Importance Of Stakeholder Management, Communication, And Consultation In Risk Management

Introduction to Risk Management

Discuss about the Risk Management for Communication and Consultation Process.

Risk management defined as the understanding, analyzing, and addressing the risk for the purpose of ensuring that management achieves their objectives. It is necessary that risk management process must be proportionate to the complexity and as per the involved organization. In other words, management of risk includes the process through which risk and threats are identified, assessed, and controlled in context of organization’s capital and earnings. These risks and threats can be shoot from different sources which also includes the financial uncertainty, legal liabilities, strategic management errors, etc (MAPL, n.d.).

This essay mainly discusses the statement “stakeholder’s management, communication, and consultation are important factors of the successful risk management”. This essay mainly discuss the importance of these important factors in context of the macro risks, micro risks, and risk arise from the behavior and activities conducted by visitors. It further explains the manner in which communication and consultation can be discussed. 

Risk management process is no longer special or optional in nature, as it is the most important factor which must be considered by the management each time they take the decision. It is most important process which is required for getting the best outcomes from the decision taken by the party. Management must focus on aligning the activities conducted by the organization and decision making process with the objectives and results that help the management in achieving their strategic goals or execute their operational plans in successful manner. All these activities are considered as the risk management, and there are some other elements also which make this process successful (Paladin risk, n.d..).

One of the most important elements of effective risk management process is the Communication and consultation. It is define as the necessary element for ensuring good risk management in the organization and because of this it is important to recognize this element at each stage of the risk management process (Adelaide, n.d.).

Another important element of the effective risk management process is the stakeholder management, as it is the theory which considers the organization as a complex, dynamic, and interdependent network which includes multiple relationships with different type of stakeholders. Performances and competitiveness depend on the way through which firm manage and encourages their relationships for achieving the objective of the organization (Zsolnai 2006). 

In context of the risk management, there is strong connection between the two elements that are stakeholder management and communication and consultation. There are number of benefits of communicating and consulting the stakeholders about the risks affects the organization and this includes high level of trust, effective contribution of the stakeholders in the risk management process and decisions which affect their future, availability of the high quality information for making the decisions, wider understanding in the community related to the constraints upon the firms. Stakeholders of the organization feel more involved and connected with the organization as they are involved in the decision making process and they also feel that organization consider their interest as well while taking the decisions. This process helps the management in creating the common understanding between all the groups of the stakeholders in the whole organization.

Communication and Consultation in Risk Management

Formal reporting of the risk to different stakeholders groups is considers as the particular form of the communication and consultation process, and there are some other factors also which focus on the effective communication and consultation process:

• Promotes the engagement and accountability of the different stakeholders group in the organization.
• Increase the information collectively for the purpose of reducing the risk of uncertainty.
• Management must focus on fulfilling the reporting and assurance requirements of different stakeholders groups exist in the organization.
• Ensure that relevant expertise is drawn in context of informing each and every step of the process.
• Information must be given to the stakeholders about the other entity process such as corporate planning and allocation of resources (Australan Government, 2016). 

It must be noted that, each and every group of stakeholders have different needs and expectation from the management of the organization. Good risk communication is important factor to fulfil these requirements. Development of plan in terms of communication and consultation process play important role in communicating the risk to the stakeholders in effective manner. The main aim of this plan is to make sure that right information is communicated to the right person at the right time. The plan developed by the organization must include the information such as entity’s attitude and approach to risk management, the risk profile, and particulars related to the control responsibilities and actions. Communication of risk is the most important process for the purpose of ensuring that risk management process of the organization is consistently applied and implemented at each and every level of the organization. Communication also promotes the transparency and result in the positive culture of risk in the organization. 

Communication and consultation deals with the identification of the relevant stakeholders of the organization, accountability level, develop understanding in context of risk perceptions, and also the decision making related to the risk management process. This process includes many important factors but does not limit to these factors:

• It is important to understand the interest of the stakeholders, and their involvement in the process of managing the risk of the organization.
• Stakeholder involvement in the identification of the risk.
• Ability to access the expertise of the stakeholders in analyzing the risks, defining the criteria of risk, and evaluate the results.

Effective communication and consultation is also important for the purpose of ensuring the accountability of those individuals who are responsible for implementing the risk management process in the organization, those who possess interest. This process also helps the management in understanding the basis on which these decisions are made and the reasons because of which these specific decisions (Freeman, 1984).  

Macro risk: Maocro risk is the financial risk that deals with the macroeconomic or political factors. These factors are implied in the organization in three ways that are Political risk found in different countries, economic and financial risk found in stocks and funds, and impact of economic and financial risk on political risk. Macro risk also includes the types of economic factors which direct impact the investments, assets, portfolios, and the intrinsic value of the organizations.

Macro risk factors are considers as those risk factors which base of the price movements in the securities that are underlying. Macro risk factors include the components of the financial risk. There are three types of macro risk factors that are Primary Risk deals with the Market Risk, Secondary Risk deals with the Sector Risk, and Idiosyncratic Risk deals with the Individual Stock Risk.

