Some aspects of operational risks at enterprises of Czech Republic

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SOME ASPECTS OF OPERATIONAL RISKS AT ENTERPRISES OF CZECH REPUBLIC

Drahos V.

Figure 1. Distribution of the sample by enterprise size, authors' Table 1. Characteristics of the reference sample, authors'

The respondents were provided with more detailed text, allowing risk assessment for their business both in terms of the probability of risk occurrence and in terms of the impact of risk, including scoring. Consequently, it was possible to categorize various risks by the probability-impact matrix of Waters (2009).

The probability of risk assessment was carried out on the scale from 1 to 5, with 1 being probable likely to occur and 5 means a very low probability of risk. The impact of risk was evaluated on the scale of 1--6, where 1 means negligible, 2 -- minor, 3 -- moderate, 4 -- serious, 5 -- critical and 6 -- catastrophic risk.

Group A by the probability-impact matrix consisted of enterprises at the risk showed either as very probable to occur with catastrophic impact, or at least very close to such extreme situation. Group C included businesses with minor or negligible probability of the risk and its impact. Group B created a transitional group between these two extremes. For better interpretation of the text, group A is further perceived as a significant risk, group B as a medium risk, and group C as a negligible risk. The actual probability-impact matrix is displayed in Figure 2.

Figure 2. Probability-impact matrix, Waters (2009), adjusted by the authors

The final assessment was done in two ways: first, for the whole set of 101 enterprises and then by types of enterprises.

Key results.

1. ASSESSMENT OF THE SAMPLE AS A WHOLE. The answers of the enterprises' were classified into A, B, C groups (Figure 2). The absolute numbers of enterprises by the probability-impact matrix are displayed in table and are almost the same compared to the relative display as the total number of enterprises was 101. The number of enterprises without the answer are in the "0" column.

NATURAL HAZARD. In this category, only 11 enterprises out of 101 enterprises see the risk of floods and extreme drought as important. On the contrary, 49 enterprises see the risk of floods as unimportant and 59 enterprises see extreme drought in the same way. risk price payment quality

EXTERNAL RISK. Only 7 enterprises can be classified as group A within the question of high interest rates (i.e. important risk). 37 enterprises see the risk of high interest rates as negligible. Very interesting results were revealed regarding the possibility to get a loan. This risk is considered important by 11 enterprises only. Similar significant difference was revealed for the question of the failure to implement the EU directives and measures. 9 enterprises only see this risk as important, 30 enterprises see this risk as negligible. The greatest number of enterprises in group A concerns the question of price increase in raw materials and fuels. 52 enterprises see this risk as important; 4 enterprises see it as negligible. It is possible to conclude that the price increase in raw materials and fuels is considered to be the most important external risk. On the other hand, getting a loan is seen as the least important.

RISK ASSOCIATED WITH PARTNERS. The most important risk of this category included: the risk related to lack or loss of customers (62 enterprises see this risk as important; 9 as negligible); the risk related to increased competition (55 -- important; 8 -- negligible); the risk of delayed payment or non-payment by customers (43 -- important; 11 -- negligible) and the possible loss of an important partner (37 -- important; 16 -- negligible). On the other hand, the negligible risk included the risk of court trials with customers. Two enterprises only see this risk as important; 52 enterprises see it as negligible.

Table 2. Classification by the probability-impact matrix, authors'

RISK RESULTING FROM ENTERPRISE ACTIVITIES. This category reported the risk of non-compliance with required quality of products or services as the most important. This risk is seen as important by 40 enterprises and only 14 of the sample see it as negligible. 28 enterprises see also the risk of debt and impossibility to pay its obligations as important compared to 25 enterprises that see this risk as negligible. On the other hand, the less important risk included the risk of obsolescence of inventories (only 9 enterprises see this risk as important; 47 see it as negligible) and the risk related to family business (no successor, frequent conflicts etc.) is important for 15 enterprises; negligible for 41.

RISK RESULTING FROM INCORRECTLY ADJUSTED PROCESSES. This category covers the risk of the lack of skilled workers as the most important (25 enterprises; on the other hand, 21 enterprises see this risk as negligible). The risk related to labour safety, such as injuries, fires, leaks of dangerous substances etc. is seen by a third of the sample enterprises (37 enterprises) as negligible. Only 11 enterprises see the risk as important.

2. ASSESSMENT OF THE SAMPE BY ENTERPRISE TYPE. The second part of the research classified all 101 enterprise into 5 groups by the prevailing type of production. In the sample, the following types and numbers of enterprises were recorded: enterprises with production of household goods (19), retail (22), food production (18), engineering (33) and agriculture (9).

NATURAL HAZARD. As supposed by the research team, agricultural enterprises see natural hazards as the most important with floods seen as the important risk by 44% and extreme drought by 78%. Figure 3 presents the relative number of answers to the question of natural risk by different types of production with regard to risk A.

The risk of unexpected measures of national or regional authorities and the risk of inability to implement the EU regulations is seen as important by a low number of enterprises -- such as by 33% of agricultural enterprise. The risk of price increase in raw materials and fuels reported significantly higher values. This risk is seen as important by almost 67% of food producers, by 59% of retail enterprises, 56% of agricultural enterprises, and 42% of household goods producing enterprises and by the same percentage of engineering enterprises. The risk of failures of the information system is seen as important by 36% of retail enterprises and 24% of engineering enterprises with the lowest percentage for food production (6%).

Figure 3. Companies that see natural hazard as important, authors'

Figure 4. Enterprises that see external risk as important, authors'

RISK ASSOCIATED WITH PARTNERS. The risk of customers loss is seen as the most important one (79% of household goods enterprises, 67% of food producers, 64% of retail, 58% of engineering and 22% of agricultural enterprises), followed by the risk of increasing competition (63% of engineering enterprises, 59% of retail, 50% of food producers, 47% of household goods enterprises and 33% of agricultural enterprises) and the risk of delayed payment from customers and the loss of an important partner.

RISK RESULTING FROM ENTERPRISE ACTIVITIES. The risk of noncompliance with required quality is seen as the most important one (55% of engineering; 42% of household goods; 33% of agricultural; 32% of retail and 22% of food production enterprises) similar to the risk of large debt (53% of household goods

RISK RESULTING FROM INCORRECTLY ADJUSTED PROCESSES. The risk of the lack of skilled workers is seen as the most important risk resulting from poorly adjusted processes. Similarly, the risk of bad work of staff is seen as important (44% of agricultural, 41% of retail, 40% of engineering, 26% of household goods enterprises and surprisingly no food production enterprise). On the other hand, the risk of failure to comply with labour safety is seen as negligible.

Figure 6. Enterprises that see risk resulting from enterprise activities as important, authors'

Conclusions

The overall risk assessment by the sample enterprises is based on two aspects: the probability of risk and the assessment of its impact. This approach allowed the classification of all the answers by the probability-impact matrix.

The answers displaying high (important) risk with critical and catastrophic impact were classified as group A. In this group, the enterprises are afraid of the following risk:

- loss of customers (62 enterprises);

- increasing competition (55);

- price increase in raw materials and fuels (52);

- late payment from customers (43);

- non-compliance with required quality of products and services (40).

Group C represents the other end of the assessment by the probability-impact matrix. The types of risk classified into this group are seen as minor or negligible. The following types of risk occurred in this group:

- extreme drought (59 enterprises);

- court trials with customers (52);

- large floods (49);

- obsolescence of inventories (47);

- impossibility to get a loan (45);

- family risk if there is no successor or in case of frequent conflicts (41). Enterprises with household goods see the following types of risk as the most

important:

- loss of customers (79%);

- delayed payment by customers (58%);

- large loss (53%).

Retail enterprises see the following types of risk as the most important:

- loss of customers (64%);

- price increase in raw materials and fuels (59%);

- increasing competition (59%).

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Food producing enterprises see the following types of risk as the most important:

- price increase in raw materials and fuels (67%);

- loss of customers (67%);

- increasing competition (50%).

Engineering enterprises see the following types of risk as the most important:

- increasing competition (63%);

- loss of customers (58%);

- non-compliance with required quality (55%).

Agricultural enterprises see the following types of risk as the most important:

- extreme drought (78%);

- price increase in raw materials and fuels (56%);

- lack of skilled workers (44%);

- inability to implement the EU directives (44%);

- floods (44%);

- bad work of the staff (44%).

Obviously, agricultural enterprises cannot be compared to other production types. Agricultural enterprises are seen as a separate group within risk assessment.

The research reported the risk of price increase in raw materials and fuels, the risk of increased competition, the risk of the loss of customers or business partners and delayed payments to be the most important types of risk in the sample.

Each enterprise is a complex system of interrelated processes. These processes not only fulfil the strategic objectives of an enterprise, but under certain circumstances they may become a source of threat and danger, it means that they can be risky. A shift from probable risk to real risk leads to some losses, which are understood primarily as financial ones, but they can also be a danger to people or the environment.

The paper deals with managers' opinions on the possibility of risk occurrence and its impact in the sample of enterprises. Surprisingly, natural hazards are underestimated in Czech Republic, although they have been reported more often during last 15 years and this type of risk is related to a high risk of operations disruption up to enterprise liquidation. Currently, managers have not seen this risk as a direct one but they do not realize that in the global environment, if some risk significantly affects suppliers, it will later appear throughout the whole supply chain. This risk will be greater the greater is the integration of enterprises in the chain and therefore, the more the enterprises are related.

Unexpected risk has been also showed by the current Russian-Ukrainian conflict, which resulted into the EU economic sanctions against Russia. Interruption of supplies to Russia has created a new situation in which the EU member states must quickly find new markets not to get into a crisis situation.

Directions for further investigation. The issue of enterprises risk is very extensive, therefore, this paper is only a part of a larger study focusing on risk and crisis in business.

The paper was supported by The Grant Agency of University of South Bohemia in Ceske Budejovice no. 079/2013/S (Principal investigator, Doc. Ing. Ladislav Rolinek, PhD).

References

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Annotation

This paper describes the way in which different enterprises see operational risk. Types of operational risks are divided into natural hazards, external risks, risk resulting from partners, risk resulting directly from business activities and risk arising from poorly adjustedprocesses. Using the probability-impact matrix, the intensity of risk perception was assessed for the whole sample and for different types of enterprises. Our sample of 101 enterprises considered a lack or loss of customers, increased competition, increasing prices of raw materials and fuels, late payments from customers andfailure to comply with the required quality of products or services to be the most significant types of risk.

Keywords: operational risk; risk; risk perception.

У статті описано, як різні підприємства сприймають різноманітні ризики. Операційні ризики у дослідженні поділено на такі групи: природні ризики, зовнішні ризики, ризики від партнерів, ризики самої бізнес-діяльності та ризики погано відлагоджених процесів. Інтенсивність сприйняття ризиків було оцінено як для всієї вибірки (101 підприємство), так і за видами діяльності. Найбільш суттєвими ризиками для всієї вибірки стали: втрата або зменшення кількості клієнтів, підвищення конкуренції, підвищення цін на сировину або паливо, запізнення розрахунків від клієнтів та нездатність відповідати певному рівню якості товарів та послуг.

Ключові слова: операційний ризик; ризик; сприйняття ризику.

В статье описано, как различные предприятия воспринимают различные риски. Операционные риски в исследовании поделены на: природные риски, внешние риски, риски, идущие от партнеров, риски самой бизнес-деятельности и риски плохо отлаженных процессов. Интенсивность восприятия рисков была оценена как для всей выборки (101 предприятие), так и по видам деятельности. Наиболее значимыми рисками для всей выборки стали: утрата или уменьшение количества клиентов, повышение конкуренции, повышение цен на сырье и топливо, запаздывание платежей и неспособность соответствовать определённому уровню качества товаров и услуг.

Ключевые слова: операционный риск; риск; восприятие риска.

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