The Impact of Risk Management Practices on Organisational Performance of Mobile Operators Industry of Pakistan Working Paper Progress Report by: Waqas Haider

INTRODUCTION : Risk management (R.M) has been around for ages, it can be traced back to the era of Babylon 1800 BC (McNeil, Frey & Embrechts, 2005) . It is at present, that R.M need has been escalated due to changing global scenario. Nearly all industrial regulators have by now formulated official by laws and regulations to save the countries from economic recessions resulting from the waves generated by recent financial fiascos, naming a few Enron, World Com and Barings. These Regulations and best practices such as Basel I (1988) and II (1997) for banking institutions, Solvency I (1970) & II for European Insurance industry, SOX framework by American regulators for overall country wide industrial regulation and the Enterprise Risk Management (ERM) frameworks such as COSO (2004) and RIMS (1975) for the general Non financial industries, are being adapted by proactive business organizations to cope up with their internal (Business Risks;operational,Credit,Market etc) and external (macro Economic) risk exposures . SBP,the State Bank of Pakistan in 2003,following the international standards initiated for implementation of Basel regulatory framework for the R.M of Pakistani Banking sector and strictly ensures the compliance of risk practices using its Institutional Risk Assessment Framework(IRAF) backed by regular audits.

Risk management (R.M) has been around for ages, it can be traced back to the era of Babylon 1800 BC (McNeil, Frey & Embrechts, 2005) . It is at present, that R.M need has been escalated due to changing global scenario.

Nearly all industrial regulators have by now formulated official by laws and regulations to save the countries from economic recessions resulting from the waves generated by recent financial fiascos, naming a few Enron, World Com and Barings. These Regulations and best practices such as Basel I (1988) and II (1997) for banking institutions, Solvency I (1970) & II for European Insurance industry, SOX framework by American regulators for overall country wide industrial regulation and the Enterprise Risk Management (ERM) frameworks such as COSO (2004) and RIMS (1975) for the general Non financial industries, are being adapted by proactive business organizations to cope up with their internal (Business Risks;operational,Credit,Market etc) and external (macro Economic) risk exposures .

SBP,the State Bank of Pakistan in 2003,following the international standards initiated for implementation of Basel regulatory framework for the R.M of Pakistani Banking sector and strictly ensures the compliance of risk practices using its Institutional Risk Assessment Framework(IRAF) backed by regular audits.

INTRO continued Security Exchange Commission of Pakistan (SECP) regulates the operations of Private and public sector (non-financial) industries in Pakistan. There exists no formal regulation for R.M practices in this industry; however multinational firms that aim to meet increasing global demands do take indigenous initiatives tailored to their needs keeping in view international standards. This survey study is the first of its kind in Pakistan and seeks to find the impact of R.M practices on the organizational performance of five major players of the telecom services industry i.e. Warid, Telenor, Mobilink, Ufone and China Mobile (Pvt) Ltd.The significance of the study is that it may serve as a guide to help identify the vitality of R.M practices

Security Exchange Commission of Pakistan (SECP) regulates the operations of Private and public sector (non-financial) industries in Pakistan. There exists no formal regulation for R.M practices in this industry; however multinational firms that aim to meet increasing global demands do take indigenous initiatives tailored to their needs keeping in view international standards.

This survey study is the first of its kind in Pakistan and seeks to find the impact of R.M practices on the organizational performance of five major players of the telecom services industry i.e. Warid, Telenor, Mobilink, Ufone and China Mobile (Pvt) Ltd.The significance of the study is that it may serve as a guide to help identify the vitality of R.M practices

Literature Review: R.M is infact still considered to be an emerging discipline and many Scholars even doubt on recognizing it as a proper discipline. (Beck, 2004) presents reasonable arguments as to why RM has not been successful so far in achieving the status as that of other disciplines . Risk Management is considered to be a hybrid of other disciplines (Mathematics, Statistics, Economics & finance) backed by Computer science . (Gregory, 2001) suggests that a decline in R.M discipline is unlikely. He points out that global capitalism has helped in promoting positive environment for R.M being practiced and taught. The focus of Risk Management research papers has remained so far on particular areas of organizational R.M. (Egbuji, 2003) studies RM of organizational records. (Fatemi, 2006) inspects credit risk management practices of U.S banks. Little literature has been devoted to study the R.M discipline in context of Industrial R.M Practices of non financial corporations.

R.M is infact still considered to be an emerging discipline and many Scholars even doubt on recognizing it as a proper discipline. (Beck, 2004) presents reasonable arguments as to why RM has not been successful so far in achieving the status as that of other disciplines . Risk Management is considered to be a hybrid of other disciplines (Mathematics, Statistics, Economics & finance) backed by Computer science . (Gregory, 2001) suggests that a decline in R.M discipline is unlikely. He points out that global capitalism has helped in promoting positive environment for R.M being practiced and taught.

The focus of Risk Management research papers has remained so far on particular areas of organizational R.M. (Egbuji, 2003) studies RM of organizational records. (Fatemi, 2006) inspects credit risk management practices of U.S banks. Little literature has been devoted to study the R.M discipline in context of Industrial R.M Practices of non financial corporations.

Literature Review: Continued Wharton Business School has conducted three surveys of US non-financial firms in 1994, 95 & 98 to probe for the financial risk management practices and the usage of derivatives (Bodnar, Gregory & Marston, 1998). The study clearly indicates that the FRM practices are consistently on a rise since 1994 till the period of survey in 1998. (El-Masry, 2006) attempts to explore the usage of derivatives as R.M tool by private and public non financial companies of UK and finds a greater use in large firms as compared to medium and small ones. (Schmit & Roth, 1990) research on cost effectiveness of R.M practices. They survey, large U.S organizations and find that very few respondents employ R.M information systems in making decisions. (Fatemi & Glaum, 2000) uses a questionnaire to investigate general R.M practices of German firms and stress the need for change in corporate risk attitude (risk culture) and its integration with organizational objectives . (Wood & Ellis, 2003) review the R.M practices of UK cost consultants in context of construction projects risk management and identify eight issues including R.M process as one of the eight vital elements. So far the above review suggests that efforts have only been made to check the progress in Risk management practices and not on the aftermath of such practices i.e. the impact of R.M on organizational variables. However studies have been carried out in other disciplines such as in Human Resource Management to investigate the significance of HRM Practices on Organizational performance (Huselid, 1995).

Wharton Business School has conducted three surveys of US non-financial firms in 1994, 95 & 98 to probe for the financial risk management practices and the usage of derivatives (Bodnar, Gregory & Marston, 1998). The study clearly indicates that the FRM practices are consistently on a rise since 1994 till the period of survey in 1998. (El-Masry, 2006) attempts to explore the usage of derivatives as R.M tool by private and public non financial companies of UK and finds a greater use in large firms as compared to medium and small ones. (Schmit & Roth, 1990) research on cost effectiveness of R.M practices. They survey, large U.S organizations and find that very few respondents employ R.M information systems in making decisions. (Fatemi & Glaum, 2000) uses a questionnaire to investigate general R.M practices of German firms and stress the need for change in corporate risk attitude (risk culture) and its integration with organizational objectives . (Wood & Ellis, 2003) review the R.M practices of UK cost consultants in context of construction projects risk management and identify eight issues including R.M process as one of the eight vital elements. So far the above review suggests that efforts have only been made to check the progress in Risk management practices and not on the aftermath of such practices i.e. the impact of R.M on organizational variables. However studies have been carried out in other disciplines such as in Human Resource Management to investigate the significance of HRM Practices on Organizational performance (Huselid, 1995).

Theoretical Framework:

Problem Statement: “ Is There any significant Impact of Risk management Practices on overall organizational performance?”

“ Is There any significant Impact of Risk management Practices

on overall

organizational performance?”

Hypothesis: H1= There is a relation between R.M practices and Organizational performance. H0= There is a No relation between R.M practices and Organizational performance. Method: to check Cause & Effect relationship = Simple Regression. H1= There is a Positive relation between R.M practices and Organizational performance. H0= There is a Negative relation between R.M practices and Organizational performance. Method :To Check extent of relationship = Correlation H1= Higher (better) the Risk Culture has higher the Organizational performance. H0= There is a little impact of Risk Culture on Organizational performance. H1= higher the Risk Management process higher the Organizational performance. H0= There is a little or No impact of Risk Management process on Organizational performance. H1= Risk Management policy has a Significant impact on Organizational performance. H0= There is a little or No impact of Risk Management policy on Organizational performance. H1= Risk Based Organizational objectives have a higher impact on Organizational performance. H0= There is a little impact of Risk Based Organizational objectives policy on Organizational performance.

H1= There is a relation between R.M practices and Organizational performance.

H0= There is a No relation between R.M practices and Organizational performance.

Method: to check Cause & Effect relationship = Simple Regression.

H1= There is a Positive relation between R.M practices and Organizational performance.

H0= There is a Negative relation between R.M practices and Organizational performance.

Method :To Check extent of relationship = Correlation

H1= Higher (better) the Risk Culture has higher the Organizational performance.

H0= There is a little impact of Risk Culture on Organizational performance.

H1= higher the Risk Management process higher the Organizational performance.

H0= There is a little or No impact of Risk Management process on Organizational performance.

H1= Risk Management policy has a Significant impact on Organizational performance.

H0= There is a little or No impact of Risk Management policy on Organizational performance.

H1= Risk Based Organizational objectives have a higher impact on Organizational performance.

H0= There is a little impact of Risk Based Organizational objectives policy on Organizational performance.

