Research Korner: Risk Assessment and Prevention

Reduction of Pressure Ulcers by Risk Assessment and Prevention in Hospital Setting

Introduction             Pressure ulcers continue to be a distressing medical problem. Not only do patients experience pain and discomfort but intensive wound care also incurs considerable costs to both patients and hospitals. Therefore both health care professionals and patients should consider the prevention of pressure ulcers of extreme importance. Hospital nursing teams are especially concerned with the prevention of pressure ulcers that develop during hospitalization, i.e. the nosocomial pressure ulcers.             The aim of this project is to improve pressure ulcer risk assessment and prevention through the implementation of guideline recommendations, many of which related to accurate and timely documentation of risk, adequate care planning and the provision and review of appropriate equipment. To achieve this, clinical audit will be used. The clinical areas audited provided care to patients identified anecdotally at higher risk of pressure ulcer development due to their physical condition. A quantitative form of research is applied in this project.   Background of the medical condition Pressure ulcer is most commonly known as bedsore. Other names for it include pressure sore, decubitus ulcer and trophic ulcer. It is an ischemic necrosis and ulceration of tissues overlying a bony prominence which has been subjected to prolonged pressure against an external object like a bed, wheelchair, cast or splint for example (Bickley & Szilagyi, 2003). The condition results to impaired skin integrity related to unrelieved, prolonged pressure (Potter & Perry, 2004). Such a condition is seen most frequently in patients who have diminished or absent sensation, or are debilitated, emaciated, paralyzed, or otherwise long bedridden. Any patient experiencing decreased mobility, decreased sensory perception, fecal or urinary incontinence and/or poor nutrition can therefore be at risk for pressure ulcer development. Tissues over the sacrum, ischia, greater trochanters, external malleoli, and heels are especially susceptible but other sites may be involved, depending on the patient’s position. Pressure ulcers can affect not only superficial tissues, but also muscle and bone.             Both intrinsic and extrinsic factors precipitate pressure ulcers. Intrinsic factors include loss of pain and pressure sensations that ordinarily prompt the patient to shift position and relieve the pressure, and the thinness of fat and muscle padding between bony weight-bearing prominences and the skin. Disuse atrophy, malnutrition, anemia, and infection play contributory roles. The most important of the extrinsic factors is pressure. Its force and duration directly determine the extent of the ulcer. Pressure severe enough to impair local circulation can occur within hours of an immobilized patient, causing local tissue anoxia that progresses, if unrelieved, to necrosis of the skin and subcutaneous tissues.             The best treatment for pressure ulcers is prevention. Pressure on sensitive areas must be relieved. Unless a full-flotation bed such as a water bed is used, providing even distribution of the patient’s weight. If the patient is using braces or plaster casts, a protective padding at bony prominences should be used under braces or plaster casts, and a window in the cast should be cut over potential pressure sites.             Skin inspection is also important. Pressure points should be checked for erythema or trauma at least once/day in an adequate light. Able patients, mobile or immobile, and their families must be taught a routine of daily visual inspection and palpation of sites for potential ulcer formation. Exquisite skin care for neurologically damaged parts is necessary to prevent maceration and secondary infection. Maintaining cleanliness and dryness helps to prevent maceration.             The prevention of pressure ulcers is a priority in caring for patients and is not limited to patients with restrictions in mobility. Impaired skin integrity may not be a problem in healthy, immobilized individuals but is a serious and potentially devastating problem in ill or debilitated patients. Prompt identification of the high-risk patients and their risk factors aids in prevention of pressure ulcers. A well-balanced diet, high in protein, is important in the treatment of pressure ulcers. Blood transfusions may be needed for anemia. Threatened pressure sores require energetic use of all the above mentioned prophylactic measures to prevent tissue necrosis. The area should be kept exposed, free from pressure, and dry.             The major problem in treating pressure ulcer is that the ulcer is like an iceberg, a small visible surface with an extensive unknown base, and there is no good method of determining the extent of tissue damage.             More advanced ulcers require surgical treatment. Surgical debridement and closure is required for fat and muscle involvement. Affected bone tissue requires surgical removal; disarticulation of joint may be needed. Necrotic tissue can promote pathogen growth and delay healing, so it should be removed. An exception may be eschar or necrotic tissue on a heel ulcer because an open heel wound can easily become infected and lead to osteomyelitis. Several debridement methods are available; the choice depends on the amount of necrotic tissue, absence or presence of infection, patient preferences, and economic considerations (Baranoski, 2006).   Evidence-based pressure ulcer prevention and treatment             Evidence-based practice, which is often referred to as evidence-based nursing or evidence-based medicine, is the conscientious, explicit, and judicious use of current best evidence in making decisions about the care of individual patients. (1) It involves integrating the individual clinical expertise of the physician or nurse with the best available external clinical evidence from systematic research and individual patient preferences. (2) Research shows that patients' outcomes are at least 28% better when clinical care is based on evidence rather than tradition or common sense (Bryan-Brown, 2006). The following paragraphs would discuss health care practices and interventions on pressure ulcers which are evidence-based and are widely used in health care settings today. A major aspect of nursing care is the maintenance of skin integrity. Consistent, planned skin care interventions are critical to ensuring high quality of care (Kozier & Erb, 2004). Nurses constantly observe their patient’s skin for breaks or impaired skin integrity. Impaired skin integrity occurs from prolonged pressure, irritation of the skin, or immobility, leading to the development of pressure ulcers. Nursing care interventions aimed at the prevention, assessment and treatment of pressure ulcers should be based on research (Potter & Perry, 2004) or evidence-based practice.             There are several instruments for assessing patients who are at high risk for developing a pressure ulcer. Patients with little risk for pressure ulcer development are spared the unnecessary and sometimes costly preventive treatments and the related risk of complications.             Prevention and treatment of pressure ulcers are major nursing priorities. The incidence of pressure ulcers in a facility or agency is an important indicator of quality of care. There is evidence that a program of prevention guided by risk assessment can simultaneously reduce the institutional incidence of pressure ulcers by as much as 60% and bring down the costs of prevention at the same time (Potter & Perry, 2004).             Evidence-based practice shows that lack of documentation of patients at risk demonstrates the need for hospitals to increase prediction and prevention strategies. Use of a risk scale can provide triggers to plan care to decrease risk factors.             As a predictive measure, individuals should be assessed for risk of pressure ulcer development upon admission to acute care and rehabilitation hospitals, nursing homes, home care programs, and other health care facilities (Kozier & Erb, 2004). Pressure ulcer risk assessment should be done systematically.             Evidence-based practice also shows that extended stays of over 7 days increase the risk of pressure ulcer development (Lyder, et al, 2001). Nurses must therefore remain vigilant in the prevention of pressure ulcers in patients with longer hospital stays.             Evidence-based practice shows that the use of care practices such as daily skin assessment, use of pressure-relief surfaces and objective risk assessment measures, such as the Braden scale, identified at risk patients and reduce evidence of pressure ulcers (Lyder, et al, 2001). The Braden scale was developed based on risk factors in a nursing home population. It is highly reliable when used to identify patients at greatest risk for pressure ulcers. It is also the most commonly used assessment scale for pressure ulcer (Potter & Perry, 2004).             Evidence-based practice also shows that the use of nutritional consultation was associated with decreased incidence of pressure ulcers, suggesting a nutritional consultation may sensitize the staff that the older adult is at risk for pressure ulcer development (Lyder, et al, 2001).             Nursing interventions for reducing and treating pressure ulcers are evaluated by determining the patient’s response to nursing therapies and by determining whether each goal was achieved. To evaluate outcomes and responses to patient care, the nurse measures the effectiveness of interventions. The optimal outcomes are to prevent injury to the skin and tissues, reduce injury to the skin and underlying tissues, and restore skin integrity (Potter & Perry, 2004). The care of a patient with a pressure ulcer requires a multidisciplinary team approach.             There is a strong relationship between nutritional status and pressure ulcer development, yet nutrition is an area often overlooked by clinicians in pressure ulcer care. Nutrition, including adequate hydration, plays an important role in pressure ulcer prevention and healing, and is critical in maintaining tissue integrity. Patients defined as malnourished at hospital admission are twice as likely to develop pressure ulcers as well-nourished patients. Therefore, nurses and dietitians should work together to assess the patient's nutritional and hydration status and ensure that these factors are addressed in the patient's care plan (Voss, 2000).             