Stakeholder Management in Risk Management

Recent financial crises at global level brightly reflects that business organizations, markets and authorities are connected in such manner as it is not possible to explain that in brief. In short, these tree structures are interconnected and directly or indirectly impact the working of each other (WEF, 2009). This requires the shift of model through narrow and traditional concept of risk management which excludes the participation of the stakeholders to the modern model which give emphasis to the stakeholder’s participation in managing the risk and opportunities (Barnes, 2002).

Risk related to the macro factors not only required the effective management but also required whether this risk is communicated effectively to the stakeholders of the organization, so that they can take informed decisions. Communication and consultation with the internal and external stakeholders at each and every stage of the risk management process, especially at the time when first plans need to be considered and important decisions required to be made. 

In macro risk factors it is necessary to promote the effective communication and consultation for the purpose of understanding the perspective of each other and to take informed decisions. Stakeholders are the one which have direct impact of the financial risk, and this increase the accountability of the organization management to involve the stakeholders in the decision making process and informed them about all the relevant factors (Department of Finance, 2016).

Micro risk factors: Micro risk factors are considered as the political risk which affect the political actions in the host country, and this affect impact the particular foreign actions of the business organization in adverse manner. These risk factors can shoot from those events which may or may not rein government’s control.

In this communication and consultation process play important role because it engages the stakeholders groups at the initial stage of the risk management process. Communication and consultation of the micro risk factors to the internal and external stakeholders is important at each and every stage because these   factors also affect   the interest of the stakeholders groups in some manner.

In this context, organization while developing the communication plan can make sure that they include the evaluation of attributes related to the internal and external stakeholders at the early stage of the planning process. Stakeholders can also help the management in dealing with these risk factors and ensure that they can contribute as per their expertise level in resolving these issues.

In this management must also ensure that communication is the two way process which must include consultation also. In other words, only communication is not enough, stakeholders

Risk arising from visitor behavior and activities: Visitor risk management is defined as the systematic identification, analysis and control of the broad range of visitor’s risks which impose threats on the agency or its ability to achieve the objectives.

Managing the movements of the visitors and influencing their behavior are considers as the critical aspects of developing the sustainable tourism. Not only it is difficult to protect the values and attributes of the world heritage site, but it also help the agencies in contributing towards the high quality visitor experience. By managing the visitors of the flow, agencies can reduce the negative effects of the risk arise from the visitor behavior and activities and also maximize the opportunities in this context.

Communication and consultation process in this context focus on following factors:

• Provisions of the risk management plan must be communicated to all the relevant groups of the stakeholders such as agents, visitors, government authorities, etc.
• Communication process must be of two ways, which means it must include the consultation also. In other words, stakeholders must be consulted at the time of identification of the risky areas because they have potential to contribute more in this context.
• Communication and consultation plan must be developed, and such plan must focus on the liaison and networking. In other words, management can ensure through this plan the regular meetings with different stakeholders for the purpose of discussing the strategies, claims, etc.

Undertaken of communication and consultation process: Following are the most important factors which are used by the management to undertake the communication and consultation process:         

Conclusion: 

After considering the above facts, it is clear that communication and consultation play very important role in the risk management process. Stakeholders of the organization feel more involved and connected with the organization as they are involved in the decision making process and they also feel that organization consider their interest as well while taking the decisions. This process helps the management in creating the common understanding between all the groups of the stakeholders in the whole organization. 

References:

Adelaide. Risk Management Process. Retrieved from: https://www.adelaide.edu.au/legalandrisk/docs/resources/Risk_Management_Process.pdf.

Australian Government, (2016). Undertaking the Risk Management Process. Retrieved from: https://www.finance.gov.au/sites/default/files/comcover-information-sheet-undertaking-the-risk-management-process.pdf.

Barnes, P. (2002). Approaches to community safety; risk perception and social meaning, Australian. Journal of Emergency Management, 15 (3), 15-23.

Freeman, R. E. (1984). Strategic management: A stakeholder approach, Pitman, Boston, USA.

Department of finance, (2016). Communicating Risk. Retrieved from: https://www.finance.gov.au/sites/default/files/Communicating-Risk.pdf?v=2.

IRM, (2018). Communication and Consultation. Retrieved from: https://www.theirm.org/about/professional-standards/organisational-capability/communication-and-consultation.

IRMIA, (2015). Communication and Consultation. Retrieved from https://www.rmia.org.au/wp-content/uploads/2014/08/CPRA-Domain-1-Communication-and-Consultation-V1.pdf.

MAPL, (n.d.). Risk management. Retrieved from: https://www.mapl.com.au/risk/risk2.htm.

Paladin risk, (n.d.). Stakeholders in Risk Management. Retrieved from https://paladinrisk.com.au/stakeholders-in-risk-management/.      

WEF, (2009). Global Risks Report 2009. World Economic Forum, Davos, Switzerland.

Zsolnai L. (2006). Extended stakeholder theory. Society and Business, 1, 37-44.

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