate know how about different type of risk will be difficult to
employee appropriate techniques of risk management. Therefore, organizations should provide
continuous training to employees in order to have common understanding of risk and its mitigating
mechanisms. If this is ensured in an organization, then active involvement of all employees on risk
management activities is there. Hence, the following tables an charts deal with the level of knowledge of
employees on different types of risk and the implication of risk management in their organization.
Table 6.2: level of knowledge about each risk type
Types of risk
Response
Tota
l
Very low low Average High Very high
Credit risk N 65 102 48 26 11 250
% 26 40.8 19.2 10.4 4.4 100
Market risk N 8 12 32 116 82 250
% 3.2 4.8 12.8 46.4 32.8 100
Legal risk N 0 37 8 134 79 250
% 0 14.8 3.2 53.6 31.6 100
Security/sefty risk N 4 7 18 118 103 250
% 1.6 2.8 7.2 47.2 41.2 100
Technological risk N 68 94 28 48 12 250
% 27.2 39.2 11.2 19.2 4.8 100
Natural hazard risk N 30 21 61 90 48 250
% 12 8.4 24.4 36 19.2 100
Financial risk N 27 40 38 81 62 250
% 10.8 16 15.2 32.4 24.8 100
Political risk N 6 12 6 152 74 250
% 2.4 4.8 2.4 60.8 29.6 100
Environmental risk N 0 8 42 141 59 250
% 0 3.2 16.8 56.4 23.6 100
Source; Own survey result, 2020
In order to understand the level of knowledge across each risk category respondents were asked to select
their level of knowledge of each risk type from a five point scale of very high, high, average, low and
Page9
very low. Thus, for all risk categories the reported level of knowledge was between the scale of high and
very high for the majority of respondents. From this table 4.2, market risk, legal risk, security risk,
political and environmental risks are among the risk categories well understood by respondents. However,
the respondents have low level of knowledge on credit and technological risks. It is therefore concluded
that majority of risk categories were well recognized by the staff and this can help them to deal with each
type of risk.
This question was also asked during interview sessions. Hence, most the interviewees were responded
consistently that every employee in the company has enough know how about the type of risks and their
possible effect on the overall performance the factory.
Table 6.3: The achievement of company objectives heavily depends on effective risk management.
The achievement of company objectives heavily depends on effective
risk management.
Frequency Percent
I completely agree with the statement. 60 24
I partly agree with the statement. 109 43.6
I don't agree with the statement 81 32.4
Total 250 100
Source; Own survey result, 2020
As it is shown in the above table 3.1, respondents were asked whether achievement of organizational
objectives were heavily depending on the practice of effective risk management. Accordingly, majority
169(67.6%) of respondents were partly and completely agreed that risk management have an impact on
the achievement of the company’s objective. The rest 81(32, 4) of respondents were not agreed with the
statement that the achievement of their organization objective didn’t depend on effective risk
management. So, the result tells us achievement organization’s objective highly depends on the
implementation of risk management. This finding is in agreement with a study conducted by Nina and
Borut (2017), risk management in the pharmaceutical industry in Slovenian companies revealed that the
achievement of the company's objectives strongly depends on a successful risk management.
Page10
Strongly agree
Agree Neutral Disagree Strongly disagree
Total 0
50100150200250
6 1775 89
63
250
2.4 6.8 30 32 25.2
100
FrequencyPercent
Figure 6.2: Response on risk management committee at management level
It is depicted in the above figure 4.2 that regarding the establishment of risk management committee at
management level was not supported by 152 respondents (with an overall percent of 57.2%) which imply
a major of employees were not agreement with the statement. Very significant numbers (75) of
respondents were remained neutral with the statement that there is a risk management committee at
management level with an overall percent of 30%. The remaining 23 (9.2%) of respondents were fall
between “agree” and “very agree” scale as per the Likert type scale measurement used under this study.
This indicates that the factory didn’t have a functional risk management committee at management level.
Surprisingly, this result was confirmed during interview without deviation in their response. Thus, if this
is so it will have a negative impact on the overall risk management activities in the organization.
I completely agree with the statement.
I partly agree with the statement.
