Topic 4 - Setting Objectives and Strategy

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Module: Risk Management

Unit 1: Risk analysis

Topic 4: Setting Objectives and Strategies

(SH)1. Introduction

In the previous topic you were introduced to the idea of strategic decision making and

the role of managing risk in this context was discussed. Strategy guides risk

management and the process of managing risk. In this topic you will be dealing with the

first step in the risk management process, that is setting objectives and strategies.

During the course of this topic you will be introduced to a hierarchy of objectives. This

hierarchy arises out of the steps required to set strategies for the organisation. The

hierarchy includes the formulation of a mission, this is the overall aim or reason for being

of the organisation. In order to achieve this mission long term objectives are set, these

being objectives to be achieved during a period exceeding one year. Short-term

objectives are then set which are achievable within, normally, one year, these being

aimed at fulfilling the long-term objectives and the mission. At the bottom of the hierarchy

are policies that are designed to fulfil the previous three levels. This hierarchy of

objectives will be discussed below.

(SH)2. Objectives

By the end of this topic, you will be able to:

0* formulate a mission for an organisation or individual

1* devise suitable long-term objectives and strategies to achieve the mission

2* devise suitable short-term objectives and strategies to achieve long-term objectives

and the mission

3* discuss the nature of policies.

(SH)3. The mission



The mission of an organisation is the unique purpose that sets it apart from other

companies. It is a statement, either written or implied, of the company's overall reason

for being. It describes the company’s product, market and technological capabilities in a

way that emphasises the values and beliefs of the organisation and its decision-makers.

This formal statement of the firm’s reason for existence guides it into the future. It states

what or who the firm or individual is. Many organisations include a statement of their

mission in their annual statement of accounts or hand a copy of it to their employees.

(SSH)3.1 Mission for a function

In the same way that an business publishes its mission, each function within the

business may also formulate its own overall philosophy or mission. Risk management is

no exception to this rule. Many large businesses have developed a risk management

mission.

(SSH)3.2 The Risk Management Mission

The risk management mission aims to advise those affected by its activities of its role.

It often takes the form of a risk management statement that outlines the businesses’

approach to the management of risk.

The risk management mission sets out the responsibilities of risk management as being:

risk identification

risk evaluation

risk control

risk financing—including insurance.

In a business where there is no formal risk management department the task may be

spread among other functionaries. Despite this there should be some direction given as

to the firm’s mission and objectives for handling risk. Sometimes risk control is left

outside the remit of the risk manager who acts in an advisory capacity. For example a



safety officer may be employed to deal with safety issues. As safety is an important part

of risk management it should be included in the risk management mission.

The risk management statement may also set out who is responsible for risk

management. For example, the Telecom Éireann statement provides that all personnel

are responsible for risk management in the sense that they have a duty to act in such a

way as not to cause harm to others. In some of the local authorities risk management is

stated to be the remit of the County Treasurer. Each organisation should decide for itself

how risk management is to be handled depending on its own philosophy. The main

concern is that there should be a statement about risk management issues which is

supported by the most senior person in the organisation. Many firms in Ireland, because

of the lack of development in the field of risk management, rely on a safety statement as

being there sole declaration as to how risk should be managed. This is insufficient andlimiting as the risk management mission should be aimed at achieving the overall goals

of the organisation. A safety statement only complies with the requirements of the Safety,

Health and Welfare at Work Act, 1989 (SHAWAWA) and not with the overall risks faced

by the organisation. The Turnbull report and the preceding reports (the Cadbury and

Hampel reports) make interesting reading in this regard.

SAQ. 1. Develop a mission for the management of risk in Siobhan's organisation,

Kerlock stables.

(SH)4. Long-Term Objectives and Strategies

The overall mission guides the organisation in its development of long-term objectives

and strategies. Long-term objectives usually cover a period of time between one and five

years or more and set out what the organisation hopes to achieve over this period in line

with the mission.

