RISK MANAGEMENT IN TRANSPORTATION COMPANIES: RUSSIAN AND FINNISH PRACTICES
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Introduction 6
CHAPTER 1. RISK MANAGEMENT PRACTICES 9
1.1. Transportation modes and companies 9
1.2. Transportation risks 15
1.3. Process of risk management 18
1.4. Transportation risk management evolution 21
1.5. Overview of risk management practices 26
CHAPTER 2. METHODOLOGY OF RISK MANAGEMENT PRACTICES EVALUATION 32
2.1. The problem of risk management practices evaluation 32
2.2. Case method 33
2.3. Statistical method 36
2.4. Method of APIS 37
2.5. Technique for evaluation of risk management practices 41
CHAPTER 3. APIS MODEL OF RUSSIAN AND FINNISH RISK MANAGEMENT
EVALUATION 48
3.1. Structural model of transportation risk management practices 48
3.2. Sample description and data collection 52
3.3. Comparative data analysis and results 53
3.4. Theoretical contribution 59
3.5. Managerial implication and limitations 61
Conclusion 64
List of references 65
Appendixes 70
Appendix 1. The survey for data collection from Finnish transportation companies 70
Appendix 2. APIS values of aggregated indices for Russian and Finnish practices 81
Appendix 3. APIS values of aggregated indices for practices’ groups 84
CHAPTER 1. RISK MANAGEMENT PRACTICES 9
1.1. Transportation modes and companies 9
1.2. Transportation risks 15
1.3. Process of risk management 18
1.4. Transportation risk management evolution 21
1.5. Overview of risk management practices 26
CHAPTER 2. METHODOLOGY OF RISK MANAGEMENT PRACTICES EVALUATION 32
2.1. The problem of risk management practices evaluation 32
2.2. Case method 33
2.3. Statistical method 36
2.4. Method of APIS 37
2.5. Technique for evaluation of risk management practices 41
CHAPTER 3. APIS MODEL OF RUSSIAN AND FINNISH RISK MANAGEMENT
EVALUATION 48
3.1. Structural model of transportation risk management practices 48
3.2. Sample description and data collection 52
3.3. Comparative data analysis and results 53
3.4. Theoretical contribution 59
3.5. Managerial implication and limitations 61
Conclusion 64
List of references 65
Appendixes 70
Appendix 1. The survey for data collection from Finnish transportation companies 70
Appendix 2. APIS values of aggregated indices for Russian and Finnish practices 81
Appendix 3. APIS values of aggregated indices for practices’ groups 84
Background and actuality of the study. Companies put an effort to collect all essential quantitative and qualitative information concerning possible negative events from different involved parties for further analysis. However, companies cannot focus only on a few risks and use tools only to avoid particular list of them.
Lam (2001) emphasizes that reports of the companies with established enterprise risk management (ERM) system show much better results in the form of lower losses caused by disruptions and higher value on the market in comparison to companies with traditional approach. Within ERM approach, managers consider organization as integral system with established risk management best practices and enhanced communication tools between all parts. Enterprise risk management process is not unified for everyone approach (Knutson, 2013). Managers need to adjust it for particular needs and organizational structure. In this way, it will be possible to create relevant framework that includes all steps of risk management processes.
Aabo, Fraser and Simkins (2005) as well provide the idea that there is no universal set of practices for enterprise risk management. Therefore, organizations should combine different approaches. One of the ways that can be effective solution is to follow best practices on the market.
The topic of paper has important managerial application. Risks that appear during transportation of materials and goods and in information flows can affect company overall. Hendricks (2005) investigates the interrelation changes in transportation process have influence on long-term values in stock prices and equity risk of the organization. This statement has empirical confirmation with results that average transportation disruptions lead to a fall by:
• 7% per year in Sales;
• 42% in Operating profit;
• 35% in Return on assets.
Transportation companies’ activities are affected by the range of risks significantly. That is why it is especially necessary to be able to manage risks at any stage of occurrence. Transportation companies provide clients with solutions of delivery goods and are aimed to make decisions with adjustments on potential risks.
The objectives and research methodology. The following topic pays attention to quite sophisticated problem of companies risk management tools evaluation. In the paper different methods of evaluation will be analyzed and the most appropriate one will be used for design of technique that allows to estimate own facilities and be able to adjust current tools in positive way.
The subject of the research is risk management practices, which can be described as tools and methods that companies utilize during risk assessment and control. Whereas the object of the research is transportation companies. The goal of the thesis is to design technique for evaluation of risk management practices of national transportation companies.
The presented goal requires achievement of the following objectives:
• Description of current risk management practices based on provided literature review;
• Selection of methods for transportation risk management practices evaluation and for design of technique;
• Quantitative modelling of Russian and Finnish risk management practices evaluation and comparative analysis.
The thesis’ method includes usage of primary and secondary data. It requires collection of primary data - attributes’ estimation and alternatives’ preferences - directly from the companies. The secondary data is analysis of literature for building risk management practices framework. The data will be provided as responses of experts received with a help of designed survey, and further will be processed in decision support system (DSS).
Outline of the study. The thesis has consistent structure, which is divided into three chapters. The first chapter is introduction into topic and reveals main concepts concerning related to companies risks and risk management. Chapter 1 is literature review that helps to understand the nature of the problem. It expands knowledge about various typed of transportation modes and their advantages and disadvantages, reviews concepts of risk and risk management. Moreover, it represents time pace of risk management system evolution that came from simple tools of insurance to complex approach of enterprise risk management that interconnected to the development of corporate strategy. Consequently, Chapter 1 is finalized with representation of current risk management methods and tools that are utilized in risk management process. Described in the chapter practices will be base for creation of risk management practices’ hierarchy model.
The Chapter 2 raises purpose for risk management practices estimation and various methodologies for it. Evaluation of methods and tools can be made with utilization of different approaches. However, transportation companies likely do not prefer to disclose information about internal processes and, especially, quantitative data, which considered as commercial secret. This leads to the fact that it is quite hard to estimate methods and tool with common approaches like statistical instruments and comparative analysis. Even case study requires close relationship and high level on insight knowledge, which is generally closed from outsiders. Consequently, this problem requires utilization of conceptually different tool that can give estimations in conditions of high uncertainty and can calculate them even with heterogeneous types of data. DSS APIS is considered as the suitable tool for solution of this problem. As a result of Chapter 2, technique of risk management practices evaluation will be provided on the base of APIS method.
The Chapter 3 is aimed to utilized technique that was designed in previous chapter on the example of Russian and Finnish transportation companies’ risk management practices. Methodology of the paper is based on principals of decision-making in conditions of uncertainty and lack of quantitative data. Therefore, the data collection process was design for utilization of data in DSS APIS for further calculation. Each step of empirical part is discussed and shows significant issues. As a final part of Chapter 3 there are included the main results of research. It gives clear understanding of outcomes from the points of comparison Russian and Finnish practices as well as comparison tools and methods within group of particular country. The final chapter highlights value of technique’s utilization for adjusting or correction risk management methods in order to be more agile in risk minimization processes.
Lam (2001) emphasizes that reports of the companies with established enterprise risk management (ERM) system show much better results in the form of lower losses caused by disruptions and higher value on the market in comparison to companies with traditional approach. Within ERM approach, managers consider organization as integral system with established risk management best practices and enhanced communication tools between all parts. Enterprise risk management process is not unified for everyone approach (Knutson, 2013). Managers need to adjust it for particular needs and organizational structure. In this way, it will be possible to create relevant framework that includes all steps of risk management processes.
Aabo, Fraser and Simkins (2005) as well provide the idea that there is no universal set of practices for enterprise risk management. Therefore, organizations should combine different approaches. One of the ways that can be effective solution is to follow best practices on the market.
The topic of paper has important managerial application. Risks that appear during transportation of materials and goods and in information flows can affect company overall. Hendricks (2005) investigates the interrelation changes in transportation process have influence on long-term values in stock prices and equity risk of the organization. This statement has empirical confirmation with results that average transportation disruptions lead to a fall by:
• 7% per year in Sales;
• 42% in Operating profit;
• 35% in Return on assets.
Transportation companies’ activities are affected by the range of risks significantly. That is why it is especially necessary to be able to manage risks at any stage of occurrence. Transportation companies provide clients with solutions of delivery goods and are aimed to make decisions with adjustments on potential risks.
The objectives and research methodology. The following topic pays attention to quite sophisticated problem of companies risk management tools evaluation. In the paper different methods of evaluation will be analyzed and the most appropriate one will be used for design of technique that allows to estimate own facilities and be able to adjust current tools in positive way.
The subject of the research is risk management practices, which can be described as tools and methods that companies utilize during risk assessment and control. Whereas the object of the research is transportation companies. The goal of the thesis is to design technique for evaluation of risk management practices of national transportation companies.
The presented goal requires achievement of the following objectives:
• Description of current risk management practices based on provided literature review;
• Selection of methods for transportation risk management practices evaluation and for design of technique;
• Quantitative modelling of Russian and Finnish risk management practices evaluation and comparative analysis.
The thesis’ method includes usage of primary and secondary data. It requires collection of primary data - attributes’ estimation and alternatives’ preferences - directly from the companies. The secondary data is analysis of literature for building risk management practices framework. The data will be provided as responses of experts received with a help of designed survey, and further will be processed in decision support system (DSS).
Outline of the study. The thesis has consistent structure, which is divided into three chapters. The first chapter is introduction into topic and reveals main concepts concerning related to companies risks and risk management. Chapter 1 is literature review that helps to understand the nature of the problem. It expands knowledge about various typed of transportation modes and their advantages and disadvantages, reviews concepts of risk and risk management. Moreover, it represents time pace of risk management system evolution that came from simple tools of insurance to complex approach of enterprise risk management that interconnected to the development of corporate strategy. Consequently, Chapter 1 is finalized with representation of current risk management methods and tools that are utilized in risk management process. Described in the chapter practices will be base for creation of risk management practices’ hierarchy model.
The Chapter 2 raises purpose for risk management practices estimation and various methodologies for it. Evaluation of methods and tools can be made with utilization of different approaches. However, transportation companies likely do not prefer to disclose information about internal processes and, especially, quantitative data, which considered as commercial secret. This leads to the fact that it is quite hard to estimate methods and tool with common approaches like statistical instruments and comparative analysis. Even case study requires close relationship and high level on insight knowledge, which is generally closed from outsiders. Consequently, this problem requires utilization of conceptually different tool that can give estimations in conditions of high uncertainty and can calculate them even with heterogeneous types of data. DSS APIS is considered as the suitable tool for solution of this problem. As a result of Chapter 2, technique of risk management practices evaluation will be provided on the base of APIS method.
The Chapter 3 is aimed to utilized technique that was designed in previous chapter on the example of Russian and Finnish transportation companies’ risk management practices. Methodology of the paper is based on principals of decision-making in conditions of uncertainty and lack of quantitative data. Therefore, the data collection process was design for utilization of data in DSS APIS for further calculation. Each step of empirical part is discussed and shows significant issues. As a final part of Chapter 3 there are included the main results of research. It gives clear understanding of outcomes from the points of comparison Russian and Finnish practices as well as comparison tools and methods within group of particular country. The final chapter highlights value of technique’s utilization for adjusting or correction risk management methods in order to be more agile in risk minimization processes.
Transportation companies’ activities are affected by the range of risks significantly. That is why it is especially necessary to be able to manage risks at any stage of occurrence. Transportation companies provide clients with solutions of delivery goods and are aimed to make decisions with adjustments on potential risks. One of the main problem of any manager that creates framework or procedures for risk management is how to choose appropriate tools and methods for all steps of integral process.
Estimation of risk management practices can be made with utilization of different methods. However, for manager of particular organization it can be hard to evaluation practices because several methods have crucial limitation that restrict possibility to make evaluation with relevant results. One of the main reasons of this problem is that transportation companies likely do not prefer to disclose information about internal processes and, especially, quantitative data, which considered as commercial secret. This leads to the fact that it is quite hard to estimate methods and tool with common approaches like statistical instruments and comparative analysis.
The goal of the thesis was to design technique for evaluation of risk management practices of national transportation companies. As a result of this thesis, the goal was achieved by design model of structured hierarchy and approbated on the example of Russian and Finnish transportation companies.
Managerial application of this technique has three directions:
• Comparison of national risk management practices of transportation companies;
• Evaluation of risk management system within one organization to estimate current practices;
• Analysis of industry trends concerning risk management tools.
However, this techniques still requires further development for taking into calculations specifics of companies with various sizes and different modes of transportation. As well, possible opportunity for improvement will be connected to development of data collection tool that will allow to adjust specifics of various types of companies in order to hold broad analysis of national transportation risk management practices.
Estimation of risk management practices can be made with utilization of different methods. However, for manager of particular organization it can be hard to evaluation practices because several methods have crucial limitation that restrict possibility to make evaluation with relevant results. One of the main reasons of this problem is that transportation companies likely do not prefer to disclose information about internal processes and, especially, quantitative data, which considered as commercial secret. This leads to the fact that it is quite hard to estimate methods and tool with common approaches like statistical instruments and comparative analysis.
The goal of the thesis was to design technique for evaluation of risk management practices of national transportation companies. As a result of this thesis, the goal was achieved by design model of structured hierarchy and approbated on the example of Russian and Finnish transportation companies.
Managerial application of this technique has three directions:
• Comparison of national risk management practices of transportation companies;
• Evaluation of risk management system within one organization to estimate current practices;
• Analysis of industry trends concerning risk management tools.
However, this techniques still requires further development for taking into calculations specifics of companies with various sizes and different modes of transportation. As well, possible opportunity for improvement will be connected to development of data collection tool that will allow to adjust specifics of various types of companies in order to hold broad analysis of national transportation risk management practices.