I don't agree with the statement
Total
0 50 100 150 200 250
60
109
81
250
24
43.6
32.4
100
Percent Frequency
Figure 2: Response on establishment of independent risk management office (Risk manager)
The respondents were asked to indicate their level of agreement with establishment of independent risk
management office (Risk manager) in organization. To this question they responded as provided in figure
4.2. Hence, as shown in the above figure majority 109 (43.6%) of respondents were partly agreed with the
statement. However, 84(32.4%) of respondents were disagreed with establishment of independent risk
management office (Risk manager) in their organization. The remaining significant number 60(24%) of
respondents were completely agreed with statement. From this result the overall response of respondents
is approached to the existence of independent risk management office (Risk manager) in the organization.
Page11
This finding confirms to the result of the study done by Bisrat (2018), on enterprise risk management
practices found that 175(98.9%) of the respondents agreed the establishment that assignment of an
independent area or personnel (Risk manager) specifically for risk management function in the
companies.
6.3 Risk Management Process
In order to establish a effective organization wide risk management practice a comprehensive systematic
disciplined and proactive process should be in place where the identification, assessment, management
and monitoring of risk on strategic and division or department levels. For this reason, this part deals with
each step of the risk management process that makes up the risk management framework.
6.3.1 Risk identification
Risk identification is a disciplined process that involves using checklists of the risks. It is considered as
the first step of the risk management. The main objective of risk identification is to identify the risks that
can have an effect on the organization capability to achieve its objective. This risk can be internal or
external.
Table 6.4: Risk identification activities
List of activities N Mean Std. Deviation
The organization has identified loss event from each risk types
using internal or external data250 2.5128 1.14413
The organization employs different risk identification methods e.g.
risk analysis questionnaire, flow-chart method and statistical
records.
250
2.6410 1.49538
The organization conducts workshops or panel discussions to
identify risks in each activity.
2502.9231 1.45791
The organization policy encourages training programs in the area of
risk management
2502.8718 1.30141
The current risk management practice provides information about
the different types of risk exposures of the organization
2503.2051 1.47219
The organization has developed a risk profile or risk matrix 250 3.8462 .84413
Risk identification ( inspection) is done by assigned managers 250 3.4615 1.33468
Risk identification involve all level of staff 250 3.1026 1.46530
Roles and responsibilities for risk identification are clearly defined 250 2.5128 1.23271
Source; Own survey result, 2020
According to table 6.4 the respondents agreed that the organization has developed a risk profile or risk
matrix with a representative mean score of 3.84. The corresponding standard deviation also reviled a
Page12
value of 0.84 which is less dispersed result. On this regard respondents were almost agreed that risk
identification is mainly done by assigned risk manager and the current risk management practice provides
information about the different types of risk exposures of the organization with representative mean
scores of 3.46 and 3.20 respectively. On the contrary, the standard deviation values of the statements
suggest varied responses from the respondents having the result of 1.47 and 1.33 respectively. This
finding is in line with the study conducted by Hiwot (2017) that found the respondents agreed that risk
inspection was done by managers with a mean value of 3.34.
From the information collected from respondents according to table 6.4 respondents were also asked to
forward their level of agreement on activities of identification of loss event from each risk types using
internal or external data and clear definition of roles and responsibilities for risk identification. Thus, they
were moderately agreed with the statements with similar mean value of 2.51. Parallel to this the standard
deviation values of these statements suggest varied responses from the respondents having the result of
1.41 and 1.23 respectively. From this finding it can be concluded that the organization was good on
performing risk identification activities.
6.3.2 Analysis and Evaluation
This section contains the findings in respect to objective two which sought to assess the risk in insurance
companies. This table displays the risk classification method used in the assessment process. It is the
compression of the estimated risk to given risk criteria using a quantitative and qualitative scale to
determine the significance of the risk. The respondents were asked to indicate their level of agreement
with the following statements that relate to the assessment practice in insurance companies. To this they
responded as provided in the following table 5.
Table 6.5: Risk analysis and evaluation activities
List of activities Number Mean Std. Deviation
Statistic Statistic Statistic
Risks are evaluated with assumptions and uncertainties being
clearly considered and presented.
2502.0333 .70088
Risk is evaluated in terms of both quantitative and qualitative
values.
