Explain the process of managing a political risk.

Discuss the steps involved in managing a political risk.

(i) Identify the risk.
The purpose of identifying the risk is to identify the policies and
activities of the government which are most likely to affect company's operations.

(ii) Evaluate risk.
This step evaluates the likelihood of government policies and
activities and the extent to which these are going to affect the company's operations. There
are consultants and political risk assessment services which provide information on different
countries the estimates of political risk.

(iii) Select Management Techniques.
Management techniques are to be selected to counter
the effect of government's policies and activities. In this step, the decision is made on as to
how to deal with the risks that have been identified. The selection of the technique requires a
complete understanding of functional area of management. One should bear in mind that if
the selection is not proper it is usually non-reversible after implementation. There are
different approaches to meet the challenge. The company should choose that approach which
seeks to protect the best interest of the company.
There are many countries which provide insurance against political risk to their own
companies. Overseas Private Insurance Corporation (OPIC) is a US government agency
which provides insurance against expropriation, war or currency's non-convertibility.

(iv) Implement decided technique.
The purpose of this step is to start encountering the
political risk through management policies so that damage is limited.

(v) Evaluation of the degree of success: The purpose of this step is to evaluate the
effectiveness of company's political risk management. This step provides opportunity to
reassess the likelihood of various kinds of risk and appraise the effectiveness of the risk
management technique. Political risk management should be an ongoing process because
political situation embodies change and therefore the companies have to be vigilant against
the political changes that affect operations of the companies.

(vi) Re-evaluation and correction after evaluation of the degree of success, corrective
measures are to be thought and implemented. Again the risk assessment is required to be
done. The process of protecting against political risk is a continuous.

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maurice.mutuku answered the question on April 25, 2019 at 06:52

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