Pressure ulcers, regardless of their origin, represent negative outcomes for patients. These negative outcomes may include pain, additional treatments and surgery, longer hospital stays, disfigurement or scarring, increased morbidity; and increased costs. Although all negative outcomes are of concern, a hospital-acquired pressure ulcer can result in increased cost of treatment, patient dissatisfaction with care, and a potential litigious situation (Schultz, 2005).   The project plan   Objectives             The aim of this research is to improve pressure ulcer risk assessment and prevention to reflect the guideline recommendations. The objectives are: <ul style="margin-top: 0in; margin-bottom: 0in" type="disc"> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Develop a dissemination and implementation strategy to accompany the guideline;</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Audit care in pressure ulcer risk assessment and prevention, using criteria based on the guideline; and</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Make recommendations for practice and future research based on the findings of the study.</li> </ul>   Defining quality In keeping with the classical audit cycle this project seeks to identify current best practice in prescribing, survey the actual practice, and then institute measures to improve prescribing up to the identified standards. The audit tool was used to collect data on length of stay, mattresses and repositioning provided to patients in each of the following hospital wards: medical, orthopedic or older patients ward, groups considered to have a higher risk of pressure ulcer development, recovery room for the postoperative stay until first ambulation. This audit tool included demographic data as well as data on the modified norton scale for evaluation of a patient's risk of developing a pressure ulcer. A score of 16 or less indicates increased risk for developing a pressure ulcer. The audit tool will also include data on accompanying medical conditions, i.e. continence, diabetes, heart insufficiency and peripheral vascular diseases. Continence means that a patient has full control on urine and feces. Inserting a Foley catheter into the bladder can bypass the problem of urine incontinence. In case of urine incontinence, continued contact between skin and urine weakens the cell wall and may alter the skin pH, making it more susceptible to breakdown (Peich & Margalit, 2004).   Recruitment of pilot sites and link nurses As the project had a short timeframe, a decision was taken with the advisory panel that four to six sites would provide sufficient patient numbers to allow improvement in practice to be detected between the audits. Sites were included if they provided tare to medical, orthopedic or older patients, groups considered to have a higher risk of pressure ulcer development. As this was an audit project, ethics committee approval will not be required, however, confirmation of this will be sought and obtained from all hospital sites involved in the project.             The audit criterion is that a practitioner with 'appropriate and adequate training' should undertake the initial risk assessment and document findings. For audit purposes, the grade of the nurse or health care professional will be recorded.   Dissemination and implementation strategy The dissemination and implementation strategy was informed by evidence and reflected the advice of site link nurses and staff from the clinical areas on possible barriers to change. This ensured the strategy reflected best evidence to bring about change, and encouraged local ownership of the guideline. Dissemination comprised the identification of a nurse from each clinical area who could support clinical staff involved in the project and assist with the audits; circulating copies of the project proposal, quarterly newsletters and summaries of the guideline recommendations to all relevant staff.   Implementation Implementation focused on the development of an evidence-based resource pack by the project team and provision of education sessions by the project manager. A resource pack was given to each senior member of staff in the clinical area to be audited, the site link nurses and directors of nursing, and included an implementation guide and copies of the audit tools.             The project manager shall lead education sessions at each site, with the assistance of the site link nurse, following audit 1. The sessions were to be attended by nursing staff from the clinical areas to be audited, senior nurses and/or ward managers. The sessions focused on a description of evidence-based practice and clinical guideline development; the development and recommendations of the RCN guideline; an outline of the project; site specific feedback and recommendations for practice from audit 1.             To ensure standardization of pressure ulcer grading for the audit, the EPUAP tool was used by the project team (Stephens, 2003). Reduction in pressure ulcer prevalence is not a study outcome due to the time constraints and need to take account of potential contributory factors. Nevertheless, it is considered important to assess prevalence to enable audit findings to be more generalizable. Each site will be asked to identify clinical areas that met inclusion criteria and arrange dates for the project manager to undertake audit 1. Audit 2 will commence at each site five to six months later.             Development of Audit Tools             Two audit tools will be developed; one for the patient and one for the clinical area. The tools are developed using recommendations for audit criteria proposed by Baker and Fraser (1995), which included the following: <ul style="margin-top: 0in; margin-bottom: 0in" type="disc"> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Criteria should be based on evidence where possible.</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Criteria should be prioritized according to the strength of the evidence and effect on patient outcome.</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Criteria should be measurable and appropriate to the clinical setting.</li> </ul>   Audit criteria will then be derived from the guideline. This will be followed with a consultation with the advisory panel where and agreement will take place on what the audit would comprise.   Measuring and comparing             On the first audit and data analysis, to be included are all patients admitted to the hospital with no skin breakdown during a six-month period, but are at risk for pressure ulcer development. The nurse will collect the data, using the audit tool. The information sources are patients' records, interviews with patients and/or patients' families, and nurses. This is quantitative form of research wherein patient age range and mean will be computed both in the first and second audit. Pressure ulcer risk was elicited using clinical assessment and a tool to obtain a risk assessment score. Risk assessment scores for each patient were verified by the auditors (Stephens, 2003).             Data from audit 2 will then be compared with audit 1. Data will be coded and entered onto an Excel spreadsheet, and results collated in an anonymised form using simple descriptive statistics to enable comparative analysis to be undertaken. Each site will then receive feedback comparing results from both audits by clinical area in an anonymised form.   Taking action to improve             An intervention program will be prepared and implemented based on the results of the project. The program will be prepared as an addition to the basic health care practice that is common for bedridden patients and other patients at risk for pressure ulcer development.   Conclusion Patient safety should be the number one concern during hospital stay and also before, during and after each hospital procedure performed. A detailed knowledge of the epidemiology, based on adequate surveillance methodologies, is necessary to understand the pathophysiology and the rationale of preventive strategies that have been demonstrated to be effective in preventing and treating pressure ulcers. The principles of general preventive measures such as the implementation of standard and isolation precautions, following guidelines, and the control of antibiotic use should be reviewed. Some patients are more at risk for pressure ulcer development than others, and this should be taken into account by health care professionals. The necessity to audit is seen in the high prevalence of pressure ulcer development in hospital stays despite established clinical guidelines. There is a need to improve pressure ulcer risk assessment and prevention through the implementation of guideline recommendations, many of which related to accurate and timely documentation of risk, adequate care planning and the provision and review of appropriate equipment involved. The success of the health care professional who practices pressure ulcer prevention and control techniques is measured by determining whether the goals for reducing or preventing infection are achieved. A comparison of the patients’ response with expected outcomes determines the success of the health care interventions.   References Baker, R. & Fraser, R. 1995. Development of Review Criteria: Linking Guidelines and Assessment of Quality. British Medical Journal. 311, 7001, 370-373. Baranoski, S. 2006, Pressure Ulcers: A Renewed Awareness. Nursing. Bickley, L. and Szilagyi, P. 2003. Bates’ Guide to Physical Examination and History Taking 8th Edition. Lippincott Williams and Wilkins. Bryan-Brown, C.W. 2006, Evidence-Based Practice is Wonderful.. Sort Of. American Journal of Critical Care. Education, Training, and Research Evidence for Better Health Care. 2006. Retrieved from: http://www.york.ac.uk/healthsciences/ Franz, R.A. 2003, Pressure Ulcer Prevention and Treatment: Competency-Based Nursing Curricula. Dermatology Nursing. Kozier, B. and Erb, G. 2004. Fundamentals of Nursing: Concepts, Process, and Practice 7th Edition. Pearson Education Inc. Lyder, C.H., J. Peterson, et al. 2001. Quality of care for hospitalized medical risk for pressure ulcers. Arch Intern Med. 161(12):1549-54 Olade, R.A. 2004, Evidence-Based Practice and Research Utilization Activities Among Rural Nurses. Journal of Nursing Scholarship. Peich, S. & Calderon-Margalit, R. 2004. Reduction of Nosocomial Pressure Ulcers in Patients with Hip Fractures: A Quality Improvement Program. International Journal of Health Care Quality Assurance Vol 17, No 2. Potter, P. and Perry, A. 2004. Fundamentals of Nursing. Mosby. Schultz, A. 2005, Predicting and Preventing Pressure ulcers in Surgical Patients. AORN Journal. Stephens, F. 2003. Pressure Ulcer Risk: Audit Findings. Nursing Standard. Voss, A. 2000. Pressure Ulcer Management: The Importance of Nutrition. MedSurg Nursing.

Reduction of Pressure Ulcers by Risk Assessment and Prevention in Hospital Setting

Introduction Pressure ulcers continue to be a distressing medical problem. Not only do patients experience pain and ...

Risk Assessment in Pressure Sores

Pressure Sore Introduction In health care settings, the doctors and nurses and other health care providers are working together in reaching the one common aim. To provide the quality of health care and promote the wellness is one of their goals in working within the corners of hospitals. In their everyday life inside the hospital, the clinicians provide an in-depth analysis about the different diseases that is present in their patient. One of the most case-sensitive ill is the pressure sore that creates a great dilemma for both the health care practitioner and the patient. Risk Assessment A client that is suffering in paralysis might likely to experience the pressure sores. Along with that is the presence of pain and pneumonia. Focusing on the pressure sores, the proposed solution in the problem of pressure sores is the implementation of evidence based practice (EBP) as a protocol in the pressure sore management. In the collaboration of the various clinical apparatuses and innovative tools, the diagnostic results created by the specialist are nevertheless accurate on the actual condition of the patient such as their pain and discomfort feeling. Due to the different symptoms and various allergies of the patient, the stages of the disease is detected, treated and, if possible, is cured. This application of appropriate solution is based on the evidences being present in the patients. Health care practitioners are guided by the same clinical practice that assists them as well as their patients in generating a clinical decision. These guidelines were systematically formed to develop a comprehensive statement wherein the experts can deliberately explain or provide the quality care. The specific clinical condition of a patient is the most available scientific evidence and from the past experience and knowledge of the health care provider, the judgment can be created. The adequate prescription can be the last statement that a health care provider can give which is also suitable in the patient’s needs. The client should experience the support coming from their families and also the encouragement coming from the nurses and other medical staffs in assisting the recovery of the patient. In pressure sores or pressure ulcers, the level of evidences is a great source of information that a health care provider can consider in recommending for the available prevention strategies. According to the quality and quantity of available scientific data and methods, the level of evidences can be assessed. Although in most incidence, the level of evidence in pressure sores are relatively low because of the difficulty in performing randomized controlled trials and studies in the area of health (AWMA, 2001). Therefore, the use of protocol is part of the strategies in most of the hospitals to recognize the different improvement in the situation of the patient. The development of the pressure sores can be risky in the patient and the importance of the evidences plays a significant role (Shultz and Shultz, 2004). Through the use of appropriate procedures such as the observations and recording, the critical assessment on the evidences can be strong and valid (Barry, 2009). However, the role of the nurses in terms of decision making is to provide vital information that can help the patients understand the situation. That information is important to bring the independence and privacy in the hands of the clients. The confidentiality of the patient’s decision making is based on the health and safety aspects of care. The pressure sore that the patient’s feel is important factor in formulating the right solutions for assisting the patients in making their decisions. At some point, the function of the nurses became more challenging than before. Conclusion The use of evidences in the medical practice and be part of the overall procedure is one of the basic assumptions that a medical or health care provider should do. In the field of medicine, the experts and the patient should expect the different changes that might happen in the patient and through that different changes, the theories are revealed. The validity of the practice and the guideline of the medical practitioners can guarantee that all their observations are based on their knowledge and there is a valid reason for the generated medical decisions. References: AWMA, (2001) Clinical Practice Guidelines for the Prediction and Prevention of Pressure Ulcers, Australian Wound Management Association [Online] Available at: http://www.awma.com.au/publications/2007/cpgpppu_v_full.pdf [Accessed 30 December 2010]. Barry, D., (2009) Pressure Care February Newsletter References [Online] Available at: http://www.wounds-uk.com/pressurecare/downloads/pressurecare_february_09_references.pdf [Accessed 30 December 2010] Shultz, J., & Shultz, B., (2004) Investigative Protocol Pressure Ulcer [Online] Available at: http://www.vpurt.org/files/INVESTIGATIVE%20PROTOCOL-F314%20updated%20Nov%202004-7%20pages.pdf [Accessed 30 December 2010].

Risk Assessment in Pressure Sores

Pressure Sore Introduction In health care settings, the doctors and nurses and other health care providers are working together in re...

RISK ANALYSIS AND ASSESSMENT ( risk situation within the domain of logistics management)

Introduction Customer-intimate firms know that their clients have a hierarchy of needs beyond their requirement for a product. Attached to every product is basic service, service that customers expect as part and parcel of the product purchase. While operational-excellence companies and product-leadership firms never look beyond a client's need for product or basic service, the customer-intimate firm understands that a client that needs a product has a broader, underlying problem that they are trying to solve. A customer-intimate firm often has the expertise to change the way a client manages the underlying problem ( 1997). The most common characteristic of customer-intimate companies is that they offer a unique range of superior services, from education to hands on help, so that customers can get the most out of their products (1997).   Supply chain management (SCM) is a modern management concept, the goal of which is to improve the efficiency and effectiveness of a company’s entire supply chain operations. The supply chain runs from raw material suppliers at one end, right through all the intermediate processing stages, to the customer at the other (1999). The focus of SCM or logistics management is on adding value and eliminating inefficiencies at each stage of a company’s supply chain. This will include, for example, the optimization of stock or inventory movements; planning for peak activity periods; and the organization of transport and distribution systems. The process seeks to ensure that the right materials, supplies and personnel are in the right place at the right time. The emphasis of SCM on adding value at each intermediate stage, has given rise to the term value chain. Supply chain or value chain management emphasizes the strategic value-adding and financial role of a company’s entire logistics management process ( 1999).   In recognition of the new emphasis on providing the best net value for the customers, logistics represents a key bundle of resources that can be applied successfully to this end. In effect, this formally recognizes the fact that customer value can be created by providing elements of customer service such as product availability, timeliness and consistency of delivery, and ease of placing orders. The net impact is that logistical service is becoming recognized as an essential element of customer satisfaction in a growing number of product markets today. The logistics process has several unique characteristics (1991).  First, it is comprehensive, extending from the original source of raw materials to the location of the final customer. In fact, the logistics process can, and does, span organizational boundaries in terms of encompassing very comprehensive, industry wide channels of supply and distribution.   The second characteristic is that it pertains to the flows of both product and information, and considers each as essential to the value-creating process. This concept has received broad acceptance and acknowledges the critical role of logistics in the overall area of information processing and management. Third is that logistics represents a viable means to satisfy and create value for the external customer of the firm and/or the channel of distribution. It is this dimension that truly justifies the recent attention directed toward the new role of logistics management (1991). The paper discusses about logistics management and the risk within it. The paper focuses on risk situation within the domain of logistics management. The paper will use the technique of systems modeling then it will characterize the situation as a complex dynamic system.   Risk analysis and management A major concern in recent years in managing projects has been the continuing problem of dealing with risk and uncertainty. Such concerns are prompted by increasingly severe financial and legal consequences of poor risk management. The continuing budget and time overruns as well as the negative impact of poor project management on corporate image are no longer tolerated by funders or shareholders. In response to continuing failure to manage project risks, organizations are investing in more sophisticated and accurate quantitative risk management solutions. However, many of these techniques still fail to deliver the expected result ( 2001).     The ineffectiveness of traditional quantitative risk analysis to manage projects effectively has also been highlighted by who also confirmed risk factors outside the scope of quantitative risk analysis as a contributory element to failure. Quantitative risk analysis is an extremely useful tool for assessing risk, but it can only deal with risks that have been identified. There appears to be some confusion between the concept of identification and assessment. In many cases, managers and decision makers assume that if quantitative risk analysis has been carried out then most potential risks have been addressed, and they do not engage in a critical evaluation of the procedure. Although risks identified may have been assessed effectively, what about risks that have not been identified? If a key risk element concerns human factors, then why not include this in the process (2001).   A good example of the lack of awareness of human factors within the risk assessment process involved an organization that dealt with nuclear processing and subsequent storage of nuclear waste. The project concerned the design and development of an appropriate repository for the waste, which had a potential for high risk to society over a substantial timescale. Within the initial phase of the project development at the design and conceptual phase, quantitative risk analysis focused on the failure rate of technological issues. No provision was made for conducting risk assessment on the project team or any other people involved in the process, except in terms of technology. One of the human factor issues related to serious conflict between members of the central project team resulting from misperceptions about roles and objectives of the project. In taking a stakeholder perspective to risk management, it is necessary to explore why the vested interest of an individual or group may be a key indicator of their likely decision-making processes, which ultimately shape their responses to the process and potential risk ( 2001).     An explanation for trying to understand the importance of the vested interests of stakeholders may lie in decision theory, which states that in making decisions, people choose between alternatives; rather, they select preferences between options. Empirical evidence concerning risk responses is also often ignored in the risk analysis process. People vary in their estimation of risk so that the same set of circumstances may be evaluated differently by individuals. There is a tendency to overestimate fabulous risk and to confuse probability with consequence. Thus, there might be a temptation to focus on low probability risk with severe consequences rather than high probability risk with lower potential losses. Evidence suggests that individuals do not understand, trust, or use accurately probability estimates (2001). Risk is an important consideration not only for management of business but for logistics management as well.   Risk situation in the context of logistics management Opinion corresponds, traditionally speaking, to rhetoric as a form of mutual influence. Science appears to escape this rule only by making use of statistical procedures. This requires enormous efforts in gathering data and calculating; and it must in the end prove to have been worth the trouble. Statements are thus produced that claim to be scientifically well founded. This might be perfectly reasonable if latent structures that would otherwise escape attention can in this way be rendered visible. However, this does nothing to change the fact that, in the present, opinion is the only possible approach to the future thus reducing participants in all social controversies requiring appraisal of the future to the knowledge-form of opinion, and bringing their efforts at convincing others down to the level of rhetoric (1993).  The risk situation of modern society thus has a double effect. To reduce risk, greater demands are made for scientifically guaranteed security within the context of probability/improbability, thus forcing them to adopt the rhetorical mode.   Science itself may behave reticently, but in so doing it exposes itself to criticism that it does nothing to promote its comprehensibility, or to face up to its societal responsibilities. If science responds to this demand, it risks having to appear unsound or, at third or fourth hand, of presenting contradictory views on the same subject although careful investigation reveals no internal differences of opinion among scientists. Science's risk increases in proportion to society's risk-aversion (1993). The risk situation in the context of logistics management can related to having a secured record of supplies. In logistics management having a secured record of supplies is an important thing. Having a record of supplies is a risky thing that a company has to do. Having a record of supplies may give a company benefits such as efficient list of supplies but it can also cause problems with regards to the secrecy of the information contained in each record. The system Systems modeling is an attempt to draw all the key dimensions present into a single model. This is, in general, a highly mathematicised approach, and is usually applied to relatively 'hard' and quantifiable systems. A more generalist systems approach, which can be extended to soft systems that cannot be quantified on an equivalent basis, emphasizes the development of an understanding of the pattern of interaction between the systems concerned. This usually involves drawing on a range of models and analytical tools and constructs developed in the various specialist disciplines involved. The role of a general systems approach is to provide a perspective and a context for assimilating and integrating the insights offered by different techniques ( 1996).   In logistics management there can be different risks that a company encounters. To counter problems coming out of the risk a system would likely be used. The system would be able to input different information and data that are important to the logistic section of a company. The system would then arrange the said records according to the classification they belong to. To protect the system a specific password would be asked to the user so that only those authorized by the company can access the information they need. This system will help in lowering the levels of risk in the organization. It also provides assistance on making sure that the business will operate smoothly. The first figure will give a diagram of how the system works Figure 1 Diagram of the system   Accessing the system Degree of control The system will be well operated and maintained so that the system will provide benefits to a company and not problems. The system will run smoothly if there will be able and responsible personnel that will check the system and make sure that people who uses it will comply to guidelines in using the system.    If the diagram will be used as a basis for running the system lesser problems can be encountered.   Levels of uncertainty People with a high tolerance for uncertainty may need to experience extreme levels of uncertainty before they become motivated to seek information, at least in an interactive manner. Those with a low tolerance for uncertainty may be motivated to seek information from relatively small amounts of uncertainty, although even they may not rely on interactive strategies to reduce uncertainty and instead use passive and third-party strategies (2004).  The level of uncertainty of the system is not too high and this can be maintained by making sure that proper use of the system is a top focus of a company. The system will not create problems as long as it is used well. As shown by the diagram the level of uncertainty will be lessened by the password protection.   Growth potential The diagram can describe that there can still be improvements for the system. The system will be able to grow and be upgraded as soon as a need for such becomes imminent. The system is highly adaptable to change and it can still accept upgrades. The upgrade will depend on how beneficial the system is and how imminent is there for changes to transpire.   Risk mitigation Risk mitigation is commonly employed in quality management. Quality control processes surface quality problems that arise. Note that quality control techniques, such as control charts, serve a risk identification function. For example, quality control chart patterns might suggest a problem with a grinding machine. An inspection of the machine leads technicians to conclude that a loose drive belt is causing non conformance of the product to specifications. Worse yet, the loose belt might ultimately tear and cause substantial disruptions to the production effort. To mitigate the likelihood of drive belt based problems, the technicians tighten the belt and implement a policy of routinely tightening it once a month (2003). The risk mitigation method that can be used for this system is tightening the security features of the said system. By doing so the system will work well and few problems can be encountered. As the diagram shows a security feature of the system is the password protection wherein users have to enter the password before they can add or access the data bank.   Conclusion As mentioned the focus of SCM or logistics management is on adding value and eliminating inefficiencies at each stage of a company’s supply chain. This will include, for example, the optimization of stock or inventory movements; planning for peak activity periods; and the organization of transport and distribution systems. A major concern in recent years in managing projects has been the continuing problem of dealing with risk and uncertainty. Risk is an important consideration not only for management of business but for logistics management as well. The risk situation in the context of logistics management can related to having a secured record of supplies. In logistics management having a secured record of supplies is an important thing. A system would be used to have a secured record of supplies. The system would be able to input different information and data that are important to the logistic section of a company.

RISK ANALYSIS AND ASSESSMENT ( risk situation within the domain of logistics management)

Introduction Customer-intimate firms know that their clients have a hierarchy of needs beyond their requirement for a product. Attached...

Risk-Based Approach to Financial Statement Audit

Risk-Based Approach to Financial Statement Audit             In the late 1990s, Enterprise Risk Management (ERM) began to evolve as an approach for companies to manage risks on a holistic, company-wide basis. Audit departments employing a risk-based audit approach are probably already focusing on the same key risks that management focuses on as part of the ERM process. However, there are other characteristics of the ERM that a risk-based audit approach does not comprehensively address. Therefore, a fourth generation of auditing, risk management-based auditing, is necessary to optimize in an ERM environment. Risk management-based auditing embodies many of the characteristics of risk-based auditing with an expanded focus on key business objectives, management’s tolerance to risk, key risk measurements or performance indicators, and risk management capabilities. Additionally, risk-based auditing primarily focuses on mitigating risks to an acceptable level. Risk-based audits have the following characteristics: 1. Objective – Determine the primary business objectives, risks, measurements, and tolerances, and evaluate how effectively the risk management activities are supporting the objectives by managing the risks to an acceptable level 2. Approach – Focus on the following <ul style="margin-top: 0in; margin-bottom: 0in" type="circle"> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Understanding management’s strategic, operational and 	value objectives</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Identifying and evaluating the key business risks that 	are barriers to achieving those objectives</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Understanding management’s tolerance relative to risk 	occurrence</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Understanding how management monitors and measures  and 	how successfully they are managing those risks</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Determining the risk management activities deployed to 	manage the risks to an acceptable level</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Assessing how effectively the risk management activities 	manage those risks to an acceptable level</li> </ul> 3. Focus – Identify gaps between the current and desired level of risk management effectiveness. 4. Testing Approach – Typically, a combination of substantive and compliance testing is utilized, depending on how effectively the risk management activities are designed. 5. Recommendations – Relate gaps in risk management effectiveness to the underlying risks and key business objectives (Sobel 2005).             Risk-based auditing centers on the efficient review of the key elements of the financial statements. Essentially, this involved the concentration of audit resources on the material areas of the financial statements. This approach entails: <ul style="margin-top: 0in; margin-bottom: 0in" type="circle"> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	A systematic approach to planning where the auditors 	related audit task to audit risk by reducing the time spent on low-risk 	situations and concentrated on the coverage of high-risk situations</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	The evaluation of the internal control systems of the 	auditee</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	The use of analytical procedures to form an opinion that 	is within the desired level of assurance (Wanna and Ng 2001)</li> </ul>             At the planning stage, the main consideration for determining a level for audit risk is the extent to which external users rely on the financial statements. Accordingly, questions such as who the potential users are, their purpose for using information and the total effect of using materially misstated information for their purpose are considered by the auditor. Apart from the audit risk, auditors also assess a risk that is related to the organization itself – inherent risk. The higher the inherent risk, the more audit effort required. This approach is currently evolving in practice and is referred to as the ‘business risk’ approach. Central to this audit methodology is an understanding of the auditee's business, how it is organized, and how transactions are controlled and recorded. The methodology focuses the financial statement audit on those activities that could give rise to a risk of a material misstatement in the financial statements. A SWOT (strengths, weaknesses, environmental opportunities and threats) analysis is carried out for the assessment of business, operational, financial, management, computerized information systems and control risks. Consideration of a client's business risks requires the auditor to know and understand the client's business strategy and how it plans to respond to changes in its environment. An emphasis on the client's business risks will lead to a more strategic and systematic approach to auditing. The auditor can use this knowledge of the client's business and industry to develop a more efficient and effective audit. The auditor will then place less emphasis on routine transactions that are likely to be tightly controlled through the client's internal control structure and concentrate on identifying non-routine transactions, accounting estimates and valuation issues that are much more likely to lead to misstatements in the financial statements.   Forensic Accounting Investigation vs. Statutory Audit             Forensic accounting investigation involves litigation. In such circumstances, accountants may be called on to provide expert investigations and evidence. Forensic accounting according to Crumbley et al (2005) is the use of accounting for legal purposes. It is the use of intelligence-gathering techniques and accounting/business skills to develop information and opinion for use by attorneys involved in civil litigation and give trial testimony if called upon. Forensic accounting in the action of identifying, recording, setting, extracting, sorting, reporting, and verifying past financial data or other accounting activities for settling current or prospective legal disputes or using such past financial data for projecting future financial data to settle legal disputes.             Statutory audit is an audit of a company as required by the Companies Act (1985), subject to small company exemptions. The auditors are required to report to the company’s member on all accounts of the company, copies of which are laid before the company in general meeting.               A forensic audit is different from statutory audit (typical financial audit) a financial audit is generally a sampling activity that does not look at every transaction. Thus, the system can be exploited by someone, such as an executive who knows the ins and outs of the company’s finances. A forensic audit looks at every detail of a specific aspect of the records, trying to determine why everything does not or should not add up. Thus a forensic audit is much more time consuming and can be significantly more expensive than a statutory audit (Crumbley et al 2005). Forensic accounting is a science dealing with the application of accounting facts gathered through auditing methods and procedures to resolve legal problems. Forensic accounting is much different from traditional auditing. The main purpose of a traditional audit id to examine the financial statements of an organization and express an opinion on the fairness of the financial statements. In other words, auditors give an opinion whether the financial statements have been prepared in accordance with generally accepted accounting principles. Auditors employ limited procedures and use extensive testing and sampling techniques. Audits are performed by independent accountants and are not conducted with a view to present the evidence in a judicial forum. An audit is not an investigation; its main objective is not to uncover fraud. Forensic accounting, on the other hand, is for investigation of an allegation with the assumption that the forensic accountant will have to present the evidence in a judicial forum. A forensic accountant often employs specialists in other areas as part of a team to gather evidence. In order to present the evidence in court, there must be absolute assurance; thus, testing and sampling methods are usually not employed as part of the evidence-gathering procedures. The scope of the investigation is limited because it is determined by the client (Siegel and Shim 2006).   Auditor’s Roles and Responsibilities             While both management and the auditor address some of the same issues, their roles are vastly different. There has been some confusion on this point, especially within the general public, which tends to attribute to the auditor certain responsibilities that actually rest with management. The professional standards of the American Institute of Certified Public Accountants (AICPA) have long made clear that the financial statements and the decisions shaping the financials are the responsibility of management. The financial statements are management’s responsibility. The auditor’s responsibility is to express an opinion on the financial statements (Golden et al 2006).               There are three most common audit deficiencies that auditors commit. One is the auditor’s failure to gather sufficient evidence. In some instances, this failure was pervasive throughout the engagement; in other instances, the allegations were more specific. For example, many cases involved inadequate evidence in the areas of: <ul style="margin-top: 0in; margin-bottom: 0in" type="circle"> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Asset Valuation – the auditor did not obtain evidence to 	support key assumptions.</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Asset Ownership – the auditor did not obtain evidence to 	indicate the company owed certain assets.</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Management Representations – the auditor did not 	corroborate management responses to inquiries.</li> </ul> Some cases involved the auditor's failure to examine relevant supporting documents (for example, examining a draft, instead of a final, sales contract) or failure to perform steps listed in the audit program. Overall, this failure contributed to management's success in overstating assets, the most common fraud technique.             