Enterprise Risk Management in Pharmaceutical Company (a Case Study of Fidson Healthcare Limited)
Chapter One
OBJECTIVES OF THE STUDY
The aim and objectives of this research study are:
- To know and examine previous risk management strategy used by Fidson Healthcare Limited.
- To know if ERM is being used to manage risk in Fidson Healthcare Limited.
- To find out the mostly used ERM frameworks in Fidson Healthcare Limited.
- To know and examine the challenges faced by Fidson Healthcare Limited, in the chosen ERM framework in managing their risk.
CHAPTER TWO
LITERATURE REVIEW
INTRODUCTION
This chapter will deal with the theories applicable to manage risk in Fidson Healthcare Limited, using Enterprise risk, management approach. The historical background of risk, risk management and Enterprise risk management, the conceptual framework of the study and the empirical reviews of past writers will also be discussed.
CONCEPT OF RISK
Aneke (1998), A chat with a pharmacist will expose his worries about intense competitions in the industry, incidence of security risk which includes, Technology exposures, adulteration of original brand and so on, in their day to day business activities.
Again, there exists a great deal of anxiety and grief in life when some unwanted events happens, like earthquake, major fire incidence, air disaster or plane crash, oil spillage, multiple collision on highway. The unwanted events can be legion. What about the fate of the unemployed, the disabled, the aged people, widows, orphans and the less privileged.
The situation is not different in formal and informal organizations. The character of either organization include, taking risks, tackling problems and utilizing the organization’s resources to achieve optimal results desired or objectives.
There are many things to be said on risk. There are many illustrations to offer on all inclusive nature of risk in life. Suffice it to say that risk exists where the future is unknown. It represents both desirable events and undesirable events. It is desirable event when one intentionally initiates the uncertain things in order to better his socio-economic well being. An example, an individual accepting an employment or job offer, has desired risks. Risk becomes undesirable, when it produces negative results. It is that situation when an event occurring is unwanted because it results in loss of life and property. Similarly, Fidson Healthcare Limited may suffer undesirable risks when an unexpected event happens like, injuries to third party, fraud, product contamination, insolvency and so on (Ogunlana (1995).
The exposures to risk may either be by an Act of God (Nature) or self- imposed. By an Act of God, has to do with events such as earthquake, flood, and destructions by lightning and thunder. By self-employed, results from man’s decision or choice, say technological development, choice of system of government, economic system, choice of occupation.
Conclusively, man cannot foresee exactly the outcome of his activities, because there are various activities man engages on. There are many risks man can be exposed to, and many meanings attached to the term ‘Risk’ as each inquirer defines it based on his own predilection and orientation. Source (Introduction to Insurance; A Nigerian Perspective by Aneke (1998), Nature of Risk- page 12-13).
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
This chapter presents the research methodology adopted for this study. It explains the population of the study, the sample size and the techniques used in selecting the sample. Also, it explains the methods of data collection, instruments of data collection, research model specification and techniques used in data analysis.
RESEARCH DESIGN
Research designs are extremely important in any research work, as they help the researcher to develop a structure for gathering data and the analysis that follows. Asika (1991) maintains that research design is the structuring of investigation aimed at identifying variables and their relationships to one another. It is used as a scheme for data collection prior to the actual study. It is used for the purpose of obtaining data to enable the researcher answer the research question posed for the study.
For this study, research design uses a qualitative method either in form of questionnaire, interview or both for collection of data from a population when researching on issues relating to the enterprise risk management of Fidson Healthcare limited, such as the one in question.
Conceptually, survey design involves a clearly defined problems and definite objectives, which the study portrays (Asika, 2006).
POPULATION OF THE STUDY
According to Fabayo (2009), a population is a set of existing units (people, objects, events, etc) that we wish to study.
For this study of enterprise risk management in pharmaceutical companies, due to time and financial constraints, the focus of the population study is that of the Fidson Healthcare limited.
However, only the branch of Fidson Healthcare limited in Lagos was visited, the subjects of the study during the qualitative phases of the research were identified through visitation made to the company. The most appropriate official at the managerial level; as identified through visitation was interviewed and relevant facts gotten, for the purpose of this study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
AN OVERVIEW
This chapter deals with transcription (Verbatim) of the information gathered and the presentation of the transcribed information.
The response from the oral interview conducted will be presented.
INTRODUCTION
In order to determine the effect of ERM on Fidson Healthcare Limited, the researcher used a qualitative study design to elicit vital information on how Fidson Healthcare Limited uses ERM frameworks in managing their risks.
A top risk Manager of Fidson Healthcare Limited was interviewed, representing all major risk categories of Fidson Healthcare Limited. A total of 30 questions were drafted and asked the Senior Risk Manager of Fidson Healthcare Limited and the entire questions were answered, representing a high degree of response.
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
OVERVIEW
This chapter deals with what were discovered during the cause of this study, the researcher’s final conclusions, relevant recommendations to improve the cause of the study and finally, the suggestions to aid other researchers for future studies.
SUMMARY
This study examines the use of ERM in pharmaceutical companies. The study relies on the available literature to ascertain the use of ERM in pharmaceutical companies, and how ERM frameworks of COSO, are effected in Fidson Healthcare Limited. The most appropriate Official at the Managerial level, as identified through visitation was interviewed and relevant facts gotten, for the purpose of the study; to know the effects of the use of ERM frameworks on Fidson’s risk management.
In order to carry out appropriate analysis on this research work, the study focuses on Fidson Healthcare Limited; amongst the fast rising pharmaceutical companies base in Lagos.
However, the limited time scarce, financial resources at the researchers disposal, calls for this limited scope.
Information was collected from the drafted interview questions, granted by a top Risk Manager of Fidson Healthcare Limited. The information given was recorded and transcribed.
The first hand information gathered through interview with a top Fidson Healthcare Risk Manager, information sourced from recent books written by accredited authors, published and unpublished materials such as Insurance journals, periodicals, newspapers, and magazines, enabled the researcher to discover that:
- Though ERM is being implemented in Nigeria pharmaceutical industry, the level of implementation is either very low or cannot be easily ascertained.
- There exist an insignificant but positive relationship between ERM and total assets and liabilities as proxied for firm size and leverage. This follows a similar research by Tahir and Razali (2011) which provides that there is a positive relationship between ERM and leverage; thus a higher leverage increases firm value. The works of Pagach and Warr (2010) also suggest that there is a positive effect of ERM on leverage though it is insignificant. They are of the view that though firm size also increases, it is more a function of the rising stock market during the period than any direct effect of ERM.
- The relationship between ERM and return on equity as proxied for profitability and employee performance is positive but insignificant. Baxter et al (2012) appears to be in agreement with this notion; but Tahir and Razali (2011) are of the reverse. The latter believe that there is an insignificant by inverse relationship between ERM and profitability. They are of the view that if the proportion of capital structure of the company is more on debt such as bonds, the obligation for the company to pay interest is compulsory, hence affecting the net profit of the company.
- There is overall insignificant effect on firm characteristics such as firm size, employee performance etc as a result of ERM adoption. According to Beasley, Pagach and Warr (2007) and Pagach and Warr (2011), a possible explanation for the lack of significant change is that out of the firms adopting ERM, not all of them are positioned to actually benefit from adoption of ERM. Moreover, there is scarcely any measurement of the extent of adoption and implementation of ERM in these firms.
CONCLUSION
ERM is a holistic view of risk management process in an organization, using frameworks/guidelines developed by risk managers, such as Strategic risk, Operational risk, Financial risk and Hazard risk.
ERM is a body of knowledge –concepts, methods and techniques,- that enables a firm to understand measures and manage its overall risk, so as to maximize the firm’s value to shareholders and policyholders. The purpose of this paper has being to demonstrate the effect of using ERM and its frameworks in pharmaceutical companies. Also, it can be concluded that when ERM is used appropriately, it becomes a means of helping the organization shift its focus from crises response and compliance and evaluating risks in business strategies pro-actively, to enhance investment decision making which further improves overall firm value. Organizations that develop ERM frameworks for linking critical risks with business strategies can become highly formidable competitors in the quest to add value to the company and for stakeholders.
This study was prompted by the need for adequate empirical research on the use of ERM and its frameworks in pharmaceutical companies. With recorded and transcribed answers given by a top Risk Manager of Fidson Healthcare Ltd, the effect of ERM and its frameworks in pharmaceutical companies were explored.
Through this approach, the findings from this study suggest that ERM is effectively used in pharmaceutical companies (Fidson) and has a positive significant effect on Fidson Healthcare risk management.
Also, the adopted ERM framework (COSO- Operational risk) by Fidson Healthcare Limited, has positively influenced the way risks are been managed in Fidson Healthcare Limited.
Therefore, based on the oral interview with a top Risk Manager of Fidson Healthcare Limited, we can conclude that the adopted COSO ERM frameworks, has positively influenced and improved risk managements in Fidson Healthcare Limited, by:
- Making them to be pro-active in all their risk dealings.
- Making them to be risk aware and control conscious.
- Making them to be conscious of their corporate image.
To further buttress this,
- COSO (2004) stated that ERM has to be driven and carried by the whole organization, especially the middle management.
- Also that every company that uses ERM has to ensure that a “risk awareness culture” is trained, lived and rewarded within the company.
- Price WaterHouse Coopers’s study (2008) shows that ERM is applied across the enterprise, at every level and unit, and includes taking an entity level portfolio.
- Also, he further said that ERM’s objectives are set in one or more separate but overlapping categories.
- Also Calisle, H.M study (2009) stated that ERM is able to provide reasonable assurance to an entity’s management and board of directors without releasing them from their responsibility.
RECOMMENDATION
This study recommends the following:
- Application of ERM should be recommended to pharmaceutical companies and other industries as a practical option for managing risk causing damage to the industry.
- There is need to encourage and adopt the full use of all ERM frameworks in industries.
- There is need for more explicit measures in identifying firms that engage in ERM and those that do not.
- Pharmaceutical companies should carry out a self evaluation of the pre and post effects of adoption of ERM. This they can effect if the length of time that an ERM program has been in place, can be ascertained.
- Owing to the limitations of the study, future researchers may extend this study by measuring the intensity of other ERM frameworks usage in pharmaceutical company and not COSO ERM frameworks; as used in this study.
- The government and other regulatory bodies should put in place measures that would enhance greater adoption of ERM in every industry.
SUGGESTIONS FOR FURTHER STUDIES
A research work of this nature needs time and financial resources. However, due to the scarcity of these resources, the researcher’s limited the scope of this study. This aside, risks are highly dynamic in nature. Hence, what is prevalent today may be replaced with another trend tomorrow.
In light of these, and many more factors, the researcher submitted to the view that further study should be carried out on other ERM Frameworks for effective risk management process in the industries.
REFERENCE
- A Risk Management Standard Published by AIRMIC, ALARM, IRM: 2002.pp 2.
- Adams, G.W. and Campbell, M. “Where Are You on the Journey to ERM?” Risk Management Magazine. September 2005: pp.16-20
- Asika, N. (2006). Research Methodology in Behavioural Science, Ikeja, Longman, pp.79-100
- Braz,R. et.al.”Monographs: Enterprise Risk Management.” Journal of Healthcare Risk Management. 25(2005):pp. 11-24.
- COSO.(2004). Enterprise Risk Management- integrated Framework: Committee of Sponsoring Organizations of the Treadway Committee.
- Olaf Passenheim, Enterprise Risk Management 2011.
- Fabayo,J.A (2009). Quantitative Techniques for Economic and Management Decisions (2nd Ed). Ibadan: Intec Printers Limited. Pp.2244226.
- Geoff Pilmor SIM’s Maolish associated; Risk Assessment use and application in pharma and Biotech manufacturing operations.
