Mathematics and Computers in Biology, Business and Acoustics

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1 Risk Management Uncertainty and Risk SECĂREA TUDOREL, PH.D., ASSOCIATE PROFESSOR Economic Sciences Faculty George Barițiu University Lunii Street, No. 6, Brasov City ROMANIA Abstract: - This paper deals with the risks involved in a new investment of a glass production company. The purpose of this investment is the purchase of equipment for producing laminated glass and "Heat Soaking Test". For this investment the risks are inherit, so the company analysis the risks, hierarchies them and is taking measures to prevent and manage their effects. Key-Words: - risk, management, uncertainty, risk analysis. 1 Introduction STIMAS PRODUCT Company has developed a new activity, based on the concept of glass as an element of modern architecture. The company is noted for quality products and services offered the quality, reliability and professionalism of staff and the flexibility and capability of finding solutions for various special applications. The company philosophy is continuously orientated to customer satisfaction by adopting a modern, transparent climate and dynamic development of relations within, but also with business partners. The company technology and related know-how is complemented by a team of young, educated employs, which makes it possible to transform into reality the most innovative architectural concepts. The company operates in an environment that is constantly changing, characterized by uncertainty. Change is not an event but a process to which the organization must adapt. Thus STIMAS PRODUCT Company wants to develop the range of products offered. STIMAS PRODUCT Company exists with a purpose (mission) to provide glass products and get financial results. The organization's management is primarily concerned with achieving the targets. Due to the changing environment (uncertainty) involved, risks occur. The task of management is to manage these risks appropriately so as to maximize the probability of achieving the targets set. How available resources are finite, the aim is to respond in an optimal way to risks, prioritized, based on an assessment on these risks. Taking risks is necessary for the development of a new investment project. The only way to avoid risk is to do nothing. For example, a plane is safer on the ground, but this is not the purpose for what was purchased. Managers must have the skills and means to enable them to obtain a reasonable assurance of achieving objectives with a reasonable degree of efficiency. Regarding the company STIMAS PRODUCT approaches, we consider: Old approach: solving problems encountered (firefighter style - "extinguish fire"), treat the consequences of risk; New approach: identify the significant risks that may affect the objectives, evaluate and prioritize them and then determine measures to manage them. Risk is any event, action, situation or conduct with adverse impact on the entity's ability to achieve its objectives, risk is a problem (situation, event, etc.) which has not yet occurred but could occur in the future, in which case getting results is threatened ore potentiated. In the first situation, risk is a threat, and the second, risk is an opportunity. Risk analysis: a tool for making decisions to pursue the consequences of alternatives. The need for analysis of risks: employees (management or executive) make decisions every day about how to do a goal (activities / project), how to allocate its time and resources and what information are very important to be reported for the organization. First, risk management does not mean that employees have "risk aversion" but "to understand the risks". Risk management is a logical and systematic method of establishing the context of identifying, ISBN:

