ANALYSING THE ROLE OF RISK MANAGEMENT IN A TEXTILE PRODUCTION COMPANY IN GHANA

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ABSTRACT
The textile industry in Ghana has been in decline. Local companies have shut down operations due to varying factors. The number of companies has dropped from forty in the 80´s to four as of the time of this research, which was conducted at Printex Ghana Limited and Akosombo Textile Li-mited. The purpose of the research is to identify various risks affecting the case companies and to try to understand the role risk management plays in solving those identified risks. It will determine whether the companies under consideration have a risk management department and if possible how much budget is allocated to the department. The medium for risk communication will also be determined. How risk management has changed over the past years will also be vital in making fur-ther recommendations to management.


A combination of quantitative and qualitative research methods was used. Questionnaires on risk management were distributed to both management and employees. It was found out that the com-panies conduct a form of risk management but in an unstructured manner. A separate risk man-agement department does not exist in either company. A budget is either not available or too low for a comprehensive risk management to be established or effective. The respondents´ knowledge of risk management was also low. Qualified risk personnel were not employed. The attitude and mode of identifying risks has not changed much over the past years. Risk management has not played any major role in the companies.


TABLE OF CONTENTS

1. Introduction
1.1 Background
1.2 Objective of the Study
1.3 Research Questions
1.5 Structure of the Research

2. Literature Review
2.1 Defining Risk Management
2.2 Risk, Event, Probability and Hazard
2.3. The Typology of Risk
            2.3.1 Interest and Equity Price Risk
            2.3.2 Market and Business Risk
            2.3.3 Political Risk
            2.3.4. Socio-cultural Risks
            2.3.5 Technological Risks
            2.3.6 Economic Risks
2.4. The Evolution of Risk Management
2.5 Managing Risk
2.6 Business Process and Risk Management
2.7 Risk Management Process
2.8 Establish the Context
2.9 Identification of Risks
            2.9.1 Checklist and Survey
            2.9.2 Experts
            2.9.3 Flowchart
            2.9.4 Insurance Policy Review
            2.9.5 Procedures and Policies Review
            2.9.6 Financial Statement Analysis
            2.9.7 Physical Inspection
            2.9.8 Brainstorming

3. Risks Analysis
3.1 Assess and Prioritise Risks
3.2 Treat Risks
3.3 Risk Control Measures
3.4 Risk Control Options and avoidance
3.5 Risk Reduction
3.6 Risk Transfer
3.7 Communications in Risk Management
3.8 Barriers to Effective Risk Management
3.9 Risks and Uncertainty

4. Research Methodology
4.1 Quantitative Research
4.2 Qualitative Research
4.3 Data collection
4.4 Research Design
            4.4.1 Exploratory Research
            4.4.2 Descriptive Research
            4.4.3 Causal Research
4.5 Data analysis
4.6 Validity and Reliability of the study

5. Empirical Study and Analysis
5.1 Printex Ghana Limited
5.3 Akosombo Textiles Limited
5.4 Country Profile-Ghana
5.5 The Ghanaian Textile Industry
5.6 Quantitative Research Analysis (Cross Analysis)
            5.6.1 Age Distribution
            5.6.2 Gender Distribution
            5.6.3 Educational Level
            5.6.4 Risk Management Department
            5.6.5 Risk Responsibility
            5.6.6 Budget Percentage
            5.6.7 Cost Effectiveness
            5.6.7 Risk Identification Methods
5.7 Qualitative Analysis
            5.7.1 Identified Risks
            5.7.2 Benefits of Risk Management
            5.7.3 Changes in Risk Management
            5.7.4 Risk Management Communication

6. Conclusion and Recommendations
References
Appendix 1


1. Introduction

The introduction provides a general overview of the research. Here the main aim of the research and the preliminary findings of the study are presented.

1.1 Background
Risk management has played a vital role in the administration and management of a firm’s product and line of business over decades. Many unforeseen occurrences occur in the daily running of a business both internally and externally. Globalization and the evolution of technology have contri-buted to competition in every business environment. This makes the management, running and vi-tally the comprehensive life cycle of a firm’s product very difficult to control. Pragmatic and proactive steps must be taken to reduce or prevent the possible risks that those factors will pose to companies. In doing this, firms need to be proactive in identifying the various factors that negative-ly affect the firm and the product. Full benefits of positive influences must also be explored. The concept of risk management is therefore an important theory in modern business.

Production capacity in the Ghanaian textile industry has declined over the years. It was the mains-tay of the economy in the 1970´s to 80´s but suffered a decline in operation with the number of large and medium sized textile production companies dropping from sixteen (16) in the mid 1970´s to four (4) as of 2005 (Stiftung 2006, 137). This is due to the shutting down of production lines of most of the companies. Majority of workers lost their jobs. Ghana Textile Print (GTP) which pro-duced a very good textile brand and competed with multinational textile companies in the past. The company shut down its spinning and weaving departments laying off many of its workers. This development is not different for other companies in the industry. Juapong Textile went into admin-istration with its production lines also completely shut down. It reopened briefly under the name Volta Star Textiles but could not cope with competition. Most companies still operating are be-lieved to be importing raw materials. One such company is Printex, believed to be producing below capacity. Akosombo Textile Limited (ATL) the only surviving local textile company also has similar problems (The Africa Report, 2012).


This research is carried out to analyse the prospect or the role of risk management in the Ghanaian textile production industry. Much emphasis is on Printex Ghana Limited and Akosombo Textile Li-mited. It was decided to focus on the production industries as the textile industry itself is too broad to be analysed. Country risks will be discussed, and possible remedies suggested. The main aim of the research cannot be arrived at without first identifying sources of risk and nature of exposure. Risks will be analysed in respect of the country under discussion, Ghana (only case companies). The future of Enterprise Risk Management in the industry will also be taken into consideration with the use of the modern risk management as it has distinctive characteristics which makes it possible to identify risks, measure, appreciates its consequences, and take action such as transferring or miti-gating the risks risk (Crouhy, Gakai & Mark 2006, 1).

True that, risk management has taken headway in developed countries, but there is little or no emphasis on its prospects in developing countries. This results in low patronisation or usage by businesses in those countries. Ghana is not an exception. It becomes very risky to operate in such environments due to the fact that developing countries are highly vul-nerable to sudden changes in interest rates, exchange rates and commodity prices (Claes-sens 1993, 5). It is more uncertain and risky as business operations and regulations do not follow the same pattern.

1.2 Objective of the Study


Internal and external factors contributed to a decline in business activities in the Gha-naian textile industry. Hence this research will identify all the possible contributing fac-tors of this decline. Efforts will be made to analyze the role risk management will play in an effort to manage all the risks that are likely to adversely affect business operations of the companies under discussion.

This research will concentrate mostly on the role played by risk management department (if any) of the textile production companies under discussion in identifying those risks. It will also look at the significance, time and resources that the company places on the role risk management. Its contribution to profit maximization cannot be overlooked. Changes in the way risk management has been performed in the industry over the past years will be identified. Effects (positive and negative) it had on the overall operation and progress of the company will also be considered.

Present risks prone to companies in this industry will be identified. Suggestions and rec-ommendations necessary for the company to be proactive and take pragmatic and com-prehensive steps to avoid the identified risks or reduce their effects on business opera-tions will be made.

One of the most important aspects of this research is to find out who takes core decisions relating to risk management in the organization. Total percentage of the budget allocated to risk management will also be necessary to determine whether the company places much emphasis on the role of the risk management department (if any).

1.2 Research Questions



A lot of analysis and possible reasons have been attributed to the menace in the Ghanaian textile production industry, but no tangible and progressive steps have been strategized to control the negative effects of the factors that lead to the problem. On careful considera-tion, a comprehensive risk management procedure or system must be established to help solve the problem. Resorting to risk management will help avoid the occurrence of future...

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