Risk Management: The Case Of General Motors

RISK MANAGEMENT: THE CASE OF GENERAL MOTORS Student’s Name Institutional Affiliation Date Prompt Three:Identify an incident where risk management failed. Complete a root cause analysis and critically discuss what happened and how stakeholders were managed. Suggest alternative approaches and lessons learnt making reference to the literature on accidents. Draw on your own experience and reflections resulting from your previous work and/or the seminar programme to critically discuss the strengths and limitations of various tools and techniques. Introduction Production of goods and provision of services to meet the needs of consumers requires that one takes into consideration the risks involved. Harvey, (J., p. 1) defines risk as the combination of the probability of an event and its consequences. The consequences of an event can either be positive or negative. In the business world, companies thrive on risks because they are not certain of the outcomes for the decisions they make. Businesses operate on profit goals and there is a need to make sure that the desire for profit does not override the risks involved. Any failure to cater for the risks involved may prove disastrous for a company and this may ruin all the achievements that the company may have made in its history. Management is defined as a process of dealing with or controlling things or people. Risk management is, therefore a process of understanding and controlling the probabilities and uncertainties of events in the organization. Since decisions in the management are often uncertain, companies are supposed to have risk management plans to make sure that they are always prepared in case risks emerge. Risk planning is meant to increase the probability of desirable positive events and suppress the probability of threats (Lecture two, n.d., slide 2). General Motors’ safety failure is an example of how poor risk management strategies can impact the reputation of a company. General Motors Safety Failure GM’s safety failure has gone down in history as one of the recent costly risk management failures to have ever happened in history. GM’s risk management failure came from a faulty ignition switch in the company’s automobiles. Between 2001 and 2013, thirteen deaths were reported involving GM’s vehicles (Shefrin, H., 2017, para. 3).The first death occurred on 29th July 2005 when a woman from Maryland after the ignition switch shut down the car’s electrical system, causing the car to crash into a tree and the airbag failed to deploy. By 2013, more than thirty-one crashes had been reported and in all cases, the airbags had failed to deploy. Thirteen deaths had been recorded in all accidents and GM had not done anything to notify the cause of the accidents or explain why the airbags were failing to deploy. A critical analysis of what happened and how the stakeholders handled the situation reveals that GM prioritized profits at the expense of safety. In so doing, the company as just foregoing the risk and did not make an immediate intervention to save the situation. GM’s Risk Management Failure According to Basu (T., 2014), GM detected the defect in the ignition switch in 2001 during the pre-production testing of Saturn Ion. In 2003, the service technician allowed the production to continue after realizing that the bug in the ignition switch had been fixed. In 2004, GM noticed the defect in another brand of its automobiles after the earlier case. The 2004 defect was detected in the Chevrolet Cobalt and in March 2005, the company refused the proposal to fix the problem because it would be very expensive to make the changes. The company decided to go ahead with the production of Chevrolet Cobalt while aware that there was a defect in the ignition switch. In 2005, Rose Amber from Maryland, died in an accident involving Chevrolet Cobalt, the 2004 model. GM learned of the accident, but did not launch any formal investigation to determine what had caused the accident. In May 2005, the chief engineer advised the company to redesign the key head, but the proposal was again rejected because of the financial costs to the company. In 2011, Lance Cooper began an investigation after another Chevrolet Cobalt was involved in an accident in 2010.Brooke Melton, the victim of another power failure in the Chevrolet Cobalt had died after his car lost power while he was driving and it veered into the traffic (Plumer, B. 2015). By this time, GM had not taken any step to solve the problem. The only formal communication that GM had sent to the dealers was in 2005 where it had communicated to the dealers that they were to inform the clients to remove all items from the key chain because the items could easily cause the car to lose power (Basu, T., 2014). The company does not make any recall on the cars in the market because it is focused on profits. In 2012, GM recorded four accidents and four fatalities involving the 2004 Saturn Ion model and the accidents are attributed to the defect. In 2013, the program engineer tells the public that the company had made a “business decision” on the defect ignition switch, implying that the company had weighed between the cost of recalls and the financial impact on the company and opted to ignore the bug. GM did not make any recall or claim ownership of the problem in the cars until the end of 2013 when it claimed that the ignition switch was to blame for the thirty-one accidents and the thirteen fatalities.The company officially started a recall of Saturn Ions and Chevrolet Cobalt cars in February 2014. By March 2014, GM had recalled more than 1.55 million cars. Mary Barra, the new CEO of GM also offered a public apology on how the company responded to the ignition defect crisis.Barra also appeared before the Congress to explain why the company did not make any recall between 2001 and 2013, despite the fact that the company had learned of the defect in the ignition switch ten years earlier. Why is it that General Motors did not fix the Ignition Switch Earlier? GM learned of the ignition defect in 2001 but it took it thirteen years to make the first recall and also blame the ignition switch for the thirteen deaths and thirty-one crashes. The reason why the company did not make any attempt to solve the defect was because the company had prioritized the profit culture at the expense of the customers’ safety. What the Regulators did to solve the Defect Switch Between 20o5 and 2013 when the first recall was made, the regulators in the United States were aware of the issue with GM automobiles. The problem is that they did not launch an investigation into the problem early enough because GM itself did not take the defect as a serious issue. According to Plumer, (B., 2014), the reason why the regulators were hesitant to act was because GM did not provide critical information that could have helped the agency to determine the cause of engine shutdowns in GM motors. This was a flawed excuse from the regulator because GM was already operating on the profit culture and there was no way the company could have come out to claim that its vehicles had defected ignition switch. The regulators did not take any action until 2014 when GM started its recalls, implying that if GM had not started the recalls, the regulator could have sat back and waited for the problem to subside. Application of Crisis Management to the GM Case According to lecture notes, (n.d, slide 49), risk management is a systematic process that is applied on the company’s policies, procedures, and practices with a view of establishing suitable methods of consulting, communicating, and relaying information to all stakeholders in the activities of the company in the risk process.Communication is an important aspect in the risk management process because the stakeholders will only act based on the information they receive. GM case involved four stakeholders. GM was the main stakeholder because it was the manufacturer of the cars that had ignition switch defects. NHTSA was the regulator as it recorded the number of accidents from GM motors and the fatalities.The GM engineers were responsible for identifying and recommending changes on the ignition switch but their proposals were ignored (Rushe, D. 2014). The U.S government, which later became owners of GM, did not launch any investigation on the accidents from GM motors. As a result, it is important to evaluate the role of reach stakeholder and what could have been done to avert the risk. Two theories on risk management can be used to explain the case of GM accidents and determine whether the accidents were inevitable. According to David Pontin, (2018, slide 19), the theory of normal accidents holds that normal accidents are inevitable and cannot be predicted. If the accidents from GM’s automobiles were normal accidents, then the regulator had every reason to close the investigation files because GM had a good record of safety measures. Another reason why GM ignored the proposals from the engineers was because the engineers treated the ignition failures as normal accidents. A report from the GM board of directors reveals that the engineers were held responsible for the accidents because they did not provide the company with key information as to why the ignition switch had to be used (Valukas, R., 2014, p. 117). Even if the engineers were aware that the ignition switch was defective and it was shutting down the automobile causing the accidents, GM did...