Assessment of Risk Management Practice in Manufacturing Sector (Evidence from Addis Pharmaceutical Factory (APF))

Aregawi GideyDepartment of Management

College of Business and Economics

Adigrat University, Ethiopia

E-mail: gideyaregawi2015@gmail.com

Abstract

Risk management is a concept which becomes very popular in a number of business and non-business

organizations. This is because the survival and growth of any organization is impossible without effective

risk management practice. This is quiet true for manufacturing companies. Therefore, this study was

aimed to assess Risk Management Practice in Manufacturing Sector (Evidence from Addis

Pharmaceutical Factory (APF). The study used primary and secondary data sources to collect the

required data. Questionnaire and interview were the main tools used to gather primary data from the

respondents. The primary data for this study were collected from 250 employees. Respondents were

selected through stratified sampling technique from each department. The collected data was computed

and statistics tools such as Percent, mean and standard deviation were used to analyze the data.

Cronbach Alpha tested to ensure the reliability of the collected data and the result was found as

satisfactory. The finding of the study showed that market risk, legal risk, security/safety risk and

environmental risk are the most perceived risks in the factory. With regard to risk response techniques,

retention, mitigation and risk transfer/insurance are commonly practiced risk response tools. It was

suggested that the company should provide intensive training to employees so as to ensure good

understanding of all type risks. Furthermore, it is advisable that the company should invest its ultimate

effort to improve the risk management process as whole through taking experience from successful

organizations and creating a holistic commitment of employees.

Keywords: risk management, risk management process, risk monitoring and evaluation, Addis

Pharmaceutical Factory

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1. Background of the Study

Risk is a term that has long been studied in different areas. According to Rejda (2004), risk is the

possibility unfavorable deviation from expectation. It is the possibility that some thing we do not want to

happen will happen or something that we want to happen will fail todo so. Risk management is a positive

and proactive process intended to reduce the likelihood of unsatisfactory consequences (Mills, 2001;

Rohaninejad & Bagherpour, 2013). Risk management is particularly vital for organizations since some

common losses such as theft, fire, disaster, flood, legal liability, injure, or disability can destroy in a few

minutes what may have taken for an entrepreneur years to build (Rejad, 2008).

Today every organization faces uncertain events that occur in different environments and with different

characteristics and impacts. These uncertain events can generate more or less severe consequences for the

organization (Aven, 2011).

In a dynamic environment characterized by increasing competition, and in the wake of the global

financial crisis, risk management as a formal practice is becoming a priority for firms (Bhimani &

Bromwich, 2010). The use of risk management practices has moved from a narrow financial perspective

to gain prominence as a critical facet of management control systems, where “timely identification,

assessment, and management of the portfolio of risks faced by an entity are linked with the achievement

of its goals and objectives” (Subramaniam et al., 2011). From this perspective, risk management is

typically viewed as an organizational process based on monitoring and feedback which owes much too

cybernetic control thinking (Power, 2007).

In recent years, a number of combined factors, such as regulation and corporate governance codes,

standards for internal control, stakeholders’ demands and business competitiveness have driven firms to

consider risk holistically from an overall corporate perspective instead of managing different risk sources

individually in different departments (Fraser &Simkins, 2016). Although organizations have always faced

risks, the attention of risk management increased significantly in the last decade, as shown in numerous

studies and books (Breen, 2008).

Over the last two decades, manufacturing industry in general tended to focus heavily on advanced

management and production activities to increase organizational flexibility, enhance product quality and

to increase innovative capability. In contrast, the majority of the manufacturing sectors in manufacturing

put less focus on the management of risks (Patterson et al., 1999).

It is clear that the pharmaceutical industry, like every other industrial sector, is exposed to various threads

that are internal or external by their nature. Other industries have already implemented effective

approaches to identify, mitigate and review those risks. Recently, it has become clear even in the

pharmaceutical sector that an adequate risk management system is not only required by regulatory

stakeholders but also result in a competitive advantage when appropriately implemented (Siegfried,

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2013). The pharmaceutical industry is one of the most competitive businesses in the world. Besides the

fact that it improves health and life quality of patients around the world, it is also vital for the world

economy value (Statista, 2017). In the modern business world, where companies must quickly adopt to

changes on the market, the pharmaceutical industry started to face huge and complex changes which have

consequently broadened and deepened the risks in the pharmaceutical industry (Kesic, 2011).

