DILLA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

Risk Management Practices

(Case study of Ethiopia Tele communication corporation Dilla

Branch )

Senior Research paper submitted in partial fulfillment of BA

degree in Accounting and Finance

Prepared by: - Jara Nasir

Advisor; . Frezer. W (MSC)

JUNE, 2016

Dilla, Ethiopia

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 ACKNOLODGEMENT

First and above all my deepest gratitude go to almighty God for helping me throughout my life. I
would like to reward my deepest gratitude to my advisor Frezer w. (MBA) who has provided her
wise intelligent and constructive advice, guidance and directives to make this paper tangible.

This senior essay would not be successful without the help of all ethio telecom employees Dilla
branch. Hence, I am highly great full to all of them for the contribution in providing the
necessary data.

My deepest thanks also go to all my families who support me both financially and morally.
Finally I would like to thank all my friends who helped me in every aspect of the research paper.

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 Abstract

Risk management is the process of identifying, assessing and prioritizing risk of different kinds.
Once the risk is identified, the risk manager wills create a plan to minimize or eliminate the
impact of negative events. The general objective of the study is to assess and evaluate the risk
management practices in case of ethio tale com in Dilla branch. The sampling methodology used
to study the risk management of ethio tele com was simple random sampling because it was this
technique that helps the researcher in selecting concerned key employees without bias. The
researcher also used primary and secondary data types. The primary data were collected using
questionnaire, interview and the secondary data collected through difference books and
electronic media like internet. The data collected using the above mentioned tools shows that the
corporation have a lot of risk exposure like exposure related to lack of expertise, lack of
management respect, domination of dishonest management, and lack of opportunity for
professional development etc…and to manage such exposures of risk the company uses different
types of technique among them risk financing and risk controlling were the main concern of the
study. The corporation uses risk financing technique like purchasing insurance which is the
major technique used in the corporation and the risk control techniques were giving training for
employees and setting rules and regulations that minimize loss exposures.

Based on the findings the corporation does not have organized risk management body to manage
its risk, and also the major risk management technique used is risk controlling, the training
policies drafted were hardly practiced, and the training type mostly provided was off training.
The recommendations were given based on the findings. The corporation needs to have an
organized risk management body to manage its risk, also, providing more of risk financing
specifically insurance initiate employees to perform moral hazard. The training policies drafted
need to be implemented to reduce risk exposure of the corporation.

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 Table of content

Content page

Acknowledgement...………………………………………………………………......I

Abstract...……………………………………………………………………............... II

Table of content...…………………………………………………………………….III
List of table...…………………………………………………………………….........IV

CHAPTER ONE

1. Introduction...……………………………………………………………………...1
1.1. Backgroundof the study...……………………………………………...….......1
1.2. Statement of the problem...……………………………………………………2
1.3. Objectives of the study...……………………………………………………...2
1.3.1. General objective...……………………………………………….......2
1.3.2. Specific objective……………………………………………………..2
1.4. Significance of the study……………………………………………………...3
1.5. Scope and limitation of the study……………………………………………3
1.6. Organization of the paper…………………………………………………… 4

CHAPTER TWO

2. Reviewofrelated literature…………………………………………………….. 5
2.1. The concept and definition of risk…………………………………………5
2.2. Basic categories of risk …………………………………………………….......5
2.2.1. Pure and speculative risk………………………………6
2.2.2. Fundamental and particular risk…………………………………6
2.2.3. Static and dynamic risk……………………………………………7
2.3. Risk related to business activity……………………………………………7
2.4. Objective of risk management …………………………………………… 7
2.5. Source of risk ……………………………………………………........... 7

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 2.6. Steps in risk management process……………………………………….. 8
2.7. Identifying potential loss………………………………………………… 9
2.8. The range of risk identification techniques………………………………. 9
2.9. Risk measurement ……………………………………………………......... 12
2.9.1.1. Loss frequency measure…………………………………………12
2.9.1.2. Loss severity measure………………………………………….. 13
2.10. Selection of risk management tools …………………………………… 13
2.11. Tools of risk management ……………………………………………. 13
2.11.1. Risk control tools………………………………………………….. 13

Avoidance ……………………………………………………………13

Loss prevention and reduction……………………………………… 15

Separation…………………………………………………………… 15

Combination or diversification…………………………………….. 15

2.11.2. Risk financing tools ……………………………………………… 16

2.11.2.1. Non insurance transfer ………………………………… 16
2.11.2.2. Retention……………………………………………… 16
2.11.2.3. Insurance……………………………………………… 17
2.12. Implementing the risk management program………………………… 17
2.12.1. Cooperative with other department……………………………… 17
2.12.2. Periodic review and evaluation…………………………………… 18

CHAPTER THREE

3. Research methodology…………………………………………………….................... 19
3.1. Data collection methods………………………………………………… 19
3.2. Sampling techniques……………………………………………………..... 19
3.3. Method of data analysis……………………………………………………. 19

CHAPTER FOUR

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 4. Data analysis and presentation………………………………………………… 20

Interview analysis…………………………………………………………….

Analysis of risk controlling mechnis……………………………………. 28

Training……………………………………………………………………..29

Analysis the rule and regulation to minimize risk…………………………….29

Analysis of employee…………………………………………………………30

CHAPTER FIVE

5. Conclusion and recommendation……………………………………………… 31

5.1. Conclusions…………………………………………………….................. 31
5.2. Recommendations…………………………………………………….......... 32

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 List of table’s page
1. Overview of sample population…………………………………………… 20
2. Profile of respondents……………………………………………………..... 21
3. Advantages of risk management in ethio tele come……………....……....... 22
4. Risk exposure of ethio tele com……………………………....…………… 23
5. Measurement to be taken when customer did not at a time………………… 24
6. Risk management policy…………………………………..……………........ 26
7. Method of corporation reduce risk loss of customer…………………………26
8. General risk management system……………..……………………………27

CHAPTER- ONE

1 Introduction
1.1 background of the study
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Risk management is the process of identifying, assessing, and prioritizing risk of different kinds.
Once the risk is identified the risk manager will create a plan to minimize or eliminate the
negative impacts of such a risk (William, 1998).