Methodology: The Survey study employs 2 separate survey questionnaire’s as research tool. The first one been, developed by Australian Government on the requirements of R.M standards (AS/NZS 4360.1999) issued by Standards Australia and reviewed by an international R.M Consultancy firm Price Waterhouse Coopers (PWC).This survey questionnaire has been already tested for reliability and usability on range of public sector firms and the same is being tailored to our research needs with a few minor amendments. The second one measures the organizational performance of the company.

The Survey study employs 2 separate survey questionnaire’s as research tool.

The first one been, developed by Australian Government on the requirements of R.M standards (AS/NZS 4360.1999) issued by Standards Australia and reviewed by an international R.M Consultancy firm Price Waterhouse Coopers (PWC).This survey questionnaire has been already tested for reliability and usability on range of public sector firms and the same is being tailored to our research needs with a few minor amendments.

The second one measures the organizational performance of the company.

Most Prolific Researchers In This Area Ali Fatemi Gregory Marston Bodnar Martin Glaum

Ali Fatemi

Gregory

Marston

Bodnar

Martin Glaum

References: Beck, M. (2004) Obstacles to the Evolution of Risk Management as a Discipline: Some Tentative Thoughts. Risk Management: An International Journal. Vol.6, No.3 (2004), pp.13-2. Bodnar, G.M; Hayt, G.S.; and Marston, R.C and Smithson (1995) How Corporations Use Derivatives. Financial Management. Vol.24, No.2 (1998), pp.104-125. Bodnar, G.M; Hayt, G.S.; and Marston, R.C. (1998) 1998 Wharton Survey of Financial Risk Management by US Non-Financial Firms. Financial Management. Vol.27, No.4 (1998), pp.70-91. El-Masry, A.A. (2006) Derivatives Use and Risk Management Practices by UK Non-Financial Companies. Managerial Finance. Vol.32, No.2 (2006), pp.137-159. Egbudi, A. (1999) Risk Management of Organisational Records. Records Management Journal. Vol. 9, No.2 (Aug, 1999), pp. 93-116.

Beck, M. (2004) Obstacles to the Evolution of Risk Management as a Discipline: Some Tentative Thoughts. Risk Management: An International Journal. Vol.6, No.3 (2004), pp.13-2.

Bodnar, G.M; Hayt, G.S.; and Marston, R.C and Smithson (1995) How Corporations Use Derivatives. Financial Management. Vol.24, No.2 (1998), pp.104-125.

Bodnar, G.M; Hayt, G.S.; and Marston, R.C. (1998) 1998 Wharton Survey of Financial Risk Management by US Non-Financial Firms. Financial Management. Vol.27, No.4 (1998), pp.70-91.

El-Masry, A.A. (2006) Derivatives Use and Risk Management Practices by UK Non-Financial Companies. Managerial Finance. Vol.32, No.2 (2006), pp.137-159.

Egbudi, A. (1999) Risk Management of Organisational Records. Records Management Journal. Vol. 9, No.2 (Aug, 1999), pp. 93-116.

References: Continued 6. Fatemi, A. and Glaum, M. (2000) Risk Management Practices of German Firms. Managerial finance. Vol.26, No.3 (2000), pp.1-16. 7. Fatemi, A. and Fooladi, I. (2006) Credit Risk Management: a survey of Practices. Managerial finance. Vol.32, No.3 (2006), pp.227-233. 8. Huselid, A.M. (1995) The Impact of Human Resource Management Practices on Turnover, Productivity, and Corporate Financial performance. Academy of Management Journal. Vol.38, No.3 (Jun., 1995), pp.635-672. 9. Schmit, J.and Roth, K. (1990) Cost Effectiveness of Risk Management Practices. Journal of Risk Insurance. Vol.57, No.3, pp.299-302. 10. Wood, D.G. and Ellis, C.T.R. (2003) Risk Management Practices of Leading UK Cost Consultants. Engineering, Construction and Architectural Management . Vol.10, No.4 (2003), pp.254-262.

6. Fatemi, A. and Glaum, M. (2000) Risk Management Practices of German Firms. Managerial finance. Vol.26, No.3 (2000), pp.1-16.

7. Fatemi, A. and Fooladi, I. (2006) Credit Risk Management: a survey of Practices. Managerial finance. Vol.32, No.3 (2006), pp.227-233.

8. Huselid, A.M. (1995) The Impact of Human Resource Management Practices on Turnover, Productivity, and Corporate Financial performance. Academy of Management Journal. Vol.38, No.3 (Jun., 1995), pp.635-672.

9. Schmit, J.and Roth, K. (1990) Cost Effectiveness of Risk Management Practices. Journal of Risk Insurance. Vol.57, No.3, pp.299-302.

10. Wood, D.G. and Ellis, C.T.R. (2003) Risk Management Practices of Leading UK Cost Consultants. Engineering, Construction and Architectural Management . Vol.10, No.4 (2003), pp.254-262.

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