SCOALA NATIONALA DE STUDII POLITICE SI ADMINISTRATIVE

BUCURETI
FACULTATEA DE COMUNICARE SI RELATII PUBLICE
SPECIALIZAREA PROJECT MANAGEMENT

EVALUAREA I GESTIONAREA RISCURILOR NTR-O COMPANIE

Coordonator tiinific:
Sergiu Stan
Masterand:
Georgiana Nicoleta Ungureanu

Bucureti
Iulie 2015

Content

Introduction........... p. 3
CHAPTER 1. INTRODUCTION TO THE THEORY OF RISKS ......................p. 5
1.1. Analysis of the risk definitions........................................................................... p. 5
1.2. Risk classification criteria............................................................. p. 7
1.2.a By the character of consequences.........................................................................p. 7
1.2.b By the character of evidence.................................................................................. p. 9
1.2.c. Depending on the length of time: ................................................................................. p. 9
1.2.d. By their nature..................................................................................................... p. 9
1.3. The factors that influence these risks...................................................................p. 10
1.3.1.Internal factors........................................................................................................ p. 10
1.3.2.External factors ...................................................................................................... p. 11
CHAPTER 2. RISK MANAGEMENT......................................................................... p. 14
2.1. Defining risk management...................................................................................... p.14
2.2. Risk assessment. ........ p. 16
2.3. Control and risk management ............................................................................ p. 18
2.4. Process management and optimization methods of decisions in conditions of risk.. p. 21
2.5. The probability and extent of risks................................................ p. 24
CHAPTER 3. CASE STUDY: MANAGING RISK IN THE SNLO
TG JIU COMPANYp. 27
3.1. The evolution of lignite mining activity in Oltenia, brief history... p. 27
3.2. Description of the S.N.L. Tg-Jiu of Oltenia company .............. p.28
3.2.a. Presentation of products and services ... p. 29
3.2.b. Evaluation of the internal potential of S.N.L. Tg-Jiu Oltenia..... p. 31
3.3. Identifying and assessing specific risks in SNL Oltenia Tg-Jiu ...p. 32
Conclusions...................................................................................................................... p. 36
Bibliography p. 37

1. Introduction
Each company defines the way it grows and develops, so this is why its skills to always
be competitive and survive depend, mostly on the ability of the entrepreneur to manage the risks
that may affect the business, to apply different methods of reduction of possible unintended
consequences.
So, in almost all organizations, regardless of the industry, there are concerns about
malfunctions that may occur inside them and that are able to endanger their normal functioning
and reputation. Therefore the study of causes, manner of occurrence and manifestation of these
disturbances and their consequences, grew considerably. Risks are considered to be such
malfunctions. Some risks can be anticipated and prevented, others, in contrast, can not even be
suspected, and they usually install rapidly. Risks have major implications in the life and work of
the organization, sometimes with undesirable consequences. To overcome this deficiency, most
scientific fields have developed their own conception about risks.
The risk itself is not a threat, as treated by the vast majority of entrepreneurs, but rather a
provider of various possibilities for developing and capitalizing the new opportunities offered by
business. It is important to know how these opportunities can be identified and used so as to
achieve positive results.
The risk becomes a serious obstacle in the development and expansion of any activity,
because it burdens the decision process. Any effective work can take place only if the people
who realize it are protected from de negative consequences of risks.
Currently, one of the main conditions for ensuring the security and prosperity of a business,
is the development and implementation of a coherent programme and effective risk management,
instrument that is not currently present in all companies and it is not perceived as an integral part
of a business strategy. The lack of such programme introduces distortions in the risk assessment
and in the selection of the most effective ways to manage it.1
Any risk registration must be accompanied by a proper registration. In fact, long before the
commencement of the risk identification process, a registration system must be developed and
implemented. After identifying the risks, all relevant data must be inserted in order to be used as
a benchmark, in the analysis process of the next period. Current trends manifested in the
economic field both at European and international level clearly show, on one hand, the need of
each organization (economic agent) to establish specific targets on health and safety at work, and
on the other hand, the need to place these goals on the same level of importance as the objectives
of productivity, product quality and environmental protection.
It is also already known that there is a direct relationship between these segments of the
general management of the company, successes / weaknesses within the segment are having
positive effects or adverse, also on the other segments.
1Cocri V., Ian V., Economia afacerilor. - Editura Graphi Iai, 1995
3

The main purpose of this work is to train and develop skills of identification, analysis
and risk management in order to ensure sustainable operations for business and career.