The idea behind using risk management practice is to protect business from being vulnerable to
business risks or risk associated with the physical operation of the firm, many business risk
management plans may focus a keeping the company viable and reducing financial risks.
However risk management is also designed to protect the employees, customers and general
public from unfavorable events like fires, theft, natural disasters, or acts of terrorism that may
affect them. Risk management practices are also about preserving the physical fasciitis, data,
record and physical assets of the company. (William, 1998)

Tele communication industry is the most widely used of all industries with users demanding the
fast service interims of quality. It is an important and very useful industry that is technology
driven and subject to dynamic change.

Tele is very important to share information among the peoples of the world. It is the source of
income for a number of investors, and most important industry that contributes a lot to the
development of a country. (William, 1998)

In Ethiopia context, the national development strategies recognize telecommunication as one of

the vital players to bring about the required transformation and development strategies’. Because
the most effective communication strategy helps for building awareness as most effective and
appropriate way to bring about the required change.

The existence of organization is meaningless with out managing risk of their various activities.
Risk management can be defined as general management functions that seek to assess and
address the cause and effect of uncertainty.

Risk management enable companies to progress towards their goals and objectives its mission)
in the most direct, efficient, and effective way. (Roberta,et.al, 1998).

Risk management practice is also important to handle the risk that occurs to an organization. It is
also important to mention that the organization has to use its qualified employees, technology
and machineries for its productivity and effectives of performance.

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 1.2 statement of the problem

Increasing the productivity of operation has become a strategic goal for many organizations. In
order to increase productivity, companies have to undergo with the change in technology and
machineries so as to give quality product and service.

These require a rapid change in the service industry which has an impact on the job requirement.
Thus, the risk manager faces to constantly upgrade their risk management techniques and
practice .that is, the risk due to fast changing technology, business risk should be properly
addressed.

As per the researcher knowledge there are some problems in ethio telecom such as technology
change, network failure, poor quality , internal system failure, lack of educational skills ( work
experience ) for today’s employment, inappropriate use and the like. Giving such problems (At
the root of the problem, Ethiopia telecom do not use all of the risk management techniques
required. this is mainly attributable to lack of the required skills and knowledge of shortage of
personnel (risk manager) skill, knowledge and hence difficulty of adaptability to address all risk.
Once the need for the change is recognized the study provided solution for such problem.

1.3 objective of the study

1.3.1. General objective

The general objective of the study is to assess and evaluate the risk management practices in case
of Ethio telecom in Dilla branch.

1.3.2. Specific objectives

In order to meet the main objective m, the following specific objective are drawn

- To identify the major exposure of risk in Ethio telecom

- To know how much is the corporation making progress towards achieving risk
management.
- Analyze the main techniques and tools of risk management

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 - To determine the best possible technique in order to reduce risks that ethio telecom is
facing.
- To forward appropriate recommendation based on the findings of the study.
1.4. significance of the study

The result of this study is to clue for the researcher to undertake furthers and detail studies on the
issue under consideration it would also expected to provide general information about risk
management practices on ETC which could be used for effectiveness of corporation. The
following are some of significance of the study

- providing information regarding the exposure of the corporation

- The study could indicate to the risk manager to apply improved technology to handle the
risk.
- It would be useful to relate theoretical part of the course with practical activates.
- It would be useful initiate anther researchers in this area
1.5 Scope of the study

The scope of the study would limited to risk management practice in ETC (Dilla Branch) the coverage of
the study is mainly concerned in it. The risk management methods are many in numbers the study
encompassed of them namely risk control measures and risk financing measures in order to alleviate the
risk limited by corporation

1.5.1 Limitation of the study

The research is limited by the following limitation

- employee and managers may not be willing to give me adequate and efficient
information
- Some documents is strictly forbidden to disclose for the external parts
- Lack of resources such as Computer, Internet Access, Books and etc.
- Limitation of finance
- Lack of experience
- The organization might not be willing to adoptee all the risk controlling method
therefore does not get available data for all techniques

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 - Time limitation. As time give research is not sufficient enough to perform the study of
researcher

1.6 Organization of the paper

The paper is organized in a way that contains introductory part, chapter two the view of
important literature, chapter three is about research methodology, chapter four presents analysis
and interpretation. Finally the last chapter, chapter five deals with conclusion and provides some
recommendation based on results.

Chapter- two

2) Review of related literature

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This chapter tries to indicate relevant theories and papers done so far fact about regarding risk
management. It looks the nature of risk and the various classifications in to which it can put. The
first step the Business risk management is identifying the loss and second is to measure the
loss .After identify and measuring the loss (risks) facing by the firm. The next step is deciding
how to handle them.

2.1 The concept and definition of risk

Risk is a condition in which there is a possibility of adverse deviation from a desired out came is
expected or hoped. The possibility that an entity incur loss it is objectified uncertainty as to the
occurrence of undesired events. It is varies with the uncertainty and not with degree of
probability.

Risk is uncertainty concerning the occurrence of loss and it is the chance of loss it mean they
probability an event will occur.

Risk management is a process that identifies loss exposure faced by an organization and selects
the most appropriate technique for treating such exposure. (Mark S. Dorfmon ..2009)

Risk management refers to the identification, measurement and treatment accidental loss, almost
always in situation where the possible out come loss or no change in status. It is generally
management functions that seek to assess and address the cause and effect of uncertainty and risk
on the organization. (Teklegiorigs A. & et. al 2004)

Risk is the possibility of unfavorable deviation from expectation, it is possibility that some thing
we do want to happen will fail to do so. (William & et. al 1998).

2.2 basic categories of risk

Many classifications of risks are put forward authors. Among them the most important categories
are the followings.

- Pure and speculative risk

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- Fundamental and particular risk

- Static and dynamic risk

2.2.1 Pure and speculative risk

Pure risk: - refers to the situation in which only a loss or no loss would occur. Loss on pure risks
classifies in to three categories. There are property loss, personal loss, and liability loss. Property
risk; Associated with ownership of the property such as destruction of property by fire.

Personal risk is possibility of loss to a person such as death, disability, and loss of earning power.

Liability risk: - is unintentional injury of other person or damage to other property through
negligence careless risk. (Teklegiorgis, 2004).

