ABSTRACT
How pharmaceutical companies successfully implements
an Enterprise Risk Management (ERM) programme, to identify and manage potential
risks, can mean the difference between financial freedom and financial despair.
The Committee of Sponsoring Organization (COSO) guidelines, a voluntary private
sector organization in the United State, has developed internal control
guidelines to provide guidance to executive management and governance entities
on critical aspects of organizational governance, business ethnic, internal
control, fraud and financial reporting. This chapter will discuss an approach
to build an ERM implementation plan within Fidson Healthcare Limited, by
outlining the responsibilities and influence of industry participants, sales
forces, middle- management and senior leadership and the ways in which they
focus on monitoring and developing the risk mitigation process. The influences
of technologies are integrated and new directions, such as e-mails and
e-detailing. Thus, in order to mitigate business risk, some companies use
Enterprise Risk Management concept (ERM, developed by COSO) to establish an
effective corporate management system. The researcher is thus, quickening to
use this piece of study to evaluate the need of ERM in Fidson Healthcare
Limited. Data were sourced from the primary and secondary sources of data,
using words by other authors and information gathered from the oral interview
carried out on the respondent. Hypothesis was formulated and tested using Chi-
square method. Finally, it was discovered that there is need for Enterprise
Risk Management tools Pharmaceutical Companies (Fidson Healthcare Limited), for
them to achieve their business objectives and for effectiveness in running of
their businesses.
TABLE OF CONTENTS
TITLE PAGE
Inside Title
Page
Approval
Page
Dedication
Acknowledgement
Abstract
Table
of Content
CHAPTER ONE: INTRODUCTION
1.1
Background of the study
1.2
Statement of the Problems
1.3
Objectives of the Study
1.4
Relevant Research Questions
1.5
Relevant Research Hypothesis
1.6
Scope and Limitations of the Study
1.7
Significance of the Study
1.8
Definition of Terms
CHAPTER TWO: LITERATURE REVIEW
2.0 Introduction
2.1 Concept of Risk
2.1.1 Definition of Risk
2.2 Objectives and Principles of Risk
Management
2.3 Historical Context of ERM
2.4 The ERM Frameworks of Pharmaceutical
Companies
2.5 Risks in Pharmaceutical Companies
2.6 The ERM process for Pharmaceutical
Companies
2.7 Risk and Economic Capital Models
2.8 Risk Tolerance in Pharmaceutical Companies
2.9 Main Risk and Regulatory Requirements
2.10 Problems and Challenges in Pharmaceutical
Companies
2.11 How Pharmaceutical Companies manage these
Main Risks
CHAPTER
THREE: RESEARCH METHODOLOGY
3.0 Introduction
3.1 Research Design
3.2 Population of the Study
3.3 Sources of Data
3.3.1 Primary
Data
3.3.2 Secondary
Data
CHAPTER
FOUR: DATA PRESENTATION AND ANALYSIS
4.0 Introduction
4.1 Descriptive Statistics
4.2 Interview Questions
4.3 Test Research Hypothesis
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATION
5.0 Introduction
5.1 Summary of
Findings
5.2 Conclusion
5.3 Recommendation
5.4 Suggestions for Further Studies
REFERENCES
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
In the business world, every individual and
businesses are exposed to risk. For any business to exist and survive, the
business has to go through some challenges of risk. Risks are in existence
simply because entities, companies and organizations have ‘assets’ of a
material or immaterial nature that could be subject to physical harm that has
consequences on the known entity (Andy Osborne 2012- Risk Management made easy).
In Risk management, there is no formal definition
of. Risk has been defined by different scholars based on their level of
understanding. One of such definition of risk is “Risk implies exposure to
uncertainty or threat (Kannan and Thangavard, 2008) and “a decision to do
nothing to explicitly avoid the opportunities that exists and leaving threats unmanaged.”(Webster,
2007). Also, Risk can be defined as the combination of the probability of an
event and its consequences (ISO/IEC Guide 73).
Risk management therefore, is a proactive approach
to reduce threats, increase opportunities, and optimize achievements of
objectives (Pearce and Robinson, 2000, Webster, 2004,’ Gray and Larson,
2006.’Rejda, 2001). Also, Andy Osborne
2012 says risk management is a structured and coherent approach to identify,
analyze and manage risks that affects the strategy, process, people and
technologies.
“Prior the emergence of ERM, organizations used to
handle their risk individually and independently, using the traditional ways of
risk managements of”:
·
Identification
·
Evaluation
·
Control
As time goes on, companies now realized that it
would favour them more to treat their risks as a whole (portfolio), as would
surely reduce its costs and expenditure incurred in managing risk. And that was
how ERM came into existence in 2004 Olaf Passenheim, 2011).
ERM is a holistic way of treating risk in an organization,
Olaf Passenheim-2011). ERM is a risk cover that takes into considerations, all
types of risks faced by an organization, such as – Strategic, Financial,
Operation and Hazard risks. These frameworks are the ways ERM can be effected
by an organization (Olaf Passenheim- 2011).
ERM is usually decided and effected by senior
managers of an organization, and after the decision is taken, it passes on to
other personnel of the organization, until it gets to the lowest rank of the
organization. This is because; everyone has to have knowledge of the way risk
is being managed in their organization.
In the corporate environment, COSO (2004) also says Enterprise
risk management is the best tool to be used in combating all risk available and
causing damages to the industry; using its frameworks guide of:
§ Strategic
Risk
§ Operational
Risk
§ Financial/Reporting
Risk
§ Hazard/Compliance
Risk
§ Enterprise
risk management is a procedure to minimize the adverse effects of a possible
financial loss by:
§ Identifying
potential sources of loss
§ Measuring
the financial consequences of a loss occurring.
§ Using
controls to minimize actual losses or their financial consequences (Olaf
Passenheim-2011).
A closer look on Enterprise risk management in
pharmaceutical company reveals that in Fidson Healthcare limited, that there
are lots of risks that need proper management. Some of the risks are IT risk,
financial reporting risks, environmental or legal risks, production risk and
administrative risk. With the situation of all risk exposures in the industry,
the industry needs to set goals of risk management which are to protect the
industry against downside risks, to manage volatility around business and
financial results of the industry and to optimize risk and returns of Fidson
Healthcare Limited.
1.1 STATEMENT OF THE PROBLEMS
§ It’s been discovered that some pharmaceutical
companies, considers and handles their risk individually and independently(
Traditional ways of risk management); like fire risk, theft risk and so on,
thereby neglecting some main risk they encounter during operations.
§ Also
pharmaceutical companies spend much time and resources in handling those risk traditionally,
and when not properly handled, lead to huge losses on their part.
§ It
has also been discovered that most pharmaceutical companies, have not been
introduced to or have knowledge of a more advanced and effective way of
managing risk (ERM) in their organization.
§ Also,
some of the pharmaceutical companies who have adopted ERM as a practical way of
handling corporate risk find it difficult to cover the whole ERM frameworks;
rather, they concentrate on a section of the frameworks and pay little or no
attention to the others.
These have been giving the industry a
reputation of low profitability and returns on investments.
1.2
OBJECTIVES
OF THE STUDY
The aim and
objectives of this research study are:
1.To know and examine
previous risk management strategy used by Fidson Healthcare Limited.
2.To know if ERM is being
used to manage risk in Fidson Healthcare Limited.
3.To find out the mostly
used ERM frameworks in Fidson Healthcare Limited.
4. To
know and examine the challenges faced by Fidson Healthcare Limited, in the
chosen ERM framework in managing their risk.
1.3
RELEVANT RESEARCH QUESTIONS
The
following research questions were raised from this study:
§ What
previous risk management strategy was used by Fidson Healthcare Limited in
managing their risk?
§ Is
ERM a practical option for managing risk in Fidson Healthcare Limited?
§ Which
of the ERM frameworks is mostly used by Fidson Healthcare Limited?
§ What
challenges does Fidson Healthcare Limited encounter in the course of using the
ERM frameworks?
1.4
RELEVANT RESEARCH HYPOTHESIS
The hypothesis was extracted from the research
questions, to guide the researcher in the course of this study.
H0: There would be no significant influence of the
adopted ERM framework on Fidson Healthcare Limited.
H1: There will be positive significant influence
of the adopted ERM framework on Fidson Healthcare Limited’s risk managements.
1.5
SCOPE AND LIMITATIONS OF THE STUDY
The study focuses on pharmaceutical industries;
their employees, management and their products, while gathered information will
be within this industry. Specifically, Fidson Healthcare limited will be
focused on, among the fast rising pharmaceutical companies based in Lagos,
using COSO ERM Frameworks in managing their organizational risks.
However,
the limited time scarce and financial resources at the researcher’s disposal,
calls for this limited scope.
1.6
SIGNIFICANCE OF THE STUDY
This study will be beneficial in the following ways:
§ It
will be of immense benefits to body of knowledge in the area of investigation.
§ It
will serve as an instrument of enlightenment to industries, especially
pharmaceutical companies on the need for an effective management of risk using
Enterprise risk management tools/frameworks.
§ The
finding of this study will also provide a basis where Fidson Healthcare limited
will use Enterprise risk management to safe and secure the business risk of the
industry.
§ Similarly,
it will help academia and scholars to expand their frontiers of knowledge and
provide s basis from which future researchers may benefit.
1.7
DEFINITION OF TERMS
RISK:
Is the possibility of an unfortunate occurrence (Aneke J.I (1998).
It is the uncertainty of a loss (Dickson (1981:11).
It is the chance of loss (Dickson (1981:11).
HARZARD:
They are events or conditions that creates or increases the chance of loss
arising from a given peril (Irukwu(1990:67).
PERIL:
It is the cause of a loss or a loss producing agent, without which there can be
no loss, even though the uncertainty of event may exist (Aneke(1998).
RISK
MANAGEMENT: Is a proactive approach to reduce
threats and adverse effects of risk increasing opportunities and optimize
achievements of objectives (Pearce and Robinson(2000; Webster(2004; Gray and
Larson(2006; Rejda(2011).
ENTREPRISE
RISK MANAGEMENT: Is a procedure to minimize the adverse
effects of a possible financial loss in an organization (Olaf Passenheim(2011).
HAZARD
RISK: It refers
to any source that may cause harm or adverse effects, such as equipment lost
due to natural disaster (Skipper and Kwon, 2007)
FINANCIAL
RISK: It refers to any loss due to economic conditions
such as foreign exchange rates, derivatives, liquidity risk and credit risk
(Jones, 2006; Benston et al.,2003) .
STRATEGIC
RISKS: Is the uncertainty of loss of a whole organization
and the loss may be profit or non-profit (Li and Liu (2002).
OPERATIONAL RISK: It refers to risk of direct or indirect loss
resulting from inadequate or failed internal processes, people and systems or
from external events (Basel Committee (2001).
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