2504.5385 .64262
Measurement of both of the quantities in risk assessment is
concerned potential loss and probability of occurrence
2504.4359 .82062
A risk is often treated differently considering its potential loss and
probability of occurrence
2502.7436 1.16343
The organization finds it difficult to prioritize its main risk 250 2.2051 1.03057
Source; Own survey result, 2020
Page13
The researcher was tried to collect data on both risk analysis and risk evaluation inseparably through
preparing accommodative questions. Thus, as we can see from the table 6.5 majority of respondents were
almost highly agreed with statement that risk is evaluated in terms of both quantitative and qualitative
values with representative mean score of 4.53 and less deviation of their response having standard
deviation value of 0.64. This result is similar with the study conducted by Antonio and Silvia (2016), on
risk tools for the assessment of strategic risk: an exploratory study large manufacturing firms from Italy
shows that, in most cases (82.9%), firms opt for the application of both quantitative and qualitative
techniques whereas 12.2% mainly ground the assessment on the use of quantitative techniques only.
In addition to this, respondents were also agreed with less difference of their responses on the statement
that measurement of both of the quantities in risk assessment is concerned potential loss and probability
of occurrence as it is seen the mean score of 4.43 from the table. The organization has put some efforts to
treat risks differently considering their potential loss and probability of occurrence which is scored a
mean value of 2.74. However, the organization were not effective on evaluating risks with assumptions
and clearly considering and presenting uncertainties as it can be inferred from the lowest mean score 2.03.
Overall, the scores indicate that the organization is in average performance in implementing risk analysis
and evaluation activities. However, interviewees were strongly responded that risk analysis and
evaluation was practiced successfully. This shows there is in consistence regarding the practice of risk
analysis and evaluation and this would require unreserved commitment of managers in order to narrow
the gap.
4.3.3 Risk response/control
Risk response /control include decision making to reduce and/or accept risks. The amount of effort used
for risk response should be proportional to the significance of the risk. This section contains the findings
in respect to risk response in the factory. The respondents were asked to indicate their level of agreement
with the following statements that relate to the assessment of risk response in the factory.
Table 6.6: Risk response techniques
Techniques N Minimum Maximum Mean Std. Deviation
Mitigation 250 2.00 4.00 3.3846 .74747
Avoidance 250 1.00 5.00 2.1795 1.04810
Retention/Assumption 250 1.00 5.00 4.5897 .75107
Transfer/Insurance 250 1.00 5.00 3.2308 1.44115
Source; Own survey result, 2020
According to Nina & Borut (2017), companies are more and more dependent on the ability to deal with
uncertainties and employ successfully risk response and control tools. In this regard, respondents were
asked to forward their level agreement on the listed risk response and control tools to select which
Page14
technique or tool was successfully applied in the factory. Hence, According to the survey results given in
Table 6.6 majority of respondents were put their maximum agreement on risk retention/assumption
following by risk mitigation with representative mean value of 4.58 and 3.38 respectively. The standard
deviation value for both tools was also shown invariable response of all respondents as it can be inferred
from the similar value of 0.75 and 0.74 correspondingly. In addition to these tools the factory was also
used risk transfer/insurance as third method of risk response as the mean value of respondents fall above
average which is 3.23. However, avoidance was not used as a means of risk response technique. This result is in accordance with the information collected through interview. Concerning this the
interviewee was responded that retention and mitigation were the most used risk response techniques. The
deputy manager said in his mother language “መ ጀመርያ ኩሉ ዓቕምናን ልምድናን ተጠቒምና ንምቁፅፃር ንፍትን
ካብኡ ሓሊፉ ንዘጋጥመና ሓደጋ ወይ ፀገም ከዓ ንቕብል እምበር ንሽግር ፈሪሕና ከይገበርና እንሓድጎም ነገራት ውሕዳት ” እዮም when we translate the statement, it has the direct meaning of “first with our experience and
capacity we try to mitigate any risk or problem, but if the risk is still happened we have to assume it rather than abandoning our assignments due to the fear of associated risk.” So, having the result of the analysis and the information gathered from interview, it
can be concluded that the organization is active on applying risk preventive instead of avoidance and also
we can inferred that the organization has the motive of risk taking.
6.3.4 Risk Communication, Monitoring and Review
The risk management process is cyclical in nature hence it should be made an integral part of
management to successfully run the organization. The final step in risk management process is an
ongoing review that monitors the progress s according to the goals established. This section contains the
findings in respect to communication, monitoring and review. The respondents were asked to indicate
their level of agreement with the following statements.
Questions on these areas were put before the respondents and the results indicate regarding availability of
good communication, monitoring and review activity for risk management practice
Page15
Table 6.7: Risk communication, monitoring and review activities
List of activities N Mean Std.
Deviation
Risk management program is well documented 250 1.7179 .88700
Risk management efforts are supported by senior management 250 1.6667 .66227
Employees are properly trained on risk management policies of the
firm.
2502.0000 .64889
Monitoring the effectiveness of Risk management is an integral part of
routine management reporting.
2502.0000 .94591
The roles and responsibilities of each employee in the risk
management efforts of the firm are well communicated to them.
2501.9744 .58432
Internal auditors report on the effectiveness of the risk management
process periodically.
2502.9487 1.33670
Risk capacity of the organization clearly communicated to the
employees.
2503.2051 1.47219
The organization has internally developed risk Management
procedures or guidelines
2502.5128 1.23271
Source; Own survey result, 2020
It is important to note that risk monitoring and review is an essential process in risk management. Without
putting into practice this last process constantly it is ashamed to say risk management is implementing
effectively. According to the American Academy of Actuaries (2013) measures of accumulated risk
exposures are often required for risk monitoring and review phase of risk management process. As
reported in the above table 6.7 out of all activities applied in risk monitoring and review, respondents
were put their idea on moderate degree agreement with the activities that risk capacity of the
organization clearly communicated to the employees and internal auditors report on the effectiveness of
the risk management process periodically having respective mean value of 3.20 and 2.94. From the other
aspects development of risk Management procedures or guidelines has average mean score of 2.51. The
finding shows most of the respondents were not in agreement with the remaining important activities. The
overall mean scores are below 2.00 which represent the low extent as per the likert scale used in this
study. This implied that all the activities were below average except the two aspects that have moderate
agreement by respondent. However, no activity was practiced in good manner as per the respondents
answer. Therefore, it can be conclude that the organization is poor in implementing the last aspect of risk
Page16
management process and this will make fruitless even the company has performed all other activities
strongly.
6. Conclusion
The purpose this research was to assess risk management practice in pharmaceutical industry. It has done
based on the risk management framework or process which was guided by specific objectives. Based on
the study findings, the majority of risk categories were well recognized by the staff and this can help them
to deal with each type of risk and the organization has ensured a one step forward in establishing
independent risk management office. However, it didn’t form a functional risk management committee at
management level. Therefore, this may have a negative impact on the overall commitment of risk
management.
Regarding the risk management process, risk identification was well performed comparing to other
activities. The organization has developed a risk profile or risk matrix and this was done by assigned risk
managers. The finding also revealed that risk is evaluated in terms of both quantitative and qualitative
values. However, there was a weakness on treating risks differently considering their potential loss and
probability of occurrence. This shows there is inconsistence when organization is stepping from risk
identification phase to analysis and evaluation.
The other issue was concerning risk response techniques. The factory was focused on risk retention and
risk reduction (mitigation) rather than using avoidance as means of risk control tool and this can be lead it
to develop risk taking habit. But as per the finding, the factory was not wise on considering circumstances
to decide on the techniques. The last element in risk management process is communication, monitoring
and review activities. Here in this regard the factory is too weak to perform the required activities. Risk
management program is not well documented, risk management efforts are not supported by senior
management and the roles and responsibilities of each employee in the risk management efforts of the
firm are not well communicated. It can be conclude that the organization is ineffective in implementing
the last aspect of risk management process and this will make unsuccessful even the company has
executed well all other activities.
The overall result of the study shows most of the element of risk management practice are in moderate
extent and this point out most of the respondent are in neutral agreement which shows they are not sure
whether risk management was practiced effectively or poorly.
7. Compliance with Ethical Standards
While the researcher seeking data from the respondents it was in keeping the moral and dignity
of the informants by safeguarding the wellbeing of its participants by not causing and exert any
mental or physical influence before, during and after the final collecting of the questionnaire. All
Page17
the research participants who were involved in the study were appropriately informed about the
purpose of the study and their willingness and consent is secured before the distribution of the
questionnaire and beginning of the interviews. In protecting the right to privacy of the
respondents, the researcher maintained the confidentiality and identity of each participant. In all
cases, names kept confidential and therefore a collective name such as respondents will be used.
8. Acknowledgment
First, and foremost, I thank God for giving me the opportunity who has created this world of
wisdom for me. I thank our lord for his protected and brightened direction of my personal and academic
journey.
I gratefully acknowledge the employees of Addis Pharmaceutical Factory (APF) who dedicated their time
to fill my questionnaire and respond the provided interview. Moreover, I extend my thanks to all my
colleagues and my friends who help me to complete this research paper.
Finally, I would like to thank all people involved directly or indirectly to finalize this study. This is
because; the successful completion of this thesis could have been difficult without the encouragement,
support and cooperation from these above mentioned individuals who assist me in many different ways.
9. Reference
American Academy of Actuaries (2013). Insurance Enterprise Risk Management Practices. Retrieved on
December 4, 2020, from http://www.actuary.org/files/ERM_practice_note_030713_exposure.pdf
Antonio C. & Silvia I. (2016). Risk Tools for the Assessment of Strategic Risk: An Exploratory Study.
International Journal of Business and Social Science Vol. 7, No. 12. University of Udine, Udine,
Italy.
Bhimani, A. & Bromwich, M. (2010), Management accounting: retrospect and prospect. Oxford, UK:
CIMA.
Bisrat G. (2018). Assessment of Enterprise Risk Management Practices in the Ethiopian Insurance
sector, Master’s Thesis. Addis Ababa, Ethiopia.
Brako, S., Asante, D. & Akosah, N.B. (2016). Investigating the Risks in the Pharmaceutical Supply
Brako, S., Asante, D. & Akosah, N.B. (2016). Investigating the Risks in the Pharmaceutical Supply
Chain in Ghana. International Journal of Academic research in Business and Social Sciences.
6(6), 7-21. DOI: 10.6007/IJARBSS/v6-i6/2176.
Breen, L. (2008). A Preliminary Examination of Risk in the Pharmaceutical Supply Chain (PSC)
Chain in Ghana. International Journal of Academic research in Business and Social Sciences.
6(6), 7-21. DOI: 10.6007/IJARBSS/v6-i6/2176.
Page18
Fraser, J. R. S., & Simkins, B. J. (2016). The challenges of and solutions for implementing enterprise
risk
Hiwot T. (2017). Assessment of Risk Management Practice of Insurance Companies in Ethiopia.
Master’s Thesis, ST. Mary’s University, Addis Abba, Ethiopia.
in the National Health Service (NHS) (UK). Journal of Service Science and Management. 1(2),
Kesic, D. (2011). Pharmaceutical Industry in Strategic Development, International Jounral of Economics
and Resarch.2 (6), 29-37.
Mills, A. (2001). A systematic approach to risk management for construction. Structural Survey, 19,
245-252.
MS ISO 31000:2010), Risk management – Principle and Guideline, Department of Standard Malaysia.
Nina B. and Borut J. (2017). Risk Management in the Pharmaceutical Industry in Slovenian Companies.
Logistics & Sustainable Transport Vol. 8, No. 1, May 2017, 42–49 doi: 10.1515/jlst-2017-
000442.University of Maribor/Faculty of logistics, Celje, Slovenia.
Patterson, F. D., Neailey K. & Kewley, D. (1999). Managing the risks within automotive manufacturing.
Risk management: An International Journal, 1 (3): 07-23.
Power, M. (2007). Organized uncertainty – Designing a world of risk management. Oxford, UK: Oxford
University Press.
Rohaninejad, M., & Bagherpour, M. (2013). Application of risk analysis within value management: A
case study in DAM engineering. Journal of Civil Engineering and Management, 19: 364-374.
Siegfried, A. 2013). Integration of Risk Management into existing pharmaceutical Quality Systems.
Montan University, leoben.
Spilker, B. (1998). Reducing Pharmaceutical Risk. In: Drug News Perspect, Vol. 11, No. 6, p. 325.
Weighting (SAW) Methods. Journal of Pharmaceutical Policy and Practice. 8(9), 1-10. DOI:
10.1186/s40545-015 0029-3.
Statista Inc. (2017). Top 10 biotech and Pharmaceutical Companies Worldwide Based on Market Value
in 2016 (in billion U.S. dollars). Retrieved January 15, 2020, from
https://www.statista.com/statistics/272716/global-top-biotech-andpharmaceutical- companies-based-on-market-value/
Subramaniam, N., Collier, P., Phang, M., & Burke, G. (2011). The effects of perceived business
uncertainty, external consultants and risk management on organisational outcomes. Journal of
Accounting &
Svensson, G. (2004). Key areas, causes and contingency planning of corporate vulnerability List of
literature in supply chains. In: International Journal of Physical Distribution & Logistics
Management, Vol. 34, No. 9, pp. 728-748.
Page19
The Chartered Quality Institute (ed.) (2010). A Guide to Supply Chain Risk Management
Page20