Speculative risk: - is a situation or possibility of either a loss (unfavorable) or gain (favorable)

consequences. People are made more adverse to pure risks as compared to speculative risks. It is
generally uninsurable. (Bukingharn & et.al 2003)

2.2.2 Fundamental and particular risk

Fundamental risk refers to the entire society or larger segment of the population which are
usually, beyond the control of the individuals. It is that affect the entire economy or large No of
persons or group with in the economy.

For instance include rapid inflation, cyclical unemployment, war, famine, flood recently the risk
of terrorist.

Particular risk: - risks due to particular conditions which obtain in a particular case. They are
usually personal in cause or they affect each individual separately. It is responsibility of
individuals they are deal with purchasing insurance policies and other techniques.

Example- includes car, thefts, Bank robberies and dwelling fires.

2.2.3 Static and dynamic risk

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Dynamic risk resulting from changes in economy, changes in price level, consumers test, income
and out put, technology. Static risks: - involve those losses that may occur even if there were no
changes in the economy. Unlike, dynamic risk static risk is not source of gain to society.
(Teklegiours, 2004).

2.3 Risk related to business activities

Types of risk related to business organization;

i) Business risk associated with physical operation of firm

ii) Financial risk associated with debt financing
iii) Interest rate risk resulting from change in interest rate
iv) Market risk is related to the stock market.

2.4 objectives of risk management

Objectives

1) Pre-loss objective: - a firm or organization has several risk management objective prior to
the occurrence of loss. This involves an analysis of safety program expenses, insurance
premium and cost associated with the different technique for handling losses.
2) Post – loss objective: - this contains several of the firm, several means that after a loss
occurs, the firm can at least resume potential operation with in same reasonable time
period if it chooses to do so.

2.5 source of risk

Source of risk are the source of factors or hazards that may contribute to positive or negative
outcome. Source of risk can be classified in several ways. For instance

i) Physical environment: refers to like that of earthquakes, excessive rainfall or

drought can lead to loss. The ability to fully understand our environment and the
effect we have on it as well as those it has on us is a central aspects of this source of
risk.(George Rejad.2009)

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 ii) Social environment: - are changing traditions and values human behaviors, social
culture and institution.
iii) Political environment: - a new part can move the nation in to policy direction that
may have dramatic effects of particular organization.
iv) Legal environment: - the expected laws and directives may be issued by the
government which may render risk environment the business operative in the country.
Operational environment: - process and procedures of organization generate risk
and uncertainty. A formal procedure for promoting hiring or firing employees at risk
of physical harm. The international business

v) Liability: - the manufacturing process may put employees at risk of physical harm.
vi) Economic environment: - the dramatic expansion of the global market place has
created an environment that is grater than any single government.

2.6 steps in risk management process

1) Identify risk; - concerned with identification of relevant exposure to pure risk.

2) Evaluate risk: - in this stage the risk can be categorized as to how often associate risk are
likely to occur. In addition evaluation of loss frequency, an analysis of the size or severity of loss
is help full.

3) Select the risk management technique; 2 techniques

A, risk control – avoidance

- Loss prevention and reduction

- Combination or diversification
- Non insurance transfer

B, risk financing – retention

- Insurance

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 4) Implement and review decision: - risk management should implement an ongoing in
which prior decision are reviewed regularly sometimes new risks.

2.7. Identify potential loss

This is the first and perhaps the most difficult function that the risk manger or administer must
perform. They are types four of exposure namely.

Physical asset exposures; ownership of the property rise from the exposure property may be
damaged , destroyed, lost or diminished in value in a number of ways.

Financial asset exposure; ownership of securities such as common stock and mortgage create
this type of exposures.

Liability exposure obligation imposed by a legal system creates this type of exposures. The
liability exposure generally can be considered pure risk.

Human asset exposure:- part of the wealth organization a rise from its investment in human
resources of the organization possible injury or death of managers, employees and other
significant stock holder ( customers, secured creditor , stock holders and suppliers ) exemplifies
this type of exposures. Human asset exposures are also can lead to again as exemplified as
improvement in productivity. (Mark, 1937).

2.8 The range of the risk identification techniques

No one method of risk identification will be appropriate for all form of risks, or for similar form
of risk in different situation. There is a range of techniques available and these techniques can be
classified as follow.

1) Organizational charts: most of the organization will have chart of same kind or other even
if they are only in publicity materials, there will be same starting point for building a suitable
organizational chart. It is wise to involve as many as possible in the construction of the chart,
in order to ensure that it is not un realistic or over simplistic in its makeup. (E. red & Jans,
1998).

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2) Physical inspections: - is the most common and best understanding at all the techniques
available. The inspection of the plant, process or promise, takes a different approach and can
be time consuming job, and the nature of so many industrial sits is that they are complex.
3) Check list: - deals with particular problem of time consuming nature of the physical
inspection. The basic idea of the check list is that pro forma is sent to the site for
complication by someone there. This dispenses with the need for a physical inspection and
hence cuts the time and cost of identification.
4) Follow charts: - in many organizations there is some kind of flow. this could be take in the
form of
- Production flow where raw material came in at one end of process and
finished product emerges at one end. There was an identifiable flow
through the system.
- Service flow: - where there may not be row material but the business
depends on flow of anther form. It could be the flow at people, as in the
case of restraint or hotel.

Money flow; as in the case of bank or insurance company, money comes in at one end and
various promises are made, the effects of which are seen at some later date, ( Rejda, 2001).

The most common form of flow is probable the production of flow. We will use this kind of flow
and deals with the topic by looking at 4 main steps

- Step 1:- understanding the flow

- Step 2:- representing there

- Step 3 the risk flow chart

- Step 4 structured analysis of the chart

5) Fault trees

Fault trees techniques had its origin many years ago, during the early of the American space
program. there were so many possibility fault in the complicated business of launching space
craft that some mechanism had to be established where by these faults could be detected before
they occurred.(Teklegiorgis, 2004)
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6) The financial statement method

The financial statement method was proposed by A.H. Criddel (1962) although this approach
was intended for private organization the concept of the financial statement approach can be
generalized in a public sector organization as well. By analysis balance sheet, operating
statement and supporting documents criddel maintains, the risk manager can identify property,
liability and human asset exposures of the organization. By coupling these statements with the
financial forecasts statements and budget the risk manager can discover future financial
statements reveal this information because every organization ultimately involves either money
or property. (Buckingham & Rahilaphial .2003).

7) Interaction with other department

Frequent interaction with other departments provides anther sources or information on exposure
to risk. These interactions may include oral or written reports from other departments on own
initiative or in response to regulate reporting systems that risk manager informed of
development. The important of such a communications net work should be under estimated.
These department are constantly creating or becoming aware of exposures that identification is
heavily depend on the cooperation of the other departments.

8). Interaction with outside supplier and professional organization

In addition to communicating with other department the risk manager normally interacts with out
sides that provide service to the organization.

These outsiders are accountants, lawyers, risk management consultants actuaries or loss-control
specialists. The objective would be to determine weather the outsides have identified exposure
that other wise would missed.

7) Contract analysis

An examination of these contracts may reveal areas of exposure that are not responsibly to other
parties. In some cases contracts may shift responsibility to other parties.

8) Statically records of loss

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Where available, statically records of loss can be used to identify source of risk.

10) Incident report

A network at information source can be very use full in identifying possible loss ideally, the
information provides through this network should include not only reports of accidents and near
accidents, but also reports of accidents that cloud have resulted in injury or damage but
presumably did not.

2.9 risk measurement

The exposures must be measured in order

1) To determine their relative importance

2) To obtain information that will help the risk manager to decide.

2.9.1 Dimension to be measured

Information is needed concerning two dimension of each exposure

1) The loss frequency or the number of loss that will occur and
2) The severity of those losses. For two dimensions it would be desirable to know at least
the value from one get period to the next.

2.9.1.1 Loss frequency measures

Loss frequency refers to the probable number of loss that may occur during some given time
period. One measure of loss frequency is the probability that a single until will suffer one
type of loss from a single peril. Richard prouty the risk manager of the large business
suggested about 25 years ago that instead of using numerical estimate the risk manager might
be express these type of probability as (1) ‘’Almost nil’’ meaning in the opinion of the risk
manager that event will not happen. (2) ‘’Slight’’ meaning that through possible the event
has not happen to the present time and is unlikely occur in the future. (3) ‘’Moderate ‘’
meaning that it has happened once in a while and can be expected to occur sometime in the
future. (4) Definite meaning that it has happened regularly and can be expected to occur
regularly in the future .Through not as precise as the probability.

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 2.9.1.2 Loss severity measures

Loss severity refer to the probable size the loss that may occur measurement of the severity is
essential for ranking risk on basis of severity one systems used to measure the severity of risk
is the prouty measures of severity. It was suggested by Richerd prouty. The two measures
suggested by prouty per occurrence and maximum possible loss to one unit per occurrence.

Because different risk managers may select different percentage they may disagree on the value
of maximum probable loss is the most difficult to estimate but also the most useful. The normal
loss expectancy is the dollar loss expected from a fire when both private and public protection
system are operative. Maximum probable loss is the dollar loss expected from a single fire when
a critical part of the protection system, such as an automatic sprinkler is out of service or
ineffective.

2.10 Selecting appropriate technique or combination of technique for

treating the loss exposure

These tools are classified as risk control and risk finance tools. Risk control refers to
techniques that reduce the frequency and severity of loss. Risk finance refers to techniques
that provide for the funding of losses. The following risk handling tools; avoidance, loss
prevention and reduction, separation, combination /diversification, transfer, retention and
insurance.

2.10.1 Risk control tools

2.10.1.1 Avoidance

Avoidance of risk exists when the individual or the organization frees itself from the exposure
through abundant or refusal to accept the risk, an individual can avoid third person disability, by
not owning a care product liability can be avoided by dropping the product.

Major advantage

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The chance of loss is reduced to zero if the loss exposure not acquired. In addition, if an existing
loss exposure is abandoned, the possibility of loss either eliminated or reduced because the
activity or product that could produce a loss has been abandoned.

Disadvantage

1) It may not be possible to avoid all loss. For example a company can not avoid the
premature death a key executive.
2) Avoidance may not be practical or feasible to avoid the exposure. For example a paint
factory can avoid losses arising from the production of paint. However without the paint
production the firm will not be in business.

Consideration of affecting use

Avoidance is useful fairly common approach to handling of risk by avoiding risk exposure
the firm knows that it will not experience the potential losses or uncertainties that exposure
may generate. On the other hand it losses the benefits that may have derived from that
exposure 1st avoidance may be impossible the more broadly the risk define. The more likely
this is be so.2nd the potential benefit to be pained from employing certain persons owning a
piece of property or engaging in some activity may so far out weight the potential losses and
uncertainty involved that risk manager will give little consideration to avoidance the
exposure. Example most business would find it almost impossible to operate without owning
or renting a fleet of cares consequently they consider avoidance to be an impractical
approach. 3rd more narrowly the avoid risk is define the more likely it becomes that avoiding
that risk will create another. Example affirm may avoid the risk associated with air shipment
by substituting train and truck shipments in the process however create some new risk.

2.10.1.2 Loss prevention and reduction measurement

Those measures refer to the safety action by firm to prevent the occurrence of the loss or reduce
its severity if the loss has already occurred. Prevention measures, in some cases, eliminate the

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loss totally occurred although their major effect is to reduce the probability of loss substantially,
loss reduction measures try to minimize the severity of the loss once the peril happened.

2.10.1.3 Separation

Separation is the firm exposure to loss instead of concentrating them at one location where they
might be involved in the same loss. For example instead of placing its entire inventory in one
ware house affirm may elect to separate this exposure by placing equal parts of the inventory in
ten widely separated ware houses if five history one ware house the firm will have others from
which to draw needed supplies.

2.10.2.4 Combination or diversification

Combination: - is a basic principle of insurance that follow the low of large numbers.
Combination increases the number of exposure unit since it is pooling resources. It reduces risk
by making losses more predictable with a higher degree of accuracy.

Diversification: - most speculative risk in the business can be deal with diversification. Business
diversifies their product line so that a decline in profit of one product could be compensated by
profits from others.

