Evaluation of Risk and Liability Management at USAID

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Table of Contents

Abstract
Introduction
Description of the Agency and Position
Risk Identification
Risk Evaluation
Case Precedent
Risk Treatment
Conclusion
References

Abstract

This paper entails the application of liability and risk management knowledge in the workplace. This goal has been achieved by identifying the desired workplace that I intend to work in the future and the possible risks that I may encounter. The desired job position identified is the HR manager. The core risks evaluated in this paper include the political, psychological, and financial risks. The risks are evaluated with reference to their severity and frequency. Additionally, a number of cases are identified in order to illustrate the existence of the identified risks in the real work environment. Finally, the most appropriate risk treatments that can be adopted in addressing the risks that are identified and analyzed.

Introduction

Organizations are increasingly exp

eriencing numerous risks arising from natural and artificial causes. Merna and Al-Thani (2011) define risk as uncertainty or random occurrence that might affect an individual or an entity negatively. A study conducted in 2000 affirms that only “35% of small and medium-sized companies have a comprehensive disaster recovery plan in place and fewer than 10% of the firms have integrated crisis management plans” (Rugman, 2009, p. 96). This assertion highlights the existence of significant gaps with reference to risk management. This paper entails the identification and comprehensive evaluation of three main risks that might be encountered in working as a firm with the United States Agency for International Development (USAID). Moreover, the paper reviews the most effective risk treatment in order to address the identified risks.

Description of the Agency and Position

The USAID was established in 1961 with the objective of administering civilian foreign aid. The agency believes that poverty alleviation is a fundamental element in promoting global peace and stability. Additionally, ending extreme poverty sets a country on the path towards sustainable growth and the development of self-reliance (USAID, 2015).

In its pursuit to achieve its mission, the USAID has adopted a multidimensional approach by focusing on different facets that contribute towards poverty alleviation. The core areas of focus include food insecurity, ill health, marginalization and vulnerability, disempowerment, and innumeracy (USAID, 2015). The agency seeks to achieve its goal through collaboration with different stakeholders, such as governments. Its operations are based on a number of core values, which include excellence, integrity, respect, inclusion, commitment, and empowerment.

In a bid to achieve a high level of excellence, the USAID focuses on effectiveness, efficiency, and the attainment of meaningful results in all its areas of operation. Additionally, the agency has integrated a high level of transparency, accountability, honesty, and high moral standards. The agency further acknowledges the importance of developing a strong relationship with its partners through mutual respect. On the other hand, the agency has entrenched a high level of inclusion by ensuring that all stakeholders are actively engaged in the aid provision process.

The Agency has organized its operations into six main functional areas, which include Human Resource Management, Agency Organization, and Legal Affairs, Budget and Finance, Management Service, Acquisition and Assistance, and Programming (USAID, 2015). Working in the agency would present a perfect opportunity to improve my managerial skills due to the extensive exposure to different working environments. I would like to work as a Human Resource Manager in order to ensure that the agency has the adequate and motivated workforce. Achieving this goal will require the optimal integration of human resource management practices.

Risk Identification

Organizations are exposed to varying types and degrees of risk depending on their nature and area of operations. Past studies show that international organizations are exposed to numerous risks as opposed to firms that are exclusively domiciled in their home country. Madura (2008) emphasizes that managing risk is a fundamental aspect for firms that have ventured into international operations. Risks can arise from internal or external sources. Different sources of risks include political, economic, financial, physical, and psychological aspects. The process of undertaking different human resource management managerial activities within the agency will not be immune to different risks. Some of the major risks that will be encountered are outlined below.

Psychological Risk

Psychological risks arise from work-related stress. Moreover, psychological risks relate to aspects such as burnout and depression. Working within the agency will require the HR manager to deal with diverse work-related situations that might trigger stress. The requirement to cope with different work situations might translate into stress, which, if not well managed, might culminate in mental and physical health problems. Wederspahn and Sheridan (2009) assert that psychological risks might lead to masculo-skeletal and cardiovascular diseases.

Financial Risk

Financial risk is the probability of an organization encountering challenges in raising or generating sufficient cash flows to meet its financial responsibilities. Financial risk is mainly associated with an organization’s inability to repay its debts. In the course of operating in different countries, the HR manager might experience a challenge in sustaining human capital due to variations in the rate of interest, inflation, and exchange rates. The occurrence of economic changes such as depression might affect the agency’s capacity to source funds to sustain its operations.

The USAID mainly depends on different non-governmental organizations such as charities, universities, and other private entities to execute its mandate. Thus, the agency is not directly involved in the utilization of the advanced funds. Moreover, the agency does not have effective control over the funds advanced to different non-governmental organizations. The General Accounting Office Washington (2002) affirms that nearly “all mechanisms in the USAID have minimum financial accountability requirements and only a few mechanisms entail increased financial risk for USAID funds” (p. 2).

Political Risk

Apart from the above risks, the likelihood of encountering political risk cannot be ruled out. Wederspahn and Sheridan (2009) define political risk as to the likelihood of disruptions in international operations due to political forces and other correlated factors. Political risk increases the level of uncertainty in an organization’s international operations. Some of the core sources of political risk entail a change in government policies and legislation enacted by different governments. The USAID operates in countries characterized by different political systems such as socialist and capitalist systems. The two systems of government are characterized by a varying degree of stability.

Risk Evaluation

Working as the HR within the agency will require HR to undertake different cross-border human resource management activities. First, HR will encounter considerable cross-border cultural differences due to working with individuals from the different cultural backgrounds. Therefore, the frequency of encountering psychological risk is substantially high. In order to deal with the cultural differences, the HR manager will be required to establish a balance with the diverse cultures. This aspect might present a challenging task to the HR manager, hence increasing the level of work-related stress. Wederspahn and Sheridan (2009) note that individuals who encounter numerous changes in their workplace are likely to develop a physical and psychological illness. Considering the unique nature of the cross-border differences, the skills and techniques possessed by the manager might not be sufficient to deal with the emerging issues. Such occurrences are likely to increase the degree of psychological risk.

The likelihood of encountering financial risk as the HR manager is high. The frequency of the risk is high due to the unpredictable nature of the prevailing global economic environment. Despite the fact that the global economy is recovering from the adverse effects of the 2009 economic recession, the likelihood of encountering another recession cannot be ruled out. The occurrence of a financial crisis in one country might affect the agency’s operation in different countries due to the high degree of financial contagion. The agency largely depends on donations from different parties, such as governments, in order to fund its humanitarian activities in different countries. However, an economic recession might reduce governments’ funding to humanitarian activities. During such economic occurrences, the agency might encounter a challenge in sustaining its human capital due to the high cost of operations.

The frequency of encountering political risk is substantially high due to the high rate at which governments undertake policy changes in order to promote the country’s stability. The degree of political risk varies depending on the adopted system of governance. For example, the degree of stability under the socialist system of government is considerably higher as compared to the capitalist system. Currently, humanitarian organizations are encountering new challenges arising from the high rate of terrorism in different countries. After the 9/11 attack, funding of humanitarian organizations has experienced tight control by governments due to the fear that some of the financial aid might be diverted to finance terror groups (Moss, Roodman & Standley, 2005). Therefore, the political risk might affect the agency’s mission to provide humanitarian assistance across the globe.

Case Precedent

The identified risks have been encountered in by different humanitarian organizations, as illustrated by the following cases. In the course of offering humanitarian assistance in Somalia, the United Nations (UN) has experienced numerous political risks. One of the most notable cases relates to the targeted killing of UN Agency workers in Somaliland between 2003 and 2004. Moreover, the UN has experienced a series of kidnapping of its aid workers in countries characterized by a high degree of political instability. In most cases, the governments in these countries do not have total control over some regions. Currently, Somalia has the lowest rate of presence of aid workers due to the high rate of attack (Aid Workers Security Database, 2013). The chart below illustrates the number of attacks perpetrated on humanitarian workers in the aforementioned countries in 2012.

Country	Number of attacks on humanitarian workers
Afghanistan	56
Syria	18
Pakistan	17
Somalia	17
South Sudan	21

Number of attacks on humanitarian workers 2012.

The degree of violence on aid workers in these countries underscores the degree of political risk in the regions. Fifty-seven UN aid workers were kidnapped across the world. Despite the fact that over 80% of aid workers kidnapped survive, such instances are likely to affect the efficiency of humanitarian organizations (Aid Workers Security Database, 2013). Additionally, the UN asserts that most kidnappings undertaken by criminals are motivated by political and financial reasons. Therefore, political risks such as insurgency may increase psychological risk amongst aid workers due to increased concern over their safety. Moreover, the HR manager will be affected due to increased concern over the stability of their workforce.

The existence of political risk, such as security threats highlights the significance of collaborating with governments in order to provide adequate security to aid workers. This aspect will play a fundamental role in ensuring that the aid workers are safe, hence improving the attractiveness of the agency to different stakeholders. This approach will minimize the threat faced, hence improving the agency’s ability to provide humanitarian assistance.

Optimal funding comprises an essential element in agencies’ long-term existence. Changes in the economic environment have encountered increased financial risk due to economic changes. In some instances, the financial risks faced have forced some humanitarian organizations to withdraw their support to different humanitarian activities. This situation is well illustrated by the case of the UN, which announced its decision to cut food aid to over 1 million Afghans due to funding shortfalls in 2014 (Kay, 2014). Afghanistan has been a major recipient of financial assistance by different humanitarian organizations. The agency funding to the Afghan food program is experiencing a $30 million deficit. Such occurrences may jeopardize the lives of millions displaced by the insurgency between the Western-backed Afghan government and the Taliban (Kay, 2014). This case study underscores the importance of integrating different sources of funds in order to cope with a funding shortfall. Additionally, the case further illustrates the importance of effective budgeting in order to control the flow of funds in providing humanitarian assistance.

Risk Treatment

Due to the uncertainty associated with risks, it is imperative for businesses to integrate effective risk management, which includes the actions undertaken by organizational managers in order to ensure that the risks faced are resolved or contained effectively. Whalen (2012) argues that risk management is a fundamental strategic management element that all organizations should consider in their strategic management.

In order to promote the agency’s operation, effective risk treatment practices will be adopted. First, the concept of risk transfer will be adopted by entering a contractual agreement with reputable insurance companies. The agency will ensure its workforce against some of the most prevalent risks that might hamper their continued stay in the agency. Some of the insurance covers include accidents, travel and event, crime, and incremental weather.

Transferring these risks to the insurance companies will play an essential role in improving the working environment. Consequently, the employees will feel adequately protected, hence increasing the likelihood of attracting sufficient human capital. Integrating the concept of risk transfer will minimize the possible lawsuit by employees due to negligence. Moreover, the Agency will further adopt the concept of risk reduction by diversifying the sources of funding. The agency will reduce its dependence on funds from one organization. This approach will reduce financial risk significantly. On the other hand, political risks will be treated by entering a contractual agreement with different authorities in which the agency operates, thus containing the possibility of encountering political risks.

Conclusion

Risks have a significant impact on organizations’ operational efficiency due to the associated monetary and human losses. Most organizations are yet to appreciate the importance of risk management in promoting business continuity. However, in order to attain long-term continuity, organizational managers should not ignore the importance of risk analysis. Considering the identified risk will improve the likelihood of improving USAID’s operational efficiency significantly.

References

Aid Workers Security Database: Aid worker security report. (2013). Web.

General Accounting Office Washington. (2002). Foreign assistance USAID relies heavily on non-governmental organizations. Washington, DC: United States General Accounting Office. Web.

Kay, J. (2014). UN agency to cut food ration for 1 million Afghans over funding. Web.

Madura, J. (2008). International financial management. New York, NY: Cengage Learning. Web.

Merna, T., & Al-Thani, F. (2011). Corporate risk management. New York, NY: John Wiley & Sons. Web.

Moss, T., Roodman, D., & Standley, S. (2005). The global war on terror and the US development assistance; USAID allocation by country, 1998-2005. Web.

Rugman, A. (2009). The Oxford handbook of international business. Oxford, UK: OUP Oxford. Web.

USAID: Who we are. (2015). Web.

Wederspahn, G., & Sheridan, W. (2009). Intercultural services. New York, NY: Routledge. Web.

Whalen, C. (2012). Financial instability and economic security after the great recession. London, UK: Edward Elgar Publishing. Web.

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