Long-term objectives should have these specific qualities:

1 Acceptability—personnel are more likely to achieve objectives that coincide with their

own perceptions and preferences. If employees find objectives objectionable or

unfair they may ignore them or even find ways of actively ensuring their failure.



2 Flexibility—they must be flexible and capable of change when required.

3 Measurability—they should be measurable so that the business can judge when an

objective is achieved. An objective to provide the safest horse riding facilities in

Ireland is not measurable. A better statement would be that within the next five years,

a policy will be implemented whereby all staff are trained in lifting so that back

injuries are reduced by 90 per cent. This is measurable. The owner of the stables will

be aware when the objective has been achieved.

4 Motivation—the objectives must be challenging but not beyond the capabilities of the

organisation. The challenge provides motivation but, if it is too hard, it won't be

pursued.

5 Suitability—the objectives must be aimed at achieving the broad aims of the

organisation.

6 Understandability—the individuals who are to achieve the objectives must be able to

understand what is to be achieved.

7 Achievability—the objectives must be achievable. It is no good stating that it is the

intention of the stables to train a horse that will win the Leopardville stakes when the

facilities are not available to achieve this desire. This is wishful thinking rather than

an objective.

Some examples of long-term objectives that might be set by the risk management

function are:

1. ensure that all staff and riders complete a safety programme within the next three

years

2. ensure, within five years, that no rider is allowed to take an animal outside the

stables without having completed pony club level two training

3. establish a captive insurance company for the equine industry within the next five

years.

Once the objectives have been formulated, strategies will have to be developed to

achieve them. In the examples given above, training programmes will have to be

instituted. In the case of the last objective, a strategy to obtain agreement from other

members of the industry will have to be formulated.



SAQ 2. Develop three long-term objectives which would contribute to Kerlock Stables

risk management mission developed in SAQ 1.

(SH)5. Short-term objectives and strategies

Short-term objectives and strategies extend over a shorter time span—one year or less

—and have more specific goals than long-term objectives. However, they work towards

achieving the long-term objectives.

Returning to our list of long-term objectives in the previous section, the relevant short-

term objectives would be:

In order to achieve long-term objective 1: ensure that all staff and riders complete a

safety programme within the next three years

4* develop a training programme for staff within the next three months

5* have three members of staff complete a trainer’s course, including safety

aspects, within the next three months

6* ensure that all managers complete the training programme within the six

months following its development.

7* have all staff to complete the training programme within the next year

In order to achieve long–term objective 2: ensure, within five years, that no rider is

allowed to take an animal outside the stables without having completed pony club level

two training

8* establish a graded training programme for all novice riders

9* institute a training programme in the stables within the next six months so

that all new riders will complete a course to level one before taking horses out

of the stables.In order to achieve long-term obective 3: establish a captive insurance company for the

equine industry within the next five years

Ascertain within the next year how many people in the industry would be prepared to

contribute towards a captive insurance company.



Within the next year ascertain the total losses incurred by the industry in riding

accidents

(SH)6. Risk management manual

A further step in risk management is to produce a manual or set of policies. These are

sometimes called operating procedures. The manual sets out the day to day tasks of risk

management so that the persons responsible are aware of them. The policies included

in the manual are statement about how things are to be done and should be aimed at

achieving the objectives and overall mission of the organisation. This manual should

include:

all tasks required of risk management, including both pre-loss and post-loss activity

a safety statement as required by the Safety Health and Welfare at Work Act 1989

(SHAWAWA)

a statement of the aims of risk management and what the function means to the

organisation

a statement of who is responsible for the various aspects of risk management. This

will include the name of the safety officer, fire officer, security officer, insurance officer

or any other person responsible for risk.

If there is no risk management function, the manual will state where and by whom risk

management tasks are carried out.