Although much research has been made in pharmaceutical industry most of them are focused on the

supply chain risk or product quality risk. For instance, the study conducted by Brako et al., (2016),

confirmed that risks such as lack of inventory, theft, expiration of shelf life are closely linked with the

pharmaceutical supply chain. Nina & Borut (2017) also demonstrated that potential risks that arise in the

pharmaceutical supply chain don't affect only companies but also affect the general public. For example,

the occurrence of low quality drug or the absence of a particular drug on the market could endanger the

lives of patients.

Mentioned studies and others touch this topic slightly in the industry from a point of view of the supply

chain. However, there is still a lack of empirical evidence on what types of risks are frequently happened

and how risk management practiced, and what risk control techniques are mostly applied. Hence, this is

why the researcher believed that this study would contribute an important part in understanding the nature

and cause of risks that arise in the industry and the appropriate mechanisms implemented to mitigate the

risk.

2. Objectives of the Study

The study was focused and had been conducted:

1. To explore the attitudes of employees regarding risk and risk management

2. To find out the most important risk occurred in the factory

3. To assess the risk management mechanisms implemented in the factory

3. Literature Review

3.1 Concept of Risk and Risk Management

Risk is an important concept in a number of fields, yet there is no agreement on how it is to be defined

and interpreted Aven (2011). Some of the definitions are based on probabilities, others on expected

values, some on uncertainty and others on objectives. Risk is defined as ‘effect of uncertainty on

objectives and it aids decision making by taking account of uncertainty and its effect on achieving

objectives and assessing the need for any action. Risk management refers to the culture, processes and

structures that are directed towards realizing potential opportunities whilst managing adverse effects (MS

ISO 31000:2010).

Risk Management is defined in different ways. According to Anderson and Terp (2006), it’s a process

that can be used in eliminating. Reducing and controlling risk and enhancing benefits. The aim of the risk

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management is to maximize the benefits by reducing the risks. According to the Project Management

Institute (PMI), Risk management is one of the ten knowledge areas in which a project manager must be

competent.

According to Kiochos (1997), the risk management process involves four steps: identifying potential

losses, evaluating potential losses, selecting appropriate risk management techniques for treating loss

exposures and implementing and administering the risk management program.

Definition by Williams et al., (2006), states the aim of risk management is to provide decision makers

with a systematic approach to coping with risk and uncertainty. Risk Management is about ensuring that

risks are taken consciously with full knowledge, clear purpose and understanding so that it can be

measured and mitigated to prevent a firm from suffering unacceptable loss causing it to fail or materially

damage its competitive position.

3.2 Risk management in Pharmaceutical Industry

It is widely accepted that risk has always been an inherent part of pharmaceutical industries’ operations,

as new products launches and clinical trials fundamentally involve some degree of risk. Moreover, risk is

present during the whole life cycle of a medicinal product, starting from the early attempts to find

promising molecules till routine manufacturing and product discontinuation. Hence, the pharmaceutical

sector faces an unprecedented number of risks as a result of a myriad of pressures and changes, including

steadily increasing regulatory requirements, globalization and operational efficiency (Spilker, 1998).

There are several risks the pharmaceutical industry has to face. Although there are a variety of different

stakeholders, including patients as well as governments and the industry, the protection to the patient by

managing the risk to quality should be considered of prime importance (The Chartered Quality Institute

(ed.), 2010). From a manufacturing perspective, anything that has a high impact or is close to the product will be high

risk162. A collective risk is a special case of a quality risk that has to be considered. This type of risk

results from a series of risks or failures that have been identified but may not appear serious if they

individually occur, however, collective appearance could have a remarkable product impact (Svensson,

2004). However, the risk to product quality is just one component of the overall risk. For instance,

discovery risks have to be addressed in early stages of pharmaceutical research and development where

noteworthy amounts of resources are spent to identify molecules with pharmacological activity. Market

risks would take into account that the sales forecasts will not be met.

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3.3 Conceptual Framework of the Study

Figure 4.1: partially adopted from www.ich.org.

The first step in the risk management process is its initialization. This step is further used to plan the risk

management process. Under this step, the primary problem and the risk associated with this problem are

to be defined and background information on the potential risk is collected and compiled.

Risk assessment is the next step in the risk management process workflow and consists of risk

identification, risk analysis and evaluation. Risk identification requires the identification of potential

hazards with regard to the risk question of the problem description by systematically using available data

and information. Risk analysis is the estimation of the risk associated with the identified hazards. Hence,

the key activities to be performed during risk analysis include the understanding of the effect of risk to

rank the significance of risk.

Risk evaluation compares the identified and analyzed risks against given risk criteria. Risk below a

certain limit would be acceptable for the organization. Finally, in the phase of risk control the

organization must decide whether to reduce and/or accept a risk. Risk communication and monitoring

accompanies the whole risk management process. This is an important part of the process as information

about risk and the outcome of the risk management process are shared between the decision makers and

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other relevant stakeholders. It is important to emphasize that the risk management process must be

monitored and reviewed to ensure that mitigating actions remain effective (Siegfried, 2013).

4. Materials and Methods

The study has the objective of assessing risk management practices in pharmaceutical industry in

Ethiopia; evidence from Addis Pharmaceutical Factory. The factory was selected on the basis of large in

size and its performance. Hence, In order to describe the current practice of risk management and to

analyze the result, the research adopts a descriptive method of research. Moreover, for the purpose of

gathering information that is useful in obtaining a clear understanding of the practical application and

process of risk management in Ethiopian pharmaceutical industry, it has been suitable to use cross

sectional survey method of descriptive research.

To come up with the required data, both primary and secondary data sources were used in this research.

To collect the data self administered structured questionnaire and semi-structured interview were

employed. The interview was conducted with the one deputy manager and five department heads of

(production, marketing, finance, procurement and internal audit). Reliability analysis is necessary to

measure the consistency or reliability of a questionnaire. Cronbach’s alpha is the most common measure

of reliability. For this study, Cronbach’s Alpha coefficient for the overall scale calculated as a reliability

indicator is 0.865, which is above the satisfactory level.

The target populations of the study were all permanent employees of the factory. Hence, 776 employees

including all managers of different level were considered as the target population for the study.

Probabilistic sampling technique was used for this study because of its ability in giving equal chance for

selecting respondents from the total population. Thus, in order to collect the relevant data from the

appropriate respondents the study employed a probabilistic sampling technique known as stratified

random sampling that is computed proportionate to the size of employees in each department or division

of the factory. The sample size for this study was 258 which was determined using the simplified formula

developed by Yamane (1967)

The data gathered from various sources were processed using Statistical Package for Social Science

(SPSS) version 20. Different descriptive statistical tools such as percent, mean, standard deviation and

ranks have been used to analyze and interpret the results. The computed data are presented using tables,

bar graphs and pie charts followed by the corresponding interpretations. Qualitative data obtained using

interview were discussed in narrative way. In addition to the primary data, secondary data was collected

from the factory and used to support the investigation.

5. Results and Discussions

This section provides results and discussions of findings on risk management practice in the selected

factory. All data gathered through questionnaire and interview has interpreted and discussed under this

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section. In order to collect the relevant data, 258 questionnaires were prepared and distributed according

to the number of samples. However, 250 questionnaires were returned duly completed. This constituted

96.9% of the total number of questionnaires distributed. This response rate was considered as very good.

6.1 General Background Information of Respondents

The background information of respondents was deemed necessary because the ability of the respondents

to give satisfactory information on the study variables greatly depends on their background. In the

following table, the demographic information of respondents is presented. The profile of the respondents

covers the respondents’ sex, age, education level, work experience and their position held in the

organization. To get information on these issues the respondents were asked a structured question and

their responses are presented and analyzed as follows.

Table 6.1: Profile of respondents (sex, age, educational level and position)

S.N0. Item Category Frequency Percentage

1 Sex Male 184 73.6

Female 66 26.4

Total 250 100.0

2 Age 18-30 years 110 44

31-40 years 98 39.2

41-50 years 36 14.4

Abov50 years 6 2.4

Total 250 100.0

3 Educational

level

A Certificate 28 11.2

B Diploma 78 31.2

C Bachlor degree 130 52

D Master and Above 14 5.2

Total 250 100.0

4 Position Top management 12 4.8

Middle level management 24 9.6

Supervisor 36 14.4

Operational level 176 70.4

Total 145 100.0

Source; Own survey result, 2020

The study captured gender of the respondents in order to establish the most dominant working group of

the employees in the organization. The findings revealed that 184(73.6%) of respondents were male while

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66(26.4%) were females. This shows that the organization is highly dominated by males as indicated in

the above table 1. These findings represent the views of the two sex groups about risk management

practice. Hence, this was necessary for the study to get a balanced picture of the respondents. As

indicated in above table, majority of the sampled respondents 110 (44 %) was in the age range of 18-30

years, following by the age range of 31-40 (39.2%). This statistics depicts the fact that the company has

young and energetic work force.

The study sought to establish the background information of the respondents in terms of level of

education. Accordingly, out of the total number of respondents, 130(52%) of respondents bachelor

degree, followed by 78(31.2%) and 28(11.2%) of the respondents are college diploma and certificate

holders. The remaining 14(5.2%) of respondents are master’s degree and above holders. These results

indicated majority of the respondents have a good level of educational qualification and also they were

equipped with the information concerning risk management practice and they were able to respond

accurately on the questionnaire given to them by the researcher.

It was important to analyze the position held by the respondents. From the findings, majority of the

respondents were working at operational and supervisor levels that scored as 176 (70.4%) and 36 (14.4%)

respectively. However, very significant number of respondents 24 (9.6%) and 12 (4.8%) of staff

respondents were held middle and top level management positions. Therefore, this can show as a best

representative of respondents to get holistic views regarding the risk management practice in the

company.

Figure 6.1: Working experience of respondents

Less than one year

1-5 years 6-10 years 11 and above years

Working experience

020406080

100120

5.2

40.4 3222.4 Frequncy

Percentage

The other background information of the respondents is years of working experience. As it is shown in

the above figure 4.1, out of 250 respondents, 40.4% of total respondents represent a group that covers 1-5

years of experience, 32% of total respondent-s represent a group that covers 6-10 years of experience.

The rest 22.4% of respondents were under the ranges of greater than 11 years of experience. As we can

observe from the chart, only 5.2% of respondents had less than one year. Therefore, from the total

number of respondents 54.2% which is above half number had more than 6 year experience. This implies

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that most of the staff has enough experience to experience the type of risk happened and to perform

different risk management activities effectively.

6.2 Level of Knowledge Regarding the Following Different Type of Risks

It is obvious that without having adequate know how about different type of risk will be difficult to

employee appropriate techniques of risk management. Therefore, organizations should provide

continuous training to employees in order to have common understanding of risk and its mitigating

mechanisms. If this is ensured in an organization, then active involvement of all employees on risk

management activities is there. Hence, the following tables an charts deal with the level of knowledge of

employees on different types of risk and the implication of risk management in their organization.

Table 6.2: level of knowledge about each risk type

Types of risk

Response

Tota

l

Very low low Average High Very high

Credit risk N 65 102 48 26 11 250

% 26 40.8 19.2 10.4 4.4 100

Market risk N 8 12 32 116 82 250

% 3.2 4.8 12.8 46.4 32.8 100

Legal risk N 0 37 8 134 79 250

% 0 14.8 3.2 53.6 31.6 100

Security/sefty risk N 4 7 18 118 103 250

% 1.6 2.8 7.2 47.2 41.2 100

Technological risk N 68 94 28 48 12 250

% 27.2 39.2 11.2 19.2 4.8 100

Natural hazard risk N 30 21 61 90 48 250

% 12 8.4 24.4 36 19.2 100

Financial risk N 27 40 38 81 62 250

% 10.8 16 15.2 32.4 24.8 100

Political risk N 6 12 6 152 74 250

% 2.4 4.8 2.4 60.8 29.6 100

Environmental risk N 0 8 42 141 59 250

% 0 3.2 16.8 56.4 23.6 100

Source; Own survey result, 2020

In order to understand the level of knowledge across each risk category respondents were asked to select

their level of knowledge of each risk type from a five point scale of very high, high, average, low and

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very low. Thus, for all risk categories the reported level of knowledge was between the scale of high and

very high for the majority of respondents. From this table 4.2, market risk, legal risk, security risk,

political and environmental risks are among the risk categories well understood by respondents. However,

the respondents have low level of knowledge on credit and technological risks. It is therefore concluded

that majority of risk categories were well recognized by the staff and this can help them to deal with each

type of risk.

This question was also asked during interview sessions. Hence, most the interviewees were responded

consistently that every employee in the company has enough know how about the type of risks and their

possible effect on the overall performance the factory.

Table 6.3: The achievement of company objectives heavily depends on effective risk management.

The achievement of company objectives heavily depends on effective

risk management.

Frequency Percent

I completely agree with the statement. 60 24

I partly agree with the statement. 109 43.6

I don't agree with the statement 81 32.4

Total 250 100

Source; Own survey result, 2020

As it is shown in the above table 3.1, respondents were asked whether achievement of organizational

objectives were heavily depending on the practice of effective risk management. Accordingly, majority

169(67.6%) of respondents were partly and completely agreed that risk management have an impact on

the achievement of the company’s objective. The rest 81(32, 4) of respondents were not agreed with the

statement that the achievement of their organization objective didn’t depend on effective risk

management. So, the result tells us achievement organization’s objective highly depends on the

implementation of risk management. This finding is in agreement with a study conducted by Nina and

Borut (2017), risk management in the pharmaceutical industry in Slovenian companies revealed that the

achievement of the company's objectives strongly depends on a successful risk management.

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Strongly agree

Agree Neutral Disagree Strongly disagree

Total 0

50100150200250

6 1775 89

63

250

2.4 6.8 30 32 25.2

100

FrequencyPercent

Figure 6.2: Response on risk management committee at management level

It is depicted in the above figure 4.2 that regarding the establishment of risk management committee at

management level was not supported by 152 respondents (with an overall percent of 57.2%) which imply

a major of employees were not agreement with the statement. Very significant numbers (75) of

respondents were remained neutral with the statement that there is a risk management committee at

management level with an overall percent of 30%. The remaining 23 (9.2%) of respondents were fall

between “agree” and “very agree” scale as per the Likert type scale measurement used under this study.

This indicates that the factory didn’t have a functional risk management committee at management level.

Surprisingly, this result was confirmed during interview without deviation in their response. Thus, if this

is so it will have a negative impact on the overall risk management activities in the organization.

I completely agree with the statement.

I partly agree with the statement.

I don't agree with the statement

Total

0 50 100 150 200 250

60

109

81

250

24

43.6

32.4

100

Percent Frequency

Figure 2: Response on establishment of independent risk management office (Risk manager)

The respondents were asked to indicate their level of agreement with establishment of independent risk

management office (Risk manager) in organization. To this question they responded as provided in figure

4.2. Hence, as shown in the above figure majority 109 (43.6%) of respondents were partly agreed with the

statement. However, 84(32.4%) of respondents were disagreed with establishment of independent risk

management office (Risk manager) in their organization. The remaining significant number 60(24%) of

respondents were completely agreed with statement. From this result the overall response of respondents

is approached to the existence of independent risk management office (Risk manager) in the organization.

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This finding confirms to the result of the study done by Bisrat (2018), on enterprise risk management

practices found that 175(98.9%) of the respondents agreed the establishment that assignment of an

independent area or personnel (Risk manager) specifically for risk management function in the

companies.

6.3 Risk Management Process

In order to establish a effective organization wide risk management practice a comprehensive systematic

disciplined and proactive process should be in place where the identification, assessment, management

and monitoring of risk on strategic and division or department levels. For this reason, this part deals with

each step of the risk management process that makes up the risk management framework.

6.3.1 Risk identification

Risk identification is a disciplined process that involves using checklists of the risks. It is considered as

the first step of the risk management. The main objective of risk identification is to identify the risks that

can have an effect on the organization capability to achieve its objective. This risk can be internal or

external.

Table 6.4: Risk identification activities

List of activities N Mean Std. Deviation

The organization has identified loss event from each risk types

using internal or external data250 2.5128 1.14413

The organization employs different risk identification methods e.g.

risk analysis questionnaire, flow-chart method and statistical

records.

250

2.6410 1.49538

The organization conducts workshops or panel discussions to

identify risks in each activity.

2502.9231 1.45791

The organization policy encourages training programs in the area of

risk management

2502.8718 1.30141

The current risk management practice provides information about

the different types of risk exposures of the organization

2503.2051 1.47219

The organization has developed a risk profile or risk matrix 250 3.8462 .84413

Risk identification ( inspection) is done by assigned managers 250 3.4615 1.33468

Risk identification involve all level of staff 250 3.1026 1.46530

Roles and responsibilities for risk identification are clearly defined 250 2.5128 1.23271

Source; Own survey result, 2020

According to table 6.4 the respondents agreed that the organization has developed a risk profile or risk

matrix with a representative mean score of 3.84. The corresponding standard deviation also reviled a

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value of 0.84 which is less dispersed result. On this regard respondents were almost agreed that risk

identification is mainly done by assigned risk manager and the current risk management practice provides

information about the different types of risk exposures of the organization with representative mean

scores of 3.46 and 3.20 respectively. On the contrary, the standard deviation values of the statements

suggest varied responses from the respondents having the result of 1.47 and 1.33 respectively. This

finding is in line with the study conducted by Hiwot (2017) that found the respondents agreed that risk

inspection was done by managers with a mean value of 3.34.

From the information collected from respondents according to table 6.4 respondents were also asked to

forward their level of agreement on activities of identification of loss event from each risk types using

internal or external data and clear definition of roles and responsibilities for risk identification. Thus, they

were moderately agreed with the statements with similar mean value of 2.51. Parallel to this the standard

deviation values of these statements suggest varied responses from the respondents having the result of

1.41 and 1.23 respectively. From this finding it can be concluded that the organization was good on

performing risk identification activities.

6.3.2 Analysis and Evaluation

This section contains the findings in respect to objective two which sought to assess the risk in insurance

companies. This table displays the risk classification method used in the assessment process. It is the

compression of the estimated risk to given risk criteria using a quantitative and qualitative scale to

determine the significance of the risk. The respondents were asked to indicate their level of agreement

with the following statements that relate to the assessment practice in insurance companies. To this they

responded as provided in the following table 5.

Table 6.5: Risk analysis and evaluation activities

List of activities Number Mean Std. Deviation

Statistic Statistic Statistic

Risks are evaluated with assumptions and uncertainties being

clearly considered and presented.

2502.0333 .70088

Risk is evaluated in terms of both quantitative and qualitative

values.

2504.5385 .64262

Measurement of both of the quantities in risk assessment is

concerned potential loss and probability of occurrence

2504.4359 .82062

A risk is often treated differently considering its potential loss and

probability of occurrence

2502.7436 1.16343

The organization finds it difficult to prioritize its main risk 250 2.2051 1.03057

Source; Own survey result, 2020

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The researcher was tried to collect data on both risk analysis and risk evaluation inseparably through

preparing accommodative questions. Thus, as we can see from the table 6.5 majority of respondents were

almost highly agreed with statement that risk is evaluated in terms of both quantitative and qualitative

values with representative mean score of 4.53 and less deviation of their response having standard

deviation value of 0.64. This result is similar with the study conducted by Antonio and Silvia (2016), on

risk tools for the assessment of strategic risk: an exploratory study large manufacturing firms from Italy

shows that, in most cases (82.9%), firms opt for the application of both quantitative and qualitative

techniques whereas 12.2% mainly ground the assessment on the use of quantitative techniques only.

In addition to this, respondents were also agreed with less difference of their responses on the statement

that measurement of both of the quantities in risk assessment is concerned potential loss and probability

of occurrence as it is seen the mean score of 4.43 from the table. The organization has put some efforts to

treat risks differently considering their potential loss and probability of occurrence which is scored a

mean value of 2.74. However, the organization were not effective on evaluating risks with assumptions

and clearly considering and presenting uncertainties as it can be inferred from the lowest mean score 2.03.

Overall, the scores indicate that the organization is in average performance in implementing risk analysis

and evaluation activities. However, interviewees were strongly responded that risk analysis and

evaluation was practiced successfully. This shows there is in consistence regarding the practice of risk

analysis and evaluation and this would require unreserved commitment of managers in order to narrow

the gap.

4.3.3 Risk response/control

Risk response /control include decision making to reduce and/or accept risks. The amount of effort used

for risk response should be proportional to the significance of the risk. This section contains the findings

in respect to risk response in the factory. The respondents were asked to indicate their level of agreement

with the following statements that relate to the assessment of risk response in the factory.

Table 6.6: Risk response techniques

Techniques N Minimum Maximum Mean Std. Deviation

Mitigation 250 2.00 4.00 3.3846 .74747

Avoidance 250 1.00 5.00 2.1795 1.04810

Retention/Assumption 250 1.00 5.00 4.5897 .75107

Transfer/Insurance 250 1.00 5.00 3.2308 1.44115

Source; Own survey result, 2020

According to Nina & Borut (2017), companies are more and more dependent on the ability to deal with

uncertainties and employ successfully risk response and control tools. In this regard, respondents were

asked to forward their level agreement on the listed risk response and control tools to select which

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technique or tool was successfully applied in the factory. Hence, According to the survey results given in

Table 6.6 majority of respondents were put their maximum agreement on risk retention/assumption

following by risk mitigation with representative mean value of 4.58 and 3.38 respectively. The standard

deviation value for both tools was also shown invariable response of all respondents as it can be inferred

from the similar value of 0.75 and 0.74 correspondingly. In addition to these tools the factory was also

used risk transfer/insurance as third method of risk response as the mean value of respondents fall above

average which is 3.23. However, avoidance was not used as a means of risk response technique. This result is in accordance with the information collected through interview. Concerning this the

interviewee was responded that retention and mitigation were the most used risk response techniques. The

deputy manager said in his mother language “መ ጀመርያ ኩሉ ዓቕምናን ልምድናን ተጠቒምና ንምቁፅፃር ንፍትን

ካብኡ ሓሊፉ ንዘጋጥመና ሓደጋ ወይ ፀገም ከዓ ንቕብል እምበር ንሽግር ፈሪሕና ከይገበርና እንሓድጎም ነገራት ውሕዳት ” እዮም when we translate the statement, it has the direct meaning of “first with our experience and

capacity we try to mitigate any risk or problem, but if the risk is still happened we have to assume it rather than abandoning our assignments due to the fear of associated risk.” So, having the result of the analysis and the information gathered from interview, it

can be concluded that the organization is active on applying risk preventive instead of avoidance and also

we can inferred that the organization has the motive of risk taking.

6.3.4 Risk Communication, Monitoring and Review

The risk management process is cyclical in nature hence it should be made an integral part of

management to successfully run the organization. The final step in risk management process is an

ongoing review that monitors the progress s according to the goals established. This section contains the

findings in respect to communication, monitoring and review. The respondents were asked to indicate

their level of agreement with the following statements.

Questions on these areas were put before the respondents and the results indicate regarding availability of

good communication, monitoring and review activity for risk management practice

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Table 6.7: Risk communication, monitoring and review activities

List of activities N Mean Std.

Deviation

Risk management program is well documented 250 1.7179 .88700

Risk management efforts are supported by senior management 250 1.6667 .66227

Employees are properly trained on risk management policies of the

firm.

2502.0000 .64889

Monitoring the effectiveness of Risk management is an integral part of

routine management reporting.

2502.0000 .94591

The roles and responsibilities of each employee in the risk

management efforts of the firm are well communicated to them.

2501.9744 .58432

Internal auditors report on the effectiveness of the risk management

process periodically.

2502.9487 1.33670

Risk capacity of the organization clearly communicated to the

employees.

2503.2051 1.47219

The organization has internally developed risk Management

procedures or guidelines

2502.5128 1.23271

Source; Own survey result, 2020

It is important to note that risk monitoring and review is an essential process in risk management. Without

putting into practice this last process constantly it is ashamed to say risk management is implementing

effectively. According to the American Academy of Actuaries (2013) measures of accumulated risk

exposures are often required for risk monitoring and review phase of risk management process. As

reported in the above table 6.7 out of all activities applied in risk monitoring and review, respondents

were put their idea on moderate degree agreement with the activities that risk capacity of the

organization clearly communicated to the employees and internal auditors report on the effectiveness of

the risk management process periodically having respective mean value of 3.20 and 2.94. From the other

aspects development of risk Management procedures or guidelines has average mean score of 2.51. The

finding shows most of the respondents were not in agreement with the remaining important activities. The

overall mean scores are below 2.00 which represent the low extent as per the likert scale used in this

study. This implied that all the activities were below average except the two aspects that have moderate

agreement by respondent. However, no activity was practiced in good manner as per the respondents

answer. Therefore, it can be conclude that the organization is poor in implementing the last aspect of risk

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management process and this will make fruitless even the company has performed all other activities

strongly.

6. Conclusion

The purpose this research was to assess risk management practice in pharmaceutical industry. It has done

based on the risk management framework or process which was guided by specific objectives. Based on

the study findings, the majority of risk categories were well recognized by the staff and this can help them

to deal with each type of risk and the organization has ensured a one step forward in establishing

independent risk management office. However, it didn’t form a functional risk management committee at

management level. Therefore, this may have a negative impact on the overall commitment of risk

management.

Regarding the risk management process, risk identification was well performed comparing to other

activities. The organization has developed a risk profile or risk matrix and this was done by assigned risk

managers. The finding also revealed that risk is evaluated in terms of both quantitative and qualitative

values. However, there was a weakness on treating risks differently considering their potential loss and

probability of occurrence. This shows there is inconsistence when organization is stepping from risk

identification phase to analysis and evaluation.

The other issue was concerning risk response techniques. The factory was focused on risk retention and

risk reduction (mitigation) rather than using avoidance as means of risk control tool and this can be lead it

to develop risk taking habit. But as per the finding, the factory was not wise on considering circumstances

to decide on the techniques. The last element in risk management process is communication, monitoring

and review activities. Here in this regard the factory is too weak to perform the required activities. Risk

management program is not well documented, risk management efforts are not supported by senior

management and the roles and responsibilities of each employee in the risk management efforts of the

firm are not well communicated. It can be conclude that the organization is ineffective in implementing

the last aspect of risk management process and this will make unsuccessful even the company has

executed well all other activities.

The overall result of the study shows most of the element of risk management practice are in moderate

extent and this point out most of the respondent are in neutral agreement which shows they are not sure

whether risk management was practiced effectively or poorly.

7. Compliance with Ethical Standards

While the researcher seeking data from the respondents it was in keeping the moral and dignity

of the informants by safeguarding the wellbeing of its participants by not causing and exert any

mental or physical influence before, during and after the final collecting of the questionnaire. All

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the research participants who were involved in the study were appropriately informed about the

purpose of the study and their willingness and consent is secured before the distribution of the

questionnaire and beginning of the interviews. In protecting the right to privacy of the

respondents, the researcher maintained the confidentiality and identity of each participant. In all

cases, names kept confidential and therefore a collective name such as respondents will be used.

8. Acknowledgment

First, and foremost, I thank God for giving me the opportunity who has created this world of

wisdom for me. I thank our lord for his protected and brightened direction of my personal and academic

journey.

I gratefully acknowledge the employees of Addis Pharmaceutical Factory (APF) who dedicated their time

to fill my questionnaire and respond the provided interview. Moreover, I extend my thanks to all my

colleagues and my friends who help me to complete this research paper.

Finally, I would like to thank all people involved directly or indirectly to finalize this study. This is

because; the successful completion of this thesis could have been difficult without the encouragement,

support and cooperation from these above mentioned individuals who assist me in many different ways.

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