2.11 Risk financing tools

2.11.1 Non insurance transfer

Transfer of the probable loss: - the risk but not the property or activity, may be transferred
leasing rather than buying, transfer could be accomplished in to tow ways. Those are: - transfer
of the activity or the property, the property or activates responsible for the risk may be
transferred to some other person or group of person. In risk management program non insurance
transfers include contract, leases and hold harmless agreements. In risk management program
noninsurance transfers have several advantages.

 The risk manager can transfer some potential losses that are not commercially
insurable.

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  The potential loss may be shifted to someone who is better position to exercise
loss control. However non insurance transfers have several dis advantages.
 The transfers of potential loss may fail. Because the contract language is
ambiguous. Is there may be no court precedents for the interpretation of contract
that is fail or made to fit the situation.
 If the party whom the potential loss is transferred is unable to pay the loss. The
firm is still responsible for the claim.
 An insurer may not give credit for the transfers and insurance cost may not
always be reduced.

2.11.1.2 Retention

This is easiest methods of handing risk. A person or a firm decided to retain risk for a number of
reasons. It is probability impossible to transfer the risk, as in the case of gambling.

Retention can be either active or passive

 Active retention means that the firm is aware of the loss exposure and plan to refrain part
or all of it such as collision losses to fleet of company cares
 Passive retention however is the failure to identify a loss exposure failure to act or
forgetting to act. For example risk manager may fail to identify all company asset that
could be damaged in earth quake.

It is important to be aware of the underlying risk if retention to be adopted (active retention).

Retention can be effectively used in risk management program when certain condition exists one,
no other methods of treatment are available. Insurers may be unwilling to write a certain type of
coverage, or the coverage may be too expensive. Also non insurance transfers may not be
available. Loss control can reduce the frequency of loss but not all loss can be eliminated. In this
loss retention a residual method if the exposure cannot be insure or transferred then it must be
retained.

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  Finally losses are highly predictable retention can be effectively used for workers
compensation claims physical damage losses to cars and shoplifting losses. Based
on past experience the risk manager can estimate probable range of frequency and
severity of actual losses. If most losses fall within that ranges they can be
budgeted out of the firms’ income.

2.11.1.3 Insurance

It also used in risk management program. Insurance is appropriate for loss exposures that
have low probability of loss for which this severity of loss is high. Is the risk manager
decides to use the insurance to treat certain loss exposure 5 key areas must be emphasized.

1) Selection of insurance coverage’s

2) Selection of an insurer
3) Negotiation of term
4) Dissemination of information concerning insurance coverage
5) Periodic review of insurance program.
 The major advantages of insurance include indemnification after a loss occur
reduction in uncertainty availability of valuable risk management services and
the income tax deductibility of the premium.
 The major disadvantages of insurance are includes the loss of insurance time and
effort that must be spent in negotiating for insurance and possible tax attitude
toward loss control. Because of the existence of insurance. (Teklegiorges

Aseffa ;2004)

2.11.2 Implementing the risk management program

A risk management policy statement is necessary in order to have an effective risk management
program. This statement outlines the risk management necessary in order to have get objective of
the firm as well as company, policy with respect to treatment of loss exposure.

2.11.2.1 Cooperation with other department

The risk manger department can cooperate in the risk management process in the following way.

24
- Auditing internal auditing controls can reduce employee fraud and theft of cash.

- Finance: - information can be provided showing how loss can disrupt profit and cash flow and
the impact that loss will have on the firm balance sheet and profit and loss statement.

- Marketing: - accurate packing can prevent liability lawsuits. Safe distribution proceeded can
prevent accidents.

- Personal: - responsible for employees benefit programs, pention programs

and safety programs.

2.11.2.2 Periodic review and evolution

To be effective the risk management must be periodical reviewed and evaluate to determine.
New development that affects the original decision on handing loss exposure must also be
examined. ( William , 1998).

25
 Chapter Three

The research methodology

The study is conducted on risk management practices in Ethiopia Telecommunication

Corporation of Dilla branch. For the achievement of the study researcher would utilized different
sources mainly utilized data from primary and secondary sources.

3.1 Data collection methods

In this study, the researcher used both primary and secondary data. The relevant primary data
was gathered through questionnaire and interviews. The questionnaire consists of important open
ended and close ended questions. The relevant secondary data were obtained from different
reference books and electronic media like internet

3.2 Sampling size and sampling technique

Sampling size of the study would be selected from the total population of employee at Dilla
branch. There are 55 employees and managers in ethio telecom. Due to this the relevant
sampling technique of this study is simple random sampling. From this sampling technique
lottery method was used to select 18 respondents from the total of employees and managers. This
sampling method is chosen to minimize biases in the selection of respondent for questionnaires.

3.3 Methods of data analyses

After the data is collected using the above tools, data would be analyzed using tables and
percentages that are relevant to explain the facts. The researcher uses both quantitative and
qualitative data analysis methods. As a result, conclusion would be drawn with regard to how the
company manages the risk what are the effects of the risk towards the corporation’s effort.

26
 Chapter four

4. Data analysis and presentation

In this section the information is gathered from employee and managers through questionnaires
and interviews are interrelated. The questionnaires when distributed to the organization based on
sample of the following analysis have made.

4.1 overview of the sample population

Table1

Respondents Sample population Responses %

Employees and 18 16 88.8%
managers
Total 55 16 88.8%

In the above table there is certain observation about respondents taken as a vital source of
information in this study. These survey questionnaires were distributed to 18 employees out of
those 18 questionnaires 16 have been returned. Generally, about the sources help to obtain
information to discuss and argue about different facts of the study

Table2 Profile of respondents

No Profile Respondent
No %
1 Gender
Male 12 75

Female 4 25
Total 16 100
Source; Survey result (2016)

27
As Shown in the above (table 2) (75%) of the employee the organization are male and (25%) the
employee of the organization are female. The researcher concludes there is unbalance work
position between males and females.

Age of respondents

Table 4.2

No Age of respondents Respondents %

Age-18-25 4 25
26-35 8 50
36-45 3 18.75
46-65 1 6.25
>65 - -
Total 16 100
Source; Survey result (2016)

Also in the above table shown they (50%) employees of the organization are found within the
age of 26-35 and (25%) of the employees are found between the age of 18-25 and (18.75%) of
the employee are found between the age of 36-45 and the smallest worker of the organization
found between the age of 46-65 which account (6.25%) from the total worker of the
organization.

Table 4.3 Educational background of employee

No Educational back ground of employee Respondents %

Certificate holder 2 12.5
Diploma 4 25
First degree graduate 8 50
Post graduate 2 12.5
Total 16 100
Source; Survey result (2016)

28
As shown in the above table regarding their educational level majority of respondents (50%)
First degree holders and (25%) of the respondents are diploma and the remaining of (12.5%) of
the respondents are certificate holder and post graduate. As the researcher understands from the
table majority of the employees of the organization are degree holders which has an effect on
performance of the organization.

4.3 advantages of risk management

Table 3 advantages of risk management in Ethio telecom

No The main advantages of risk Respondents Employees

management in ethio telecom No %
1 To keep life of employee of the 8 50
corporation
To minimize wasting of property 3 18.75
To keep wealth of the corporation 3 18.75
To reduce business risk 2 12.5
Others
Total 16 100
Source; Survey result (2016)

As shown in the above table 3 (50%) of respondents as certain that the advantages of risk
management in ethio telecom is to keep life of employee. (18.5%) assure that it advantages to
keep wealth of the corporation. On the other hand (18.75%) of the respondents replied as it has
merit of minimizing wastage of property. The remaining (12.5%) said that it will give the
opportunity for reducing business risk. So most of respondents said that the main advantage of
risk management is to keep the life of employee. As the researcher understand from the
respondents due to the implementation of risk management. The employee will be successful and
they will serve their corporation to their best which helps the EthioTelecom to upgrade (increase
its revenue. In general the ethio telecom can serve its customers successfully if it implements risk
management techniques. Its main concern relates with the business risk; the risk associated with

29
physical operation of the firm. Or the risk faces to constantly upgrade their risk management
mechanism of the corporation, the risk due to fast changing technology that is business risk. Due
to the economic development the corporation will have the chance for expansion of tele com
services and all the Ethiopian people will keep in touch by information which helps them to
exchange culture, trade, and other important information. Not only this but also the corporation
will increase its capacity due to the increase in number of customers.

4.4 analysis of risk exposure in Ethiopia telecom

Table 4

No Description Expected responses No %

1 What are the major -lack of expertise 5 31.25
problem facing the -Lack of management respect 5 31.25
corporation? -domination of dishonest management 6 37.75
-lack of opportunity for professional 0 0
development
-Others
Total 16 100%
2 If your answer for -train of employees 7 43.75
question number one is -reduce environmental problem hinder 4 25
choice ‘A’ what type of experience
controlling mechanism
does your corporation -Minimize infrastructural problem of the 5 31.25
practiced? corporation.
-Others

Total 16 100
Source; Survey result (2016)

As indicated on the table above (37.5%) of the respondents replied that the risk exposure of the
corporation is related with domination of dishonest management. (31.25%) of them are assure

30
that the risk exposure is related with lack of expertise. And also the remaining (31.25%) of them
are replied lack of management respect. Therefore most of the respondents replied that risk
exposure of the corporation is related with domination of dishonest management and lack of
expertise. Regarding the controlling mechanism of risk exposure with lack of expertise the
majority (43.75%) of the respondents assume that to control the risk exposure the corporation is
training of employees. (31.25%) of the respondent’s ascertain that the corporation give or fulfill
infrastructural problem to control the risk exposure and (25%) of them replied as the company
reduce environmental problem hinder experience to control the risk exposure that has relation
with lack of expertise. Lack of expertise, lack of management respect, domination of dishonest
management, lack of opportunity for professional development. This result implies that ethio tele
com have a major bottleneck to perform their professional workings in a proper manner. Or in
other way not all employees follow all the work ethics approved in ethio tele com, preference for
personal benefit rather than the benefit of the corporation at all, and this leads to domination of
dishonest management that hinders risk management, which in turn, hinders smooth functioning
of ethio telecom.

4.5 Risk management policy

Table 5

Respondents
No Description Expected hopes No %
1 Does your corporation have yes 16 100
a risk management policy? no 0 0
Total 16 100
2 If your answer for question risk control 12 75
no <<1>> is yes what risk financing 4 25
method of risk management
policy does your
corporation use?
Total 16 100
3 If your answer for question -avoidance 6 37.5

31
 no “2” is risk control what -loss prevention 4 25
risk control mechanism and reduction
does your corporate use? -combination and 3 18.75
diversification
-non insurance 3 18.75
transfer
Total 16 100
4 If your answer for question
-Retention
no ‘’2’’is choice B what 0
16
method does your -Insurance
corporation use?

Total 16 100

5 Does your corporation have yes 16 100

training policy? no 0 0
Total 16 100
6 If your answer for question -on training 8 50
no “4” yes what types of -off training 6 37.5
training they are? -both 2 12.5
-others

Total 16 100
Source; Survey result (2016)

As shown on the above table all the respondents assure that the company has risk management
policy. Regarding the type of risk management 75% of respondents replied that the company
uses risk control mechanism. Based on risk control mechanism (37.5%) of the respondents
responded that the use avoidance. It is most used responses (.25%) of the respondents responded
loss prevention and reduction (18.75%) of respondents responded combination and
diversification and (18.75%) respondents also responded non insurance transfer. And (100%) of
respondents responded insurance selected to method of risk management. (100%) of respondents
responded the corporation have training polices .And of the training polices the majority (50%)
of training provided in the corporation is on training in which the corporation provide training

32
for employees in at their work place. (37.5%) of the respondents responded that the corporation
have off training polices. And the remaining (12.5%) respondents assure that the corporation
uses both on and off training polices.

4.6 Measurement to be taken when customer does not pay at a time

Table 6

Description Expected response respondent

s %
No

In case of customer did not By cutting service from customers 16

pay for their fixed -Bringing the action to law
telephone line with in the -Others
given time what measure is
taken by the organization?
Total 16 100
Source; Survey result (2016)

As shown on the above table (100%) all of the respondents answered that the company cut the
service from the customer in case of they did not pay with in the given time period .As the
researcher understand from the respondent answer the measure by the corporation is not good.
Because before providing service of corporation for the customer. The corporation should expect
to evaluate the financial strength of the customers and their payment capability. On the other
hand the researcher compares the measure taken by the corporation with profitability. It will
automatically affected profitability of the corporation and leads the corporation to risk of losing
large number of customers.