Another common problem relates to audit program design. Planning the audit engagement is crucial to its success. Deficiencies in audit planning are very common. Specifically the auditor fails to: <ul style="margin-top: 0in; margin-bottom: 0in" type="circle"> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Properly assess inherent risk and adjust the audit 	program accordingly</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Recognize the heightened risk associated with non-routine 	transactions</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Prepare an audit program</li> </ul>             Still one of the most common deficiencies in auditing is failure in confirming accounts receivable. These deficiencies include: <ul style="margin-top: 0in; margin-bottom: 0in" type="circle"> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Failure to confirm enough receivables</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Failure to perform alternative procedures when 	confirmations were not returned or were returned with material exceptions 	</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Problems with sending and receiving confirmation requests</li> </ul>             Another common problem is the auditor's failure to recognize or disclose transactions with related parties. The auditor is either unaware of the related party or appears to cooperate in the client's decision to conceal a transaction with this party. Such transactions often resulted in inflated asset values (Beasly et al 2001).               Fraud symptoms--the specific, observable signs that fraud might be present--may be of the actual fraud or of the cover-up attempt. The easiest symptoms to spot involve cash and inventory shortages. But even there, clever thieves find ways to obscure the symptoms. For example, it's hard to tell immediately whether missing original documentation may be due to filing errors or because someone destroyed the documents to cover up a theft. Here is a short list of some fraud symptoms: <ul style="margin-top: 0in; margin-bottom: 0in" type="circle"> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Multiple endorsements on commercial checks. </li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	The use of common or repetitive names for refunds--such 	as Smith or Jones or a commercial name that is very similar to one in your 	industry but is spelled slightly differently. </li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Line items in standard reconciliations that do not go 	away. </li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Customer complaints about having paid invoices for which 	they are being dunned. </li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Adjustments to either inventory records and customer 	accounts. </li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	The addresses of vendors that are the same as employee 	addresses. </li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	No proceeds from the disposition of used assets (Hall 	1996). </li> </ul>               When one of these symptoms appears, use caution. Often there are reasonable explanations and they usually do not lead to a thief--just an error or an ill-designed process.               Risk factors pertaining to management’s characteristics and influence over the control environment are aimed at identifying pressure or an incentive to engage in financial statement fraud and perceived opportunity to commit such fraud. The risk factors involving management’s motivations to engage in financial statement fraud are the following: <ul style="margin-top: 0in; margin-bottom: 0in" type="circle"> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	A considerable portion of management’s compensation, 	represented by bonuses, stock options, or other incentives that pressure 	management to achieve unduly aggressive targets for operating results, 	financial position or cash flow.</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Commitments to analysts or creditors of unduly aggressive 	unrealistic forecasts</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Undue pressure on management and/or interest by 	management in maintaining or increasing the company’s stock price or 	earnings trend through the use of unusually aggressive accounting practices</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	The use of inappropriate means to minimize earnings for 	tax-motivated purposes</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Domination of management by a single person or small 	group without effective monitoring oversight by the board of directors 	and/or the audit committee</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Ineffective communication and support of entity values 	and ethics</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Management failure to correct known reportable conditions</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Management disregard for regulatory authorities</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Management setting unduly aggressive financial targets 	and expectations for operating personnel</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	High turnover of senior management, counsel, or board 	members</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Management continuing to employ ineffective and 	incompetent accounting, information technology, or internal audit staff</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Unreasonable demands for auditor completion of the audit 	report issuance </li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Formal or informal restrictions on auditor access to 	people or information</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Domineering management behavior or attempts to influence 	audit scope</li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Known history of securities law violations or fraud or 	allegations of financial statement fraud (Rezaee 2002)</li> </ul>     Benefits and Limitations of Risk-Based Approach             Risk-Based Auditing is an auditing technique that responds to the risk factors in an audit by assessing the levels of risk attached to different areas of an organization’s system and using the results to devise audit tests. The purpose is to focus the audit in the areas of highest risk in order to improve the chances of detecting errors (Hussey 1999).             In recent years, many auditors have expanded their focus to explicitly include the client's strategy and business processes. A number of recent studies examine whether a business process focus affects auditors' effectiveness in identifying risks. Bell et al. (1997) describe how this approach moves auditors from a balance sheet orientation to a broader focus on the overall organization, its environment, and its key processes. Lemon et al. (2000) describe the extent to which firms are adopting this focus in their audit methodology, and Eilifsen et al. (2001) describe how this approach is applied to an individual audit. The approach involves: <ul style="margin-top: 0in; margin-bottom: 0in" type="circle"> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Understanding and developing a mental model of the 	client's strategic environment, </li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Understanding the key processes for executing that 	strategy, including the related risks and controls, and </li> 	<li class="MsoNormal" style="text-align: justify; line-height: 200%"> 	Relating these factors to financial statement assertions. 	</li> </ul>   Understanding the client's business processes aids in understanding key performance indicators and in developing expectations for financial statement accounts. Several studies examine the advantages of the business process approach. Organizing information about controls around business processes produces stronger category knowledge during auditor training and improves internal control evaluation performance compared to organizing information around traditional control objectives (Kopp and O'Donnell 2005). Using such an approach also increases the extent to which auditors integrate assessments of strategic business risks (O'Donnell et al. 2005). Auditors using strategic business risk analysis document more client business risks, and they assess the strength of the control environment and inherent risk differently (i.e., they perceive a stronger link between the strength of the control environment and the risk of material misstatement, and between inherent risk and the risk of material misstatement) (Kotchetova 2005). Additionally, auditors' assessments of client business risk and the analysis and documentation of business processes influence their business process-level risk assessments (Kotchetova et al. 2005). When auditors analyze and document business processes, their process-level risk assessments are related to their previous assessments of entity-level business risk, indicating that documenting the process analysis creates linkages between risks at different levels. Finally, using software adapted to a business risk approach allows auditors to identify more risks (O'Donnell and Schultz 2003). Two recent studies, however, document potential disadvantages of the business risk approach. First, Ballou et al. (2004) find that when the strategic analysis of a client indicates that it is typical of its industry, auditors may underweight small problems within business processes. Second, O'Donnell and Schultz (2005) find evidence of a "halo effect" when auditors use strategic risk assessment. Specifically, auditors performing such strategic assessments with favorable results are less likely to adjust their risk assessments at the account level when they uncover unusual fluctuations. Thus, both studies suggest that auditors getting positive news from the strategic-level risk assessment may be less attuned to specific risks noted subsequently. Most firms have developed decision aids to help identify client business risks, particularly on first-time audits (e.g., see Bell et al. 2002). Moreover, many have developed software that facilitates the use of the business risk approach discussed above (O'Donnell and Schultz 2003). However, practitioners should be aware that the orientation of a decision aid (i.e., a negative focus emphasizing risks and their consequences versus a positive focus) can affect auditors' judgments (Bedard and Graham 2002). Investigating auditors' responses relative to their actual (as opposed to hypothetical) clients, Bedard and Graham (2002) find that auditors who use a negatively focused decision aid identify more risk factors than auditors using a positively focused decision aid, and auditors who use a negatively focused decision aid link substantive tests to the risk factors. Auditors also can use analytical procedures that use a business risk approach and are adapted to clients' key processes (Ballou and Heitger 2004).

Risk-Based Approach to Financial Statement Audit

Risk-Based Approach to Financial Statement Audit In the late 1990s, Enterprise Risk Management (ERM) began to evolve as an a...

SC Risk Management - Focusing on 3PL Risks, Literature Review Example

2.0 Literature Review 2.1 Risk Management                 Risk can be found and encountered every where and any time. It can also be defined in several manners. Skipper (2007) stated that risk has no general definition, thus it can be defined as the variability of the results or consequences. On the other hand, Shimpi (2001) described as the lifeblood of every company, therefore managers focus on managing risk head-on when it appears. In addition, it is important to take note that risk is not just perceived or considered as threats but is also being considered as possible opportunities (Gupta, 2011). This is the reason why companies and organizations from different parts of the globe are spending high amount of money, involve great effort in order to come up with the strategies and procedures in risk management. Nowadays, the world is becoming more and more risky due to the different changes and development in the global arena, particularly due to the influence of globalization and the improvement of technology, particularly communication and transportation, together with those factors that are not made by man, specifically the issue of climate change. As a result, risk management is considered as one of the most important strategies and actions being implemented inside any organization in any industry or sector in any part of the globe.                 The changes in catastrophes in 1970s and 1980s, enabled to materialize risk management as a separate discipline in the corporate world during the 1990s. Risk management techniques commonly include those related to, according to Doherty (2000) as: <ul style="margin-top: 0in; margin-bottom: 0in" type="disc"> 	<li class="MsoNormal" style="text-align: justify"> 	Safety, quality 	control and danger training and education;</li> 	<li class="MsoNormal" style="text-align: justify"> 	Alternative risk 	financing; and</li> 	<li class="MsoNormal" style="text-align: justify"> 	Insurance (i.e. 	self-insurance and captive insurance) (cited in Gupta, 2011). </li> </ul> However, due to the continuous changes in the global economy and arena, risk management is becoming a vital and complex activities and strategies for managers and the entire organization. It is important to take note that each and every organization is facing and encountering unique types or forms of risks. Risk management is defined as the systematic application of standards, approach, methods and procedures to the tasks of identifying and evaluating risks, and then planning and implementing responses towards the risk (Great Britain Office of Government Commerce, 2007). Risk management must always be considered as a supporting element of the entire development and operational aspects of an organization or company, regardless of the industry or place it operates. Thus, it must be handled as best practices for companies, which will focus on safeguarding the interests of both corporation or company and the employees via well-development policies, standards, procedures and plans (Blyth, 2009). According to Jorion (2007) even though the success of an organization is dependent on the risk management, manufacturing companies are still not sensitive enough to handle and focus on the different types of risks.                 There are many models that are used for risk management; however, figure 1 shows its essential elements. Figure  SEQ Figure \* ARABIC 1 7-Step Process of Risk Management Source: (Blyth, 2009) 2.2 Supply Chain Risk Management                 Supply chain is defined as a network of an organizations which are involved through upstream and downstream connections, in the various procedures and activities which produce value in the form of products and services in the hands of the final customer (Christopher, 1998 cited in London, 2007, 1). Mentzer et al. (2001, 4), defined supply chain as: “a set of three or more entities (organizations or individuals) directly involved in the up[stream and downstream flows of products, services, finances and/or information from a source to a customer” (cited in, Horch, 2004, 14)                 Based on this definition, there can be three levels of coverage of supply chain, which include direct, extended and ultimate. The direct supply chain is consists of a company the extended supply chain includes suppliers of intermediate supplier and customers of the immediate customer; and the ultimate supply chain includes all organizations which are involved in the upstream or downstream flows (Horch, 2009).                 On the other hand, supply chain management is a theory of grounded in the logistics field which was introduced by Houlihan in 1984. Its development was preliminary along the lines of physical distribution and transport, with the use of strategies of industrial dynamics, which is based from Forrester work. One of the first authors who have recognized the needed widening of the “old or traditional” view of logistic was Lalonde, which he argued that supply chain is consists of procedures in managing the flow of physical goods, together with those connected information and cash from sourcing to consumption (Kannt, 2002, 19).                 Risk management has become a vital aspect in most field of management decision and control, particularly in the supply chain management field. According to Brindley (2004) global competition, changes and development in technology and the continuous search for competitive advantage are the primary reason of companies in turning towards risk management approaches (cited in  Ritchie and Brindley, 2007).                 According to Norrman and Jansson (2004) some of the current business trends and changes which increase the vulnerability to risk in supply chains are: <ul style="margin-top: 0in; margin-bottom: 0in" type="disc"> 	<li class="MsoNormal" style="text-align: justify"> 	Increase used of 	outsourcing of manufacturing and R&D to suppliers;</li> 	<li class="MsoNormal" style="text-align: justify"> 	Globalization of 	supply chains;</li> 	<li class="MsoNormal" style="text-align: justify"> 	Lessening of 	supplier base;</li> 	<li class="MsoNormal" style="text-align: justify"> 	More integrated 	and connected procedures between organizations;</li> 	<li class="MsoNormal" style="text-align: justify"> 	Reduced buffers;</li> 	<li class="MsoNormal" style="text-align: justify"> 	Increased demand 	for on-time deliveries in shorter time windows and shorter lead times;</li> 	<li class="MsoNormal" style="text-align: justify"> 	Shorter product 	life cycles and compressed time-to-market;</li> 	<li class="MsoNormal" style="text-align: justify"> 	Fast and heavy 	ramp-up of demand early in product life cycles; and</li> 	<li class="MsoNormal" style="text-align: justify"> 	Limitation of 	capacity of vital components and elements.</li> </ul> The report of IBM (2008) about supply chain risk management summarized the types of supply chain risks based on the work of Deleris and Erhun (2007). The categories are: operational/technological, social, natural/hazard, economy/competition, and legal and political. Table 1 shows the examples of these categories or types of supply chain risk. Table  SEQ Table \* ARABIC 1 Supply Chain Risk Categories 	 		 		 		Category 		 		 		Examples 	 	 		 		 		Operational/Technological 		 		 		Errors in forecasting, shortage of raw 		materials and or components, constraints in capacity and capability of 		the organization, problems in quality, failure and downtime of 		machineries and facilities, failure in software, imperfect yields, 		efficiency, changes in procedures or/and products, loss of property due 		to accidents, theft, etc., risks in transportation, such as delays, 		handling damage, etc., risks in storage or inventory such as incomplete 		order of the customers, insufficient holding space, etc., budget 		overrun, materialization of disruptive technology, contract terms, and 		communication or IT disruptions. 	 	 		 		 		Social 		 		 		Shortages of staffs and human resources, 		loss of key personnel and employees, strikes, accidents, absenteeism, 		human errors, organizational errors, union and/or labor relations, 		negative coverage and feedback from media, perceived quality, 		coincidence of problems with holiday, fraud, sabotage, pillage, acts of 		terrorism ,malfeasance, decrease in the productivity of the employees. 		 	 	 		 		 		Natural/Hazard 		 		 		Fire, flood, wild fire, severe 		thunderstorm, monsoon, blizzard, ice storm, drought, heat wave, tornado, 		hurricane, typhoon, earthquake, tsunami, epidemic, famine, avalanche. 		 	 	 		 		 		Economy/Competition 		 		 		Interest rate fluctuation, exchange rate 		fluctuation, commodity price fluctuation, price and incentive wars, 		bankruptcy of partners, stock market collapse and global financial 		crisis. 	 	 		 		 		Legal/Political 		 		 		Liabilities, law suits, governmental 		incentives/restrictions, new regulations, lobbying from customer groups, 		instability overseas, confiscations abroad, war, tax structures, customs 		risks (inspection delay, missing data on documentation). 	 Source: (Adapted from Deleris and Erhun, 2007; cited from Deleris and Erhun 2007)                 Another widely used and applied classification of risks in supply chain is that of Ghoshal (1987), which is showed in table 2. Table  SEQ Table \* ARABIC 2 Classifications of Risks (Ghoshal, 1987) 	 		 		 		Classification 		 		 		Examples 	 	 		 		 		Macroeconomic Risks 		 		 		Economic shifts in wage rates, interest 		rates, exchange rates and prices. 	 	 		 		 		Policy Risks 		 		 		Unexpected actions of national and/or 		local governments 	 	 		 		 		Competitive Risks 		 		 		Uncertainty regarding the activities and 		strategies of competitors in foreign markets 	 	 		 		 		Resource Risks 		 		 		Unanticipated differences in resource 		requirements in foreign markets 	 Cited from (Manuj and Mentzer, 2008)                 The study of Manuj and Mentzer (2008) of 14 in-depth interviews and focus group with senior supply chain executives, found out that the most common risks related to global supply chains are: currency, transit time variability, forecast, quality, safety, business disruption, survival, inventory ownership, culture, dependency and opportunism, oil price fluctuation and risk events affecting supplies and customers. Figure 2 shows the relationships between the different types of risks. Figure  SEQ Figure \* ARABIC 2 Interactions between Types of Risks Source: (Manuj and Mentzer, 2008) 2.3 Services (Outsource) Risk Management                 Outsourcing is the contractual interaction and connection between the conditions and terms of business services by external source. Therefore, an organization pays for another organization to do work for it. Currently, outsourcing is considered and established as one of the most important and significant trends in business world. Belcourt (2006) stated that outsourcing “occurs when an organization contracts with another organization to provide services or products of a major function or activity.”                 The study of Outsourcing Institute of Survey (1998) showed that there are 10 reasons for its members in outsourcing their important business procedures, which include: 	<li class="MsoNormal"> 	Lessen and 	control costs of operation;</li> 	<li class="MsoNormal"> 	Improvement of 	the focus of the company;</li> 	<li class="MsoNormal"> 	Gain access to 	world-class capabilities and abilities;</li> 	<li class="MsoNormal"> 	Free internal 	resources for other important purposes;</li> 	<li class="MsoNormal"> 	Resources are 	not available internally;</li> 	<li class="MsoNormal"> 	Accelerate and 	improve re-engineering benefits and opportunities;</li> 	<li class="MsoNormal"> 	Function 	difficult to manage/our of control;</li> 	<li class="MsoNormal"> 	Enable the 	availability of capital funds;</li> 	<li class="MsoNormal"> 	Share risks; and 	</li> 	<li class="MsoNormal"> 	Infuse cash 	(cited in Chou and Chou, 2011).