2 analyzing, evaluating, monitoring and communicating risks associated with any activity, function or process in a manner that allows organizations to minimize losses and maximize opportunities. Studies on risk management have revealed that organizations better manage the risks of low and predictable level than large level and strategic risks. 2 Problem Formulation The purpose of this investment is the purchase of equipment for producing laminated glass and "Heat Soaking Test". For site preparation is necessary to provide a space for oven, delivery of utilities (electricity, gas, compressed air) and to ensure proper mounting of the equipment that will serve the system (loading, transportation, vacuum pump, air cooling). All such utilities and location are ready for installation. The machine requires implementation of modern technology (less than 3 years old) and it is certified according to specific international standards. The need for investment is diversification to ensure company survival and development. The processes realized by the new machine are: 1) Stratification: to be sealed in an autoclave at pressure, by combining two sheets of glass with layers of elastic plastic (polyvinyl butyl film - PVB). The film generally has a thickness of 0.38 mm or multiple of this value. The symbol for laminated glass is made by two figures: the first is thick sheets of glass (eg. 6 represents two sheets of glass with a thickness of 3 mm each) and the second figure is the PVB film thickness (eg mm film, mm film, mm film, mm film). This process generates laminated glass thicknesses from 6.1 mm up to 12.4mm. 2) Thermal shock test: the same equipment is used to heat glass at an average temperature of 290 degrees C for 4-8 hours. This process is used to discover the hidden tensions that could lead to cracking of glass and breaking it. The tests are required by European standards for better security in the glass products industry. The test is Destructive for non-compliant products (these developing cracks), and the line remains intact. The resulting product from the process provided by this machine is laminated glass. It is made of two or more sheets of glass joined (in the special conditions of temperature and pressure) through a sheet of polyvinyl butyl (PVB or EVA Safe) standard thicknesses of 0.38 mm, 0.76 mm, 1 52 mm, or more, depending on requirements. In case of failure, the advantage of using laminated glass is that glass fragments will remain stuck to the foil avoiding injuries. Laminated windows have increased resistance to bending or breaking. By using this range of materials it is possible to realize thermo-acousticisolated windows that provide personal security, high resistance to breaking. Laminated glass is recommended for protection against vandalism, burglary entry, destruction by shooting and explosions. Laminated glass can be obtained from combinations of float glass (standard glass produced from molten metal bath), tempered safety glass, colored glass or glass with sunscreen. In addition, all units of laminated glass can then be used to achieve insulated glass. Areas of use: windows, doors, domes, ceilings, roofs, glass roofs, partitions, railings, floors, stairs, glazing risk areas (gyms, schools, kindergartens, hospitals, etc.), passenger shelters (stations, transport stations) and parapets. Heat soaking thermal shock test involves: nickel sulfide inclusions normally found in any type of raw glass (including due to process of manufacturing) increase their volume in the presence of high temperatures. The balance of tensions inside the secured glass occurs in these places and so-called spontaneous breaking. To minimize this risk is recommended for windows to be treated by "heat soaking" test. The windows are kept for this test in oven at an average temperature of 290 degrees C for 4-8 hours. These tests are required by European standards for curtain walls, both structural and semi. 2.1 Project risks This project has a high risk potential. We must analyze the risk tolerance. So, risk tolerance (risk appetite) is the "quantity" of risk that an organization is prepared to tolerate or who is willing to expose them to a point. There is no more a risk when it occurred and then only measures to limit the consequences / impacts (fire extinguishing). Internal control is just one of the possible answers to risk management. Options for managing risk: tolerance, in which case the risk is ignored; transfer, the risks are moved to another task (eg. an insurer); the end, meaning the elimination of risky activities (risk-generating activity quit); the drawing of benefits from the opportunities which may arise from risk; ISBN:

3 treatment, when acting on the internal controls to make the risk into a residual risk. Possible confusion: perception of risk management as an integrated internal control system, when in fact, internal controls are only an organization's response to identified risks. 2.2 Risks categories The objectives can be formulated: strategic, tactical, and operational; risk hierarchy will be the same. Strategic risks: factors which may affect the organization's efforts to achieve medium and long term objectives. Examples: rising inflation, increasing the rate of euro / ron. Usually, tactic risks are external risks: political, socio-cultural, technological, legal, environmental. Operational risks: risks relate to current operations of the organization. Analysis and identification of risks STIMAS PRODUCT manufacturer intends to be the market leader in sales of industrial glass products. To this end, there are several objectives to be achieved: Appropriate design of glass product to sell best; Their production at low cost; Maximizing sales. Each of these objectives cannot be achieved if something goes "wrong". Example: manufacturing defects (failure of the goal of market leadership). The purpose of risks identification is to obtain a comprehensive list of events that may affect each objective of the organization, including possible causes and scenarios, so that risks are well understood and management will keep them under control. This actually means to "control the risks". To define the risks must always pursue the operational plan. Technologic process flow description The production of the company is divided into two profit centers, as follows: a) Profit center 1: Glass cut to size; Insulating glass units (or polyurethane sealant / structural sealant). b) Profit center 2: Thermal safety glass; Laminated Glass; Etched glass; Other products: processed glass (drilled, sanded, cut). c) Other products: finished products processed by third parties. These products are taken from the warehouse of finished products and prepared for delivery to beneficiaries. 3 Problem Solution To identify risks: internal controls are not the only risk management. If certain levels of risk (impact and probability) can be reduced by implementing internal controls, others do not. They are mostly those that are beyond the control of the organization. Risk management must be performed at each level. Approach: 1. From top to bottom: means that the board identifies key risks and then they move to management for analysis. Advantages: It has concern for strategic issues; The input is very high at top management; Consistency in the structure of the organization. Disadvantages: Lack of details (a director does not know the details); Lack of input from lower levels; Root causes can get away. 2. Bottom up: the first line of management means identifies key risks and then they re moved to top management for analysis. Advantages: The input is very high at all levels; Useful in identifying root causes. Disadvantages: High volume of detail; Lack of strategic direction; Greater efforts to collect and analyze data. Risk is measured in terms of probability and impact. We connect the business risks that impact an organization on achieving its objectives. Implication: if you do not know clearly what the objectives are, you do not have the necessary capacity to manage risks. Impact: what actually happens in an organization if the risk materializes (the effects of risk materializes). The impact can be, most of time, financial (loss of 100,000 euros), can stop or reduce the activity (fall network computers in accounting department), loss of customers, etc. Probability: chance contingency, including the possibility of it to happen. ISBN:

4 In our project, we have identified the following risks: 1. The decrease in the construction market; 2. Lack of liquidity to continue the company's business; 3. Increasing competition in this segment; 4. High price for products produced with this technology. above: Analysis of these risks, according to the to minimize the risks identified in order of obtained scores. 4 Conclusion Problems associated with risk management are difficult to solve and, therefore, graphical evaluation is increasingly used. In the figure below, taking into account the normal distribution for losses due to unwanted events, risk management action is shown to reduce losses. Establishment of risk assessment factors and their weights Risk analysis criteria Weight of each criterion of risk analysis - assessment of project management - quantitative assessment, namely the financial impact 50% 40% Effects of risk management - qualitative assessment, that vulnerability 10% - determining the total score for risk placement it s made using the following formula: P total = N i x P i where: - P total = total score; - Ni = risk level for each criteria used; - Pi = risk weight for each criterion. Calculation for identified risks: P 1 =2X50%+3X40%+2X10%=2.4 P 2 =3X50%+3X40%+3X10%=3.0 P 3 =1X50%+2X40%+1X10%=1.4 P 4 =1X50%+3X40%+2X10%=1.9 For an unwanted event which occurring is not expected, its losses have a normal distribution (curve A), while risk management control diminishes losses substantially (curve B), both during the prospective (before production) and especially during the reaction (after production). This is due to the knowledge and reaction to the event. In terms of costs (see figure below) note: the costs incurred due to the uncontrolled production of the undesired event (curve A) are less than before and have an exponential increase after production, costs due to implementation of risk management (curve B) are higher the first period of implementation (investment costs) and almost constant after implementation (operating and maintenance costs) and costs due to the unwanted event is implemented risk management (curve C), which do not grow too much after the occurrence of unwanted events (increase is controlled by effective management). Although the curves in the figure are qualitative, it is noted that if there is implemented a risk management costs to offset losses far outweigh those of implementation and operation of risk management (curve D). It was considered 1 a low level, 2 a medium level and 3 a high level. The scores obtained from the analysis carried out put the 2 criteria (lack of liquidity to continue the company's business) in the top highest score, the risk being highest on this criterion. The company will seek ISBN:

5 Cost distribution Risk management remains the first win of the growth opportunity that adds to the overall management, around the time of the unwanted event, both in terms of alleviating and eliminating human error, but also in preventing system failures. References: [1] ILIE, GHEORGHE; URDĂREANU, TIBERIU Securitatea deplină, Publishing House UTI, București, 2001 [2] ILIE, GHEORGHE; STOIAN, ION; CIOBANU VIOREL Securitatea informațiilor, Publishing House Militară, București,1996 [3] URDĂREANU, TIBERIU; ILIE, GHEORGHE; BLAHA, MIRCEA Securitatea instituțiilor financiar-bancare, Publishing House UTI [4] VLĂSCEANU, MIHALEA. Psihologia organizańiilor şi conducerii, Publishing House Paideia, Bucureşti, [5] NICOLESCU, OVIDIU; VERBONCU, ION. Metodologii manageriale, Publishing House Tribuna Economică, Bucureşti, [6] MASON, STEVE. Risk framework, Bucureşti, ISBN: