Risk Assessment Index System of A Logistics Project
4.2 Risk Assessment Index System
4.2.1 Risk in the Large-Scale Logistics Project
4.2.1.1 Logistics Enterprise Risk
Logistics enterprise risk mainly includes management risk, technical risk and operational risk (Daugherty et al., 2006; Devaraj et al., 2007; Song, 2003). The detail is also summarised inTable 4-1.
(1) Management Risk
Management risk refers to the level of management that has an effect because of information asymmetry, poor management and misconception in the management process. Song (2003) argued that management risk is an extremely large risk that logistics projects can face when in operation. This risk is intangible and not as obvious as market performance risk. However, the entire project may fail if management risk occurs.
Management risk can be divided into five sections: quality of the manager, organisational structure, corporate culture, shareholder protection and management process (Chen et al., 2013; Michael et al., 2018; Provan et al., 2007; Xu et al., 2018). 1) The survival and development of logistics enterprises depend to a large extent on the decision-making of managers, especially the strategic decisions of top managers and whether senior managers can review the situation, seize opportunities, grasp changes and have the courage to conduct risk decisions. Strengthening the manager’s own moral cultivation and enhancing corporate cohesion and motivation are necessary. 2) Whether the logistics enterprise’s organisational structure is reasonable plays a vital role in the enterprise’s development and survival. Logistics projects can include many aspects in a society, and thus, the appropriate organisational structure in an enterprise can smoothen the project activities, reduce conflicts and frictions, avoid unnecessary endless coordination and improve project efficiency. Management risk can occur if a logistics enterprise has a bad organisation structure. 3) Corporate culture can bring employees together and form a strong centripetal force; therefore, employees are united, consistent and strive to achieve their goals. If employees cannot cooperate with each other, especially for the logistics enterprise, then difficulty arises for a logistics project to proceed smoothly. 4) Shareholders of a logistics enterprise can influence the project
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activities of the enterprise, and thus, protection of shareholder rights is meaningful. If shareholder rights cannot be guaranteed, then shareholders’ actions may negatively affect a logistics project, thereby resulting in management risk.5) Management process refers to the purpose of controlling risk, reducing cost and improving service quality, working efficiency and response to the market and ultimately improving customer satisfaction and market competitiveness to achieve maximum profits and improve operating efficiency. A well-managed process can provide a positive environment for the project, whereas a negative management process can make logistics projects fail, thereby resulting in management risk.
(2) Technical Risk
Technical risk refers to the risk brought through advanced, applicable and economical technologies in the logistics project investment. A large-scale logistics projects requires the introduction of numerous new technologies (Chen et al., 2013; Min et al., 2005; Xu et al., 2018). The technical status and applicability of the infrastructure and equipment invested in logistics projects is the basis for the smooth operation of logistics services.
The key to the transformation from traditional to modern logistics, especially as to Chinese economic development, lies in the development and application of modern technology in logistics activities. Advanced logistics technology can be applied widely to all aspects of logistical operations to improve the operational efficiency and efficiency level of the enterprise or the entire logistics industry and realise the optimal allocation of logistics resources to achieve overall benefits. In terms of logistics projects, the present thesis considers technical risk from the following aspects:1) Technical deficiencies risk.
Within the environment of economic development, numerous logistics enterprises cannot receive sufficient financial support to update their technical operations immediately, which can result in technical deficiencies risk. With the development of machine learning, any technical operation older than three years is superseded. However, the profit process for logistics projects is so long that no guarantee that a logistics enterprise can update technical operations every three years exists; 2) Technical protection risk.
China’s government has focused on protecting technologies, especially for Chinese logistics enterprises, however the risk remains that technologies may be acquired by
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other enterprises; 3) Technical development risk. Numerous large-scale logistics enterprises spend money developing their own technical systems. However, investing money for the accrual of benefits is not guaranteed. During the process of logistics projects, if one technology cannot be achieved in time, then the technology may affect the entire logistics project; and4)Technical use risk. Numerous logistics enterprises use another enterprise’s technology given the low development of their own technology.
During this process, if a logistics enterprise cannot deal well with other enterprises with regard to the copyright or technology, then the problem may cause risk for the entire logistics project.
(3) Operation Risk
The provision of smooth and efficient logistics services to customers is an important goal of logistics operations. Given that logistics services are comprehensive services that involve multiple aspects, they face various risks in the operation of logistics services. The main risks can be summarised as follows:1)Risk due to shippers. During the process of shipping, if shippers do not have a basic sense of responsibility, they may not pay sufficient attention to the goods they are shipping, which results in damaged goods that further bring operation risk for logistics enterprises; 2) Equipment risk. A variety of logistics equipment provides support for the entire logistical system. Logistics equipment is the main part of the material basis of the logistics system. The rationality of the layout, level, selection and configuration has a direct effect on the realisation of logistical functions and on the efficiency of the logistics system. During the operation process of logistics projects, if the equipment has certain problems, then such problems would affect the entire logistics project; and 3) Customer risk. During the process of operation of a logistics project, if customers suddenly change their sentiments or are not willing to continue the contract, the failure of logistics projects occurs. Given that logistics services are the main method for a logistics enterprise to receive money, if customers cancel their contracts and the upfront investment in the professional logistics service for this customer cannot be recovered in time, then extremely large economic losses to logistics enterprises will occur.
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Table 4- 1 Details of the Logistics Enterprises Risk
Types Risk
Elements
Element Meaning Management
Risk
Manager quality
Whether senior managers can review the situation, grasp the changes in the environment, seize the opportunities and have the courage to conduct risk decisions.
Organisationa l structure
The logistics project can include most things in the society, thus an enterprise’s organisational structure can make the project activities smooth, reduce conflicts and friction, avoid unnecessary coordination and improve the efficiency of the project.
Corporate culture
Corporate culture can bring employees together and form a strong centripetal force to ensure that employees are united and consistent and strive to achieve their goals.
Shareholder protection
The shareholders of the logistics enterprise can influence the project activities, thus protecting their rights is meaningful.
Management process
Management process refers to the purpose of controlling risk, reducing cost, improving service quality, working efficiency and response to the market and ultimately upgrading
customer satisfaction and market competitiveness to achieve maximum profit and improve operating efficiency.
Technical Risk
Technical deficiencies
Within the environment of economic development, numerous logistics enterprises cannot receive sufficient financial support to update their technical operations immediately, thereby resulting in technical deficiencies risk.
Technical protection
Although China’s government has made efforts to protect techniques, the risk that techniques may be acquired by other enterprises remains.
Technical development
During the process of logistics projects, if one technique cannot be achieved in time, then such a delay may affect the entire logistics project.
Technical use If logistics enterprises cannot deal with other enterprises regarding copyright or technique, this inability may cause risk
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Operational Risk
Risk due to shippers
During the process of shipping, if shippers do not have a basic sense of responsibility, then they may not pay sufficient attention to the goods they are shipping, which can result in damaged goods.
Risk due to equipment
During the operation process of logistics projects, if the equipment has certain problems, then these problems affect the entire logistics project.
Risk due to customers
During the process of operation, if customers suddenly change their minds or are not willing to continue the contract, then the failure of logistics projects will occur.