</li> All of these important advantages, benefits or opportunities enable companies from different parts of the globe to focus on the different actions that will enable them to gain and maintain competitive advantage. This is very important because of the increasingly globalized economy, at the same time, in the current increasingly competitive market, wherein companies must find strategies that will make them different from their competitors, at the same time, focus on the different strategies that will help them to meet the changing demands and needs of the customers due to the different economic, political, social and technological changes in the environment. However, despite of outsourcing benefits or advantages, it can also offer risks and threats, which is, again due to the different changes in both micro- and macro-environment. According to Bragg (2006), some of the common risks related to outsourcing are: future change in supplier circumstances; perceived risk lower than actual; political fallout; supplier failure; loss of confidential information; local responsibility; and job loss (Bragg, 2006). In particular, the most important risks in outsourcing focus on the loss of control and the possible loss of confidential or important information. These are very important for the control and information are considered as important factors inside the organization. In particular, information is considered as one of the most important resources for companies, particularly in the modern times, wherein information enables companies and organizations from different industries and sectors to gain competitive advantage. According to Cooper, Grey and Raymond (2005) outsourcing can be thought of in 3 different stages, which risk management can be applied. The three stages are (figure 3): <ul style="margin-top: 0in; margin-bottom: 0in" type="disc"> 	<li class="MsoNormal" style="text-align: justify"> 	Strategic 	analysis – decide whether to outsource, and, if so, what functions or 	services to be outsourced;</li> 	<li class="MsoNormal" style="text-align: justify"> 	Transition 	planning – develop the plans that are needed in order to outsource and 	to move in-house activities to outsourced activities; and</li> 	<li class="MsoNormal" style="text-align: justify"> 	Implementation – 	the implementation of the plans and strategies (Cooper, Grey and Raymond, 	2005). </li> </ul>   Figure  SEQ Figure \* ARABIC 3 The Phases of Outsourcing                         Source: (Cooper, Grey and Raymond, 2005)                 With all these, Cooper, Grey and Raymond (2005) summarized the risk management which can be applied in each stage of outsourcing, which is showed in table 3. Table  SEQ Table \* ARABIC 3 Risk management at every stage of outsourcing 	 		 		 		Stage 		 		 		Perspective 		 		 		Focus of Risk 		 		 		Treatment 		Results 	 	 		 		 		Strategic analysis 		 		 		Strategic and organizational factors: 		vision, mission, aims, objectives and goals, value chain, competitive 		strengths and capabilities 		 		 		Strategic risks 		 		 		Strategic decisions: what to outsource; 		costs and benefits analysis of internal improvement activities 	 	 		 		 		Transition Planning 		 		 		Policies, strategic issues, 		organizational structure and culture, patterns of work and behavior and 		capabilities 		 		 		Transition risks 		 		 		Review of strategic outsourcing 		decisions; Transition plans; and Rendering Strategy Outline 	 	 		 		 		Implementation 		 		 		Draft contract, possible contractors, 		required service standards and policies 		 		 		Tendering contract and delivery risks 		 		 		Revises terms of contract and the plan of 		implementation 	 Source: (Cooper, Grey and Raymond, 2005)                 As a support, the study of Ritchie and Brindley (2007) based on the review of different important literatures recommended supply chain risk management, which is showed in figure 4. This framework shows the main strands of risk management in the supply chain management Figure  SEQ Figure \* ARABIC 4 Supply Chain Risk Management Framework Source: (Ritchie and Brindley, 2007) <ul style="margin-top: 0in; margin-bottom: 0in" type="disc"> 	<li class="MsoNormal" style="text-align: justify"> 	Risk and 	Performance: Source, Profile and Drivers – this include environmental 	characteristics; industry characteristics; supply chain configuration; 	supply chain members; organization’s strategy; problem specific variables; 	and decision making unit (Ritchie and Brindley, 2007).  </li> 	<li class="MsoNormal" style="text-align: justify"> 	Risk Sources and 	Risk/Performance Consequences – this include the process of 	recognizing, evaluating, prioritizing and assessing the sources and drivers 	which will yield an evaluation of the ex-ante risk and performance 	consequences for the company at a given point of time (Ritchie and 	Brindley, 2007).  </li> 	<li class="MsoNormal" style="text-align: justify"> 	Risk Management 	Responses – include risk insurance, information sharing, relationship 	development, agreed performance standards, regular joint reviews, joint 	training and development programs, joint pro-active assessment and planning 	exercises, developing risk management and awareness and skills, joint 	strategies, inter-partnership structures and relationship marketing 	initiatives (Ritchie and Brindley, 2007).  </li> 	<li class="MsoNormal" style="text-align: justify"> 	Risk and 	Performance Outcomes – pertains on the ex ante perspective of the 	risk management decision makers which is vital in knowing the assessment of 	the risk drivers and their responsiveness in focusing on the risk 	management solutions (Ritchie and Brindley, 2007).  </li> </ul> 2.4 Third Party Logistics (3PL)                 Third Party Logistics or 3PL involves the use of external organizations in order to manage some or the entire logistic functions of the organization that have been done internally in the past. These functions or activities done by the third-party can include the entire logistic procedures or chosen activities in the process. Thus, the providers of 3PL have given logistics core competencies, and they can manage logistics procedures more efficiently and effectively compare to their partners (Perçin, 2009).                 Currently, 3PL or its providers has the following attributes: 	<li class="MsoNormal" style="text-align: justify"> 	Integrated (or 	multi-modal) logistics service provider;</li> 	<li class="MsoNormal" style="text-align: justify"> 	Contract-based 	service provider; and</li> 	<li class="MsoNormal" style="text-align: justify"> 	Consulting 	service provider (Nemoto and Tezuka, 2002).</li> The use and application of 3PL in the world had increased for the past few years. It is considered as a promising and rising vital boundary of competition. Good performance in terms of logistics is in need of tradeoff between the requirement in lessening overall supply chain inventory and lead times, at the same time; it can also help in order to capture vital economies of scale and advancing overall performance of a business (Sahay and Mohan, 2006). According to Trunick (1989), the adaptability and flexibility of the 3PL service providers help them to sustain tradeoff by revolving fixed costs into variable costs for organizations and firms in using their services (cited in Sahay and Mohan, 2006). Furthermore, it is important to take note that by outsourcing logistics activities, organizations or companies will enable to save money in terms of the capital investments, at the same time, lessen the financial risks involved. Furthermore, initial investments and capital related on the logistics assets, which include those facilities for physical distribution, communication and networks are commonly are in great need of huge amount of capital or money, which again will add up to the financial risks to be faced by the company in case of any misfortunes or events (Nemoto and Tezuka, 2002). 2.5.1 3PL Risks 3PL is also offering different risks, problems and threats for its customers or users. For some companies which failed to spend time and resources to support important business practices, policies and strategies to support 3PL, they experienced failure due to the complicatedness and inappropriateness in the relationships and connections of 3PL, the fear of loss of the internal control and the different indecisions and doubts regarding the levels of services to be offered by the providers of 3PL (Perçin, 2009). The study of shows that it is hard to establish reliable and strong relationship between the provider and the firm (Nemoto and Tezuka, 2002). The study of Huang and Li (2009) showed and summarized the different risks or threats involved in outsourcing logistics or 3PL from diverse literatures. In the Reviews Of Business Outsourcing Research Result In West by Xhu Shu (2003), the author believed that the most vital and significant risks and threats involved in outsourcing logistics include the increase in contract cost due to the different factors and events, including the disputes at law (difference between the provider and the firm); measures and complexities in negotiating contract, increase in hidden costs due to increase in management cost, and other related cost, the possibility of decline in the quality of service, losing knowledge and expertise and the innovative capability and the deterioration of the overall competence of the organization. On the other hand, in the Business Outsourcing into Decision-Making and Guarding Against the Risk of Nanfang, Yi and Shuxian (2006), the risks include the limited rationality, opportunism coming from the suppliers and contractors, and possible after-cost. As a result, the Third Party Logistics Collaboration and Guarding Against the Risk of Xiangyun (2004) stated that because of these different reasons or risks related to 3PL, it can create problems related to the relationship between the provider and the firm, which include misunderstanding, difficulty of meeting the demands and needs of the customers, termination or cancellation of the contract and profit loss. In conclusion, the study of Zhong et al. (2005) categorized the most important risks related to 3PL, which include: management, information, financial and market (cited in Huang and Li, 2009). 2.5.2 How to Reduce/Avoid 3PL Risks A. Establish Trustworthy Relationship                 Nemoto and Tezuka (2002) proposed that 2 stages must be made in selecting and contract signing with 3PL providers in order to create and maintain trustworthy relationship. 5 Case Studies   Lesson Learned    Conclusion   References Belcourt, M. (2006). “Outsourcing – The benefits and the risks”. Human Resource Management Review. 16, 269 – 279. Blyth, M. (2009). Business Continuity Management: Building an Effective Incident Management Plan. John Wiley and Sons. Bragg, S. (2006). Outsourcing: A Guide to – Selecting the Correct Business Unit – Negotiating the Contract – Maintaining Control of the Process. John Wiley and Sons. Chou, D. and Chou, A. (2011). “Innovation outsourcing: risks and quality issues”. Computer Standards & Interfaces. 33, 350 – 356. Cohen, S. and Roussel, J. (2005). Strategic Supply Chain Management: The Five Disciplines for Top Performance. McGraw-Hill Professional.  Embleton, P. (1998). “A practical guide to successful outsourcing”. Empowerment in Organizations. 6(3), 94 – 106. Great Britain Office of Government Commerce (2007). Management of Risk: Guidance for Practitioners. The Stationery Office. Gupta, P. K. (2011). “Risk management in Indian companies: EWRM concerns and issues”. The Journal of Risk Finance. 12(2), 121 – 139. Horch, N. (2009). Management Control of Global Supply Chains. BoD – Books on Demand. Huang, J. and Li, A. (2009). “Empirical analysis on perceived risk of enterprise’s logistics supervisor for outsourcing logistic business”. International Business Research. 2(2), 175 – 181. IBM (2008). Supply Chain Risk Management: A Delicate Balancing Act. Accessed from: ftp://ftp.software.ibm.com/common/ssi/sa/wh/n/gbw03015usen/GBW03015USEN.PDF (21st March 2011). Jorion, P. (2007). Value at Risk: The New Benchmark for Managing Financial Risk. McGraw-Hill Professional. Kannt, A. (2002). Supply Chain Management and Design at Global Companies. BoD – Books on Demands. London, K. (2007). Construction Supply Chain Economics. Routledge. Manuj, I. and Mentzer, J. (2008). “Global supply chain risk management strategies”. International Journal of Physical Distribution & Logistics Management. 38(3), pp. 192 – 223. Nemoto, T. and Tezuka, K. (2002). “Advantage of third party logistics in supply chain management”. Norrman, A. and Jansson, U. (2004). “Ericsson’s proactive supply chain risk management approach after a serious sub-supplier accident”. International Journal of Physical Distribution & Logistics Management. 34(5), 434 – 456. Perçin, S. (2009). “Evaluation of third-party logistics (3PL) providers by using a two-phase AHP and TOPSIS methodology”. Benchmarking: An International Journal. 16(5), 588 – 604. Razzaque, M. A. and Sheng, C. C. (1998). “Outsourcing of logistics functions: a literature survey”. International Journal of Physical Distribution & Logistics Management. 28(2), 89 – 107. Ritchie, B. and Brindley, C. (2007). “Supply chain risk management and performance: a guiding framework for future development”. International Journal of Operations & Production Management. 27(3), 303 – 322. Sahay, B.S. and Mohan, R. (2006). “3PL practices: an Indian perspective”. International Journal of Physical Distribution & Logistics Management. 36(9), 666 – 689. Scheer, A-W. (2003). Business Process Change Management: ARIS in Practice. Springer. Shimpi, P. (2001). Integrating Corporate Risk Management. Texere. Skipper, H. and Kwon, J. (2007). Risk Management and Insurance: Perspectives in a Global Economy. Wiley-Blackwell.

SC Risk Management - Focusing on 3PL Risks, Literature Review Example

2.0 Literature Review 2.1 Risk Management Risk can be found and encountered every where and any time. It can also be de...