Potential Types of Loss
There are seven operational risk event types that have been projected by Basel II (Barakat, 2014). These include “internal fraud; external fraud; employment practices and workplace safety; clients, products and business practices; damage to physical assets; business disruption and system failures; and execution, delivery and process management” (Barakat, 2014, p. 1). Target has the potential to experience losses in any of these categories; however, the three types of potential losses that will be focused on at this time are in the areas of clients, products and business practices; damage to physical assets; and business disruption and system failures. Within these three areas, the three potential types of loss identified that the company may experience are disgruntled customers due to changing store policies, damage to the store and its goods, and potential data breaches, compromising customer data. Any or all of these events will result in an operational loss for the organization, as, in addition to the immediate losses that would result from any one of the three given actions, the company would also experience additional losses in the form of repeat business and bad publicity and the associated loss of business stemming therefrom.
Management of Potential Types of Loss
In order to manage these potential operational losses, each situation must be addressed separately. The first area of potential loss identified was loss resulting from disgruntled customers upset with Target’s changing policies. First Target allowed women to breastfeed while walking through the store, without shame or fear of repercussion; next, they changed their bathroom policy so that those who are transgender may use whichever bathroom they find most comfortable (Whitson, 2016). As a result of such changes in policy, there have been large protests of the policies from those who are against them; Target stands by its decision to allow individuals to engage in normal bodily function without public shaming, and invites those who do not believe that bodily functions should be without shame to not use their facilities, either the bathrooms or the entire store, as they prefer (Whitson, 2016). While there was some initial speculation that this policy would adversely affect the store, creating operational losses due to the high number of individuals who stated they would boycott the organization, current stock market prices indicate that the company’s actions, and its response to the protesters, were the appropriate one, as the stock is on the rise once more (Reuters, 2016).
Damage to the stores and its goods, such as in instances of flooding that have been experienced throughout the state of Texas this past week, have the potential to result in high operational losses for the organization (Associated Press, 2016). As the flooding is ongoing, many areas still are inaccessible and individuals will not be able to access the stores to assess damages until floodwaters recede (Associated Press, 2016). To this end, there is no indication as of yet as to the amount of damages that the stores may have sustained or the amount of stock lost. When such numbers are known, due to the insurance policies that the company has on the stores, it is unlikely that the company will experience total losses, as the company is required to have insurance. The insurance claims will afford those who have lost or damaged goods as a result of the flooding to recoup any losses that may have been experienced.
In 2015, Target settled for $39 million dollars over a data breach, wherein customer data was compromised (Garcia, 2015). There is the potential for such an event to occur again, making it vital that the company remain vigilant to potential losses. Yet, as the company worked to harden its systems and implement additional security measures following the breach, the likelihood is minimal that such an event will happen again. The store is constantly monitoring its data, using more advanced procedures than were previously in place, in order to prevent the likelihood of such an occurrence (Garcia, 2015).
Conclusion – Risk Management Techniques
There are four key risk management techniques: “avoidance, retention, loss prevention and reduction, and transfer” (University of Wisconsin, 2016, p. 1). Each of these practices may be used to manage and mitigate risk, and all of these techniques should be included in the risk management plan of any organization (University of Wisconsin, 2016). Through avoidance, as in the case of the security breach closures, the company works to mitigate potential losses. Through retention, via the policies and responses of the company to those who disagree with the policies, the company is able to maintain its loyal customer base, decreasing the potential for loss. Through loss prevention and reduction, the company responds to concerns to ensure that there is a decreased chance of loss within the organization, and through transfer, as in the case of flooding, the risk is transferred to the insurance company, the primary reason for such a policy’s existence. Target has worked to decrease and mitigate its potential for operational risk to the degree possible, as all organizations should do.
Associated Press. (2016). Rains slow, but flooding still threatens part of Texas. Foxnews.com. Retrieved 7 June 2016, from http://www.foxnews.com/us/2016/06/05/rains-slow-but-flooding-still-threatens-part-texas.html
Barakat, M. (2014). The Seven Operational Risk Event Types Projected by Basel II. Care-web.co.uk. Retrieved 7 June 2016, from http://www.care-web.co.uk/blog/seven-operational-risk-event-types-projected-basel-ii/
Garcia, A. (2015). Target settles for $39 million over data breach. CNN.com. Retrieved 7 June 2016, from http://money.cnn.com/2015/12/02/news/companies/target-data-breach-settlement/
Reuters. (2016). Target Corp (TGT). Reuters.com. Retrieved 7 June 2016, from http://www.reuters.com/finance/stocks/companyProfile?symbol=TGT
University of Wisconsin. (2016). What is risk management? Wisc.edu. Retrieved 7 June 2016, from http://www.bussvc.wisc.edu/risk_mgt/what_is_rm.html
Whitson, K. (2016). Target announces transgender restroom policy in midst of controversy. Westernjournalism.com. Retrieved 7 June 2016, from http://www.westernjournalism.com/target-stores-open-restrooms-to-everyone-with-gender-identity-issues/