4.7 Method of corporation in reduce risk of losing its customer

Table 7

33
 Description Expected response respondents
No %
What method does the -By improving quality service 13 81.25
corporation use to reduce provide
risk of losing it customer? -By granting credit 3
18.75
-Other

Total 16 100
Source; Survey result (2016)

As shown in the above table 7 from the total employees of the corporation (81.25%) answered
that the corporation reduce their risk of losses of it customer by improving the quality of the
service provided and (18.75%) of the employees are answered that the corporation reduce risk of
losing customer by granting credit service provide for the customers from the overall
respondents answered. The researcher understands that the corporation policy to reduce risk of
losing customer by pouting on the service provided to the customer. Since it is obvious that only
focusing on the service provided will not read will not lead to ultimate reducing the risk of loss it
is customer. There may be other alternatives that can reduce risk of a losing a no of customer

4.8 General risk management system

Table 8

Responses

No Description Expected responses No %

1 Do you believe that the -perfectly applied 7 43.75

practical and theoretical -not at all 5 31.25
procedures of risk -need some adjustment 4 25
management system are -I am not quite aware of it 0 0
well applied in ethio

34
 telecom?

Total 16 100

2 If your answer in question

no one is not at all what do
you think the reason?

Total

Source; Survey result (2016)

According to the above table shows from the total respondents (43.75%) believed that
the practical and theoretical procedure of risk management is perfectly applied. (31.25%)
have no any idea about the matter and the remaining 25% suggested it needs some
adjustments. There are some reasons for the respondents suggested that not at all these
are because the company policy and procedures may depend according to the structural
flow and it has its own procedure but similar to the practical and theoretical one instead
of perfectly equal.

4.9 Interview analysis

4.9.1 What is the risk controlling mechanism in your organization?

Analysis the risk controlling mechanism

As the corporation manager state that the risk manager identifies the risk exposure and he tries to
use some risk controlling mechanism by purchasing insurance by giving some training for
employees and by implementing rules and regulations to minimize risk which follows the
employees at the time of operation.

Purchase of insurance

Purchase insurance is most important risk handling mechanism in Ethiopia Telecommunication

Corporation. Insurance designed to compensate a policy holder for a loss suffered by the

35
payment of money repaired, replacement or reinstatement in every case the policy holder is
entirely to be restored to the same financial position as existed immediately before the relevant
events. There must be neither element of loss. Most ( but not all) insurance policy are indemnity
contracts personal accident and life insurance policy are not contract of indemnity as it is
possible to calculate the value off the loss life.

4.9.2 Training

Human activities of any sort in order to achieve of desired goals always tend to be done skill fully. In
order to success fully carryout certain task. A person must sure that he knows what he is expected to do.
Also must be able to get a basic skill of known to manage certain risk before he designed to actual field of
work. There is different or gap between actual performance of risk management and what is needed to
managed suffers. Training can reduce if not eliminate this gap. It destroys changing the behavior of
individuals by giving them whatever additional specific items of knowledge. Skill or attitude they need to
perform up to that standard. Minimizing the risk by giving training for employees to create a wariness and
safety. Training through its management development program should support the corporation’s initiative
for change growth and development. Training must should focus toward solving the risk of the
corporation mainly technical fields. Training can solve a variety of risk which can be faced in the
corporation against productivity.

4.9.3 Analysis the rule and regulation to minimize risk

As the corporation manager state that to minimize risk in the corporation there is rule and
regulation.

- Designed and management regulation set out detailed requirement with regarded to designed
and management of certain areas provide for safe and healthy environment on work sites.

- First and regulation employers have to make adequate and appropriate provision for first aid.

- Work time directive and working time regulations the maximum working time for workers
(including night) and free health assessment to assess and suitability to particular work. It also
governs rest period and beaks.

36
-Electricity at work regulation those places a duty on an employer to asses risk involved in work
activity involving electricity and all equipment must be properly maintained.

-Fire precaution (work place) regulation all work place should be inspected by the fire authority
to check means of escape firefighting equipment and workings.

-Noise at work regulation imposes a duty on employees reduce risk of damage to hearing of
employees from exposure to noise.

-The reporting of insures disease and dangerous occurrence regulation. Employers must notify
the health and safety executive or local authority about work accidents resulting in death,

personal injuries or sickness.

4.9.4 Analysis the employee responsibilities

As the corporation manager state that the employee must follow safety rules, safety standards
and training they receive report unsafely condition or attrition to their supervisor or safety
committee. If the risk faces report all insures to their supervisor properly regardless of how

Serious. Always use personal protective equipment in good working condition. Where it is
required and don’t remove or defeat any device or safe guard by your wards and make
suggestion to their supervisor. Safety committee representative or management about changes
you believe will improve employee safety.

37
 Chapter – five

5) Conclusion and recommendation

5.1) conclusion
In order to a chive the goal of institution in the risk management skilled technique is play
a great role. It can successfully carry out the corporation of the risk controlling
mechanisms. To success the risk management technique the ETC implemented to
policies. The 1st one is purchasing insurance policy included motor vehicles insurance
policy properties insurance policy and 2nd one training policy.
The institute provides risk controlling techniques such as purchasing insurance give
training to their employees and implementing some risk minimizing rule regulations
purchasing insurance is the most important risk controlling techniques in ETC.
The researcher aims to assess the risk management practices and the effective controlling
techniques. Both primary and secondary data are used in the study. Those are used to
assess the risk management practices Dilla branch of ETC. In addition based on the
assessment of the branch of ETC risk management are found to have a relatively good
practices. But there is also have the following weakness are noticed.
 The ETC do not over all policy regarding risk management.
 All accident will not have an insurance coverage.
 In technical training insurance where adequate practical training is absolutely essential. It
is observed that the trainees are exposed to more theoretical studies then their practical
activities.
 On the other hand in a more sensitive exposure areas of the organization like
manufacturing divisions, trance port service and maintenance divisions training center
war house and main office buildings in all areas they don’t have safety and loss
prevention materials and mechanisms.

38
  In general the institutes have an intention of effective risk management mechanism and
get more profit for the future. Risk management course are given is also vision of
strength the regional risk management center in the future.

5.2 RECOMMENDATION

The experience from many telecommunication corporations in the world wide such as
American and Europe has implemented all risk controlling mechanism on providing
sustainability techniques in appreciable way. Hence it is obvious that the ETC should
strive to this end managing risk should be one of their central agendas in their effort to
achieve financial suitability.

Hence based on the finding of this study the following recommendations are forward

 The corporation must implement other important controlling tools.

 For frequency reduction ETC will have to be used fire alarm in main storm area.
Fire extinguisher and water hydrant in every office building area work shops
stores of ETC and so on.
 Maintaining and service vehicles equipment periodical as required.
 Ensure compound flood fight around all of the buildings with stand by the
generators, guard’s towers in every corner controlling public gate.
 Current stating of security division construction require electrical wire fences and
electronics. Security control audiovisual rooms in sensitive equipment areas and
also in future constructing reinforced concrete walls and roof for equipment
buildings will be advisable for loss prevention.
 Not only focusing on the quality service provide is lead to ultimate reducing the
risk of losing large number of it customer but also may have another alternative
that can reduce risk of losing large no of customers.

39
  Cutting the service from their customer is not only measuring tools in the cause
of cannot pay within given time other than the corporation should expected to
evaluate the financial strength of customer and their payment capability.
 Giving training for employees to create awareness and safety is minimizing risk.
 The risk management could be included broadly in managerial skill development
training.

Reference
 Alexander B., Chichester, (1998), risk management and analysis, New York.
 Arthur Williams, (1998), risk and management, Boston, USA.
 Buckingham and Rhiladaphia, (2003), risk/Roy Boyne, Open University.
 Dickson, (1991), risk and insurance, McGraw-hill.
 E.Red and Ja.George, (1995), principles of risk management and insurance,5 th edition,
Harper college.
 James L., (1997), risk and return in finance, Balliger Company.
 James S.,and Sandard G., risk and insurance, 10th edition, southwestern college.
 Mark R., (1937), risk and insurance, 4th edition, southwestern.
 REJDA. (2001), principles of risk management and insurance, 7th edition.
 Teklegiorgis Assefa, (2004), risk management and insurance,2nd edition, mega printing.
 Theordocj.Moke, (1988), risk management in accounting and research report, British
Colombia research foundation.

40
 DILLA UNIVERSITY
COLLEGE OF BUSINESS AND EC0NOMICS
DEPARTMENT OF ACCOUNTING AND
FINANCE

QUESTIONNARIES FOR EMPLOYEES

Dear respondents
The purpose of this Questionnaires and interview to analysis of risk management practice in the Ethiopia
Telecommunication of Dilla Branch. It is prepared in partial fulfillment of BA degree in Accounting and
Finance. Hence to accomplish this paper your accurate information has significant role for your
cooperation . Promice that all dat will kept confidential and will use for accademic purpose only.
I would like to thank your in advance

General Instruction
 Please puts (√) or (X ) mark in one of the alternatives
 No need to write your name.
 For those question which is involved your answer write your idea or suggestion

Part (1) personal data

41
 1) Sex A) Male B) Female
2) Age A ) 18-25 B) 26-35 C) 36-45 D) 46-65 E) >65 v
v v v
3) Educational back ground
A) Certificate holder B) Diploma C) Degree graduate D) Post graduate
v v v v
Part (2) Question on advantage of risk management in Ethio. Telecom

1 ) what is the main advantage of risk management in Ethio Telecom?

A) To keep the life of employee of corporation v
B) To minimizing the wastage of the property
v
C) To reduce business risk (bankruptcy)
v
D) To keep wealth of the corporation
v
E) Others -----------------------------------------------------------------------------------
Part (3) How to analyze risk exposure
1) What are the major problem facing the corporate?
A) Lack of experience
v
B) Lack of opportunity for professional development
v
C) Domination of dishonest management
v
D) Lack of management respect
v
E) Others ----------------------------------------------------------------------------
2) If your answer for question No one is choice A what types of controlling mechanism
does your corporation practiced?
A) Train of employee
v
B) Reduce environmental problem hinder experience v
C) Minimize infrastructure problem of the corporation
v
D) Others -----------------------------------------------------------------------------------------
Part (4) how to assess risk management policy
1) A) yes B) no
v v
2) If your answer for question No 1 is yes what method of risk management policy
does the corporation life?
A) Risk control B) Risk finance
v v
3) If your answer for question No 2 is choice A what is risk control mechanism?
A) Avoidance B) Loss prevention and reduction C) Combination
v v
and diversification D) Non insurance transfers E ) Others
v v
----------------------------------------------------------------
4) If your answer for question No 2 choice B what method does your corporation
uses?
A) Retention B) Insurance
v v
5) Does your corporation have training policy?
A) Yes v B) No v
6) If your answer for question No 5 yes what types of training they are?

42
 A) On training B) Off training C) Both D)
v v v
Others----------------------------------------------------------------------------------------------
Part (5) what measure to be taken when customer doesn’t pay at a time
1) In case of customer didn’t pay for their fixed telephone line with in the given period of time,
what measure is taken by the organization?
A) By cutting the service from customers v
B) B) Bringing the action to law
v
C) Others-----------------------------------------------------------------------------------------------------------------
Part (6) Method of corporation in reduce risk of losing it customers
1) What method does the organization use to reduce risk of losses it customers?
A) By improving quality service provide
v
B) By granting credit
v
C) Others-------------------------------------------------------------------------------------------------------
Part (7) Question related to issue of the study
1) Do you believe that practical and theoretical procedure of risk management
system are well applied in ethio telecom?
A) Perfectly applied v B) Not at all v C) Need some v
adjustment D) I am not quite aware of it
v v
2) If your answer in question number one is not at all
What do you think the
reason?-------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------

Jara.nasir.7

THANK YOU FOR SACRIFING YOUR PRECIOUS

TIME IN KINDNESS

43
Interview question
Interview for managers
1) What are the preventive technique and control procedure of risk
management practices?

2) What are the risk controlling mechanisms in your organization?

3) What are the rule and regulations to minimize risk?

4) What are the responsibilities of employees?

44