The manual also identifies the various types of risk faced by the business. In this section

the classification of risks referred to in topic two can be used as headings. In the case of

a commercial organisation only business and environmental risks will be considered. In

a not for profit organisation business risks will still have to be considered. In the case of

a private individual the main heading will be personal risk. These risks can be further

sub-divided into the following classifications that can be used as headings to identify and

evaluate risks.



liability

property

personnel

pecuniary.

ecological

Furthermore, the manual must provide:

details of all risks that personnel face in the workplace1

a description of how the risk will be controlled, again a requirement of SHAWAWA

the procedure to follow after an incident—for example, it may state the location of the

first aid kit and the persons trained in administering first aid

the names of local hospitals and emergency numbers

information about how to record any accidents in the incident book. Such a record

includes details of how the accident occurred and the names of witnesses

details of insurance policies, as well as information about how to make a claim.

Through the risk management manual, all members of staff have access to information

about how to handle risk. The manual should be compiled by those persons who have

identified and evaluated the risks and are responsible for its control. It should include the

means used to identify risk including the methods discussed in the next two topics and

how risk is to be evaluated. This could include the methods referred to in topics eight

and nine. Some manuals could include legal considerations such as duty of care and

contracts as discussed in unit two. The manual provided by Irish Public Bodies Mutual

Insurance Company for use by the Local authorities does this. Similarly the means of

controlling risk, which is discussed in unit three, should also be included.

The manual should be seen to be endorsed by top management. This endorsement is

normally carried out by the CEO, including a message at the beginning of the document

to all employees. Depending on the nature of the business the manual could be very

large and therefore cannot be supplied to all employees but it should be available to

anyone who wishes to peruse it.

1 This could be an extremely lengthy section of the document.



The most salient points, such as who is responsible for safety, could be included in a

pamphlet handed to all employees or placed on the notice board. Certainly those risks

identified at each workplace should be promulgated to the employees affected by the

danger either by means of notices or pamphlets. For example stables which store their

own hay should ensure that the stable manager knows that this should be turned on aregular basis to prevent spontaneous combustion. The means of imparting the requisite

information to the relevant people will depend on the size of the firm. Each department

may be provided with a manual relevant only to the department whilst in a small concern

management may pass on the required information by word of mouth. With the higher

risks it is usually safer to ensure that there is a notice in place warning people of any

danger.

The manual should be under continual review by persons responsible for risk so thatwhen things change this should be done in conformity with the policies or, if this is

possible, amendments made to the manual to take into account the new circumstances

SAQ 3. List three short-term objectives that could be applied to Siobhan's establishment,

Kerlock stables.

(SH)7. Summary

In this chapter the hierarchy of objectives have been considered. At the top of the

hierarchy is the mission that sets out the organisation’s reason for being. This may not

necessarily be in writing but could be implicit in what is being done by the business. In

larger concerns there may also be a risk management mission that sets out the firm’s

attitudes to risk. This should be developed in conjunction with the overall mission of the

firm.

Long-term objectives are then set to achieve the mission, these are aimed at moving in

the direction set by the mission for the organisation. These objectives are set to be

achieved usually within five years of them being developed.. These can be set for the

organisation as a whole as well as within the various departments if the firm has them.

These objectives should aim at being achievable, flexible, measurable, suitable,

understandable, achievable and providing motivation to the employees and



management. In order to achieve these objectives short term objectives are set which

should be achieved within one year. These are more focused than the long-term

objectives but should still meet the same requirements. Thus through the short-term

objectives, the long-term objectives are met and eventually the overall mission. In the

case of risk management long-term and short-term objectives are compiled to meet theoverall mission of the firm with regard to the management of risk.

To further assist the overall aim of the firm policies are compiled to deal with various

eventualities so that a member of an organisation will know what to do when a particular

event occurs. Thus if an injury happens on a machine information is provided as to how

medical assistance can be obtained for the injured person. In addition to this provision

may be made for the possible legal action that could follow the event by setting out in the

policies that photographs should be taken of the machine immediately after the accidentand statements taken from any witnesses.

Now we will move on to look at the next step in the risk management process—

identification of risk.

Documents

Topic 4 - Setting Objectives and Strategy