Volkswagen Risk Management Case Study

1358 Words 6 Pages
In this paper I will discuss the pivotal role Risk Management plays in modern organisations. The organisation that I will discuss is Volkswagen. I will use their emission scandal to convey the importance of Risk management. Risk management can have numerous definitions, it can be perceived and interpreted by firms and industries in different ways. When dealing with the term management it is clear the concept of control is important. When dealing with the term risk we think about uncertainty, the unknown and probability, how likely it is that such an event will occur.

Risk management can be about other elements rather than just associated with firms and industries. Every day people are managing risks and trying to deal with risk, which portrays
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Volkswagen did not take into account the reputational damage that would occur, the fact that they would lose numerous amounts of customers due to their dishonesty as a result of them cheating on emission tests. They also did not take into account the financial risks, such as loss of earnings due to customer loyalty loss and the financial compensation that had to be paid out to their customers who purchased these cars. It conveys how important the role of risk management plays in organisations today. If Volkswagen went through its production process correctly it would have been more confident in predicting how this computer software would have positively or negatively affected the organisation. As in Nancy Leveson article she says “For example, increasing the reliability (reducing the failure rate) of a tank by increasing the burst pressure –to-working pressure ratio may result in worse loses if the tank does rupture at the higher pressure.” (Leveson, N, 2007). Just as Volkswagen were trying to reduce the failure rate of their cars emissions by cheating, it resulted in worse loses to the company. They knew that their cars emissions had high levels of nitrogen oxide and instead of correcting the issue they tried to avoid it which led to production failure, reputational failure and financial failure. The company …show more content…
This led Volkswagen to take the risk of cheating. Volkswagen must understand the consequences of the risks that they take. It is pointless to try to eliminate risk and it is generally only possible to reduce it. It is essential that businesses take the right risks and choose rationally among risk taking course of action instead of plunging into uncertainty just because they feel it is the right thing or easiest thing to do. (Chapman 2011). It is quite clear that Volkswagen did not take the right risk by being risk averse, avoiding the risk of having too high

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