Figure 1.1. The idea of risk

The risk is like a balance - it may be inclined to positive results ,incomes or to failures, losses
Source: . ., . . . - : - , 2005.
- .15

CHAPTER 1. INTRODUCTION TO THE THEORY OF RISKS

1.1. Analysis of the risk definitions
The multitude of definitions treat this notion differently, its authors being influenced by
different existing social and economic systems.
Just a few of these definitions are given below:
1. Adam Smith in his book "Wealth of the Nation and Enrichment Causes" stated that the
"lowest income accomplishments are always related to a higher or lower risk."
2. Piter Heine in his "Economic Way of Thinking", states that "revenue arises because of
uncertainty, without which everything that relates to obtaining income, would be well
known, all its possibilities of obtaining would be exhausted and obviously income
would be zero.
3.
Joseph Shumpeter in his "Theory of Economic Development", states that "if the risks
are not taken into account, then they become a source of losses, on the one hand, and
source of income, on the other hand".2
Full market economy dictionary defines risk as "a future and likely event, of which
occurrence could cause some losses. It can be predictable when the factors that bring losses can
be provided in advance and unpredictable when determined by fortuitous circumstances "3 .
Romanian language dictionary defines risk as "the possibility of reaching distress, of
having to face trouble or support a loss." The risk arises, according to this view, as a danger man
tries to prevent or even mitigate its effects.
According to the Latin acceptation, the term risk refers not only to the chance to lose,
but also the chance to win. However, the term "risk" tends to be used colloquially with the
meaning: the danger of loss.
The Latin word "riscum" has both negative and positive connotations. The risk must be
seen by both its meanings: the pure risk and the speculative risk. Pure risk only designates the
danger loss, without considering the possibility of winning. Examples include pure risk of
potential fire damages, floods or earthquakes or the possibility of premature deaths due to
accidents or fatal illnesses. Speculative risk covers both the possibility of gain and the risk of
loss. Businesses or gambling involve speculative risk.
According to ISO Guide 73 risk is defined as the effect of uncertainty on the objectives.
An effect can be positive or negative or a deviation from the expected. The risk is often an event,
a change of ciscumstante, a consequence, or a combination of both, and how they may affect the
achievement of objectives.
The distinction between pure risk and speculative risk is a fundamental premise of the
theory of insurance. The risk involves the dispersion of possible outcomes compared to their
positive average (relative gains) and negative (relative losses). From this perspective, the risk can
2Coea ., Nastovid L., Evaluarea riscurilor, Editura Economic, Bucureti, 2000
3 Bu Georgeta ,1994
5

be defined as the possibility of favorable or unfavorable results. Assessment of possible

outcomes is relative: the favorable result exceeds the anticipated average, while unfavorable
outcome is anticipated below average.
Every economic decision implies a degree of risk. The decision maker must learn to take
decisions and to manage risk for his benefit 4.
To better understand the concept of risk, it is necessary to make a clear distinction
between risk and uncertainty. Risk refers to situations in which objective probabilities can be
identified for possible outcomes. In other words, it can be quantified. By contrast, uncertainty
refers to situations or events of which there is insufficient information to identify objective
probabilities . Therefore, when the information necessary to understand and anticipate
developments, changes that may occur in a given context are either insufficient or unavailable,
the situation is cataloged as uncertain.
The key element in making the distinction between risk and uncertainty is probability.
Probability refers to the possibility that a specific phenomenon or event takes place under well
defined conditions. Depending on the probability, three categories of cases can be highlighted :
- absolute certainty
- uncertainty
- risk
Absolute certainty can be defined as a decisional situation in which the future evolution
of events, the consequences of decisions, may be provided accurately, with no errors or
unexpected events. It can be said that the results of any decision are known precisely before
they are adopted, because the possibility of the specific result to be achieved is 100%. If there
was absolute certainty, every decision maker would have unrestricted access to complete
informations. Therefore, a complete list of upcoming events and the consequences of decisions,
could be created. On the opposite side of certainty is uncertainty.
The great disadvantage of uncertainty is that at a higher level, its individuals no longer
capable to choose, since any choice leads to random unpredictable results. It is therefore
necessary to reduce uncertainty when it reaches excessive levels.
The degree of uncertainty is given by the number of factors that can affect the course of
action and by the frequency and amplitude of their associated changes. It is also influenced by
the level of knowledge the company or individual possess in their field of activity. A higher level
of knowledge allows a better assessment of the factors that act and decrease the possibility of
erroneous predictions.
Risk is located between certainty and uncertainty. It is a phenomenon that comes from
circumstances for whom the decision maker is able to identify possible events, and even the
probability for their implementation, without being able to specify exactly which of these events
will actually occur. 5

4 Craioveanu Mihaela Theodora, 2004

6

Risk comes from the impossibility of accurately assessing a particular event that is
identified as such by the decision maker who will actually materialize and determine specific
negative results.
Even if the estimated probability for effective materialisation of a particular factor
generating risk is high, the decision maker can not be sure if that event is the one that will
certainly occur and not another. Risk is associated with an objective distribution of probability
measured as the number of occurrences of a determined result after a large number of
observations. This distribution is considered valid for actions carried out under conditions
identical to others that have already occurred and whose results were quantified through
statistical methods.
1.2. Risk classification criteria
Risk classification methods are generated by different types of activity undertaken and are an
important step in understanding the risky entrepreneurship mechanism. Once the types of risks
are known, the main consequences resulting from their influence will be clearly understood, and
then, the most suitable and effective methods for achieving objectives will be chosen.
Risks can be classified according to the following criteria:
1.2.a By the character of consequences,risks are divided into:
Risks can have positive or negative results , or can have an uncertain result.
Thus as defined by the ISO Guide 73, risks are divided into three categories:
Hazard risks (or pure);
Control Risks (or uncertainty);
Risks of opportunity (or speculative).
It is important to remember that there are no "right" or "wrong" risk classifications.
There are other classifications of risk in other texts, these may also be appropriate. Risk division
into pure and speculative risks, is the most common. It is important for each organization to
adopt a classification system that is most appropriate for its specific circumstances.
The pure risks (of hazard)
There are certain risk events that can have only negative results. These risks are called hazard
risks, or pure risks, and are usually insurable or operational risks. In general, the organizations
have a certain tolerance for hazard risks, and they must be managed within these tolerance limits.

5 Stana Elena-Silvia, 2003

7

Hazard risks are those events that can only have negative results. Consequently, they can
undermine, sometimes very serious, the objectives set by the organization . These risks are often
insurable using specialized insurance companies.
Hazard risk management refers to issues such as health and safety at work, fire
prevention, material damages and consequences caused by damaged products. Hazard risks may
cause disruption to the normal operations of the organization, as well as increased costs and
negative publicity due to these disturbing events.
Hazard risks relate mostly to buildings and other fixed assets of the organization,
including production equipment, IT equipment (which can be damaged, can be affected by
various external or internal elements). Overall, they may affect the general staff, premises, assets
of the organization, suppliers, also the information and communication technology in the
organization (ITC).
Theft and fraud may also constitute a significant hazard risk for many organizations. This
is especially true for organizations working with cash or managing a large number of financial
services. Relevant techniques to avoid theft and fraud include adequate security procedures,
dividing the financial duties within the organization and also authorization and delegation
procedures, and thorough pre-employment personnel verification.
The risks of uncertainty (of control)
There are some risks which create uncertainty regarding the outcome of a situation.
These are known as control risks or uncertainties and are commonly associated with project
management. In general, the organizations have aversion towards control risks . Uncertainty may
relate to the benefits of a project, its results delivered on time, within the budget established and
according to specifications . Risk management control is carried out to ensure that the results of
business activities fall within the desired range.
Opportunity risks (speculative)
At the same time, organizations deliberately assume risks, particularly risks related to
market and business in order to achieve earnings. These risks may be considered appropriate or
speculative, and organizations generally have a specific appetite for investing in them.
Control risks are associated with unknown and unexpected events, and can be extremely difficult
to quantify. Control risks are often associated with project management. In these situations, it is
known that the events will occur, but the precise consequences of these events are difficult to
predict and control. Consequently, the approach is based on minimizing the potential
consequences of such events.
There are two main aspects associated with opportunity risks. There are risks / dangers
arising with the assumption of an opportunity, but there are also risks that arise if that
opportunity is not accessed. Risks of opportunity may not be visible or apparent physically,
8

because they are often financial. Although they are assumed to achieve a positive outcome, this
fact is not guaranteed.
1.2.b By the character of evidence, risks are divided into:
a)

b)

External: the risks affecting the business activities outside are assigned here, therefore inflationary risk,
currency risk, natural etc. is directly related to the activity of the company or its environment contract.
At the level of external risks a variety of factors are driven: political, economic, demographic, social,
geographic, (unpredictable changes in legislation regulating entrepreneurial activity, the instability of the
political regime in the country and the world);
Internal: to the internal risks conditional risks are assigned, for the vast majority, such as direct activity of
the company and its partners of contact, to which suppliers is awarded, business partners and
consumers. At the level of such risks, business managing activity takes place, choosing optimal
marketing strategy, policy and tactics of activity and other factors; production potential, technical
equipment, level of specialization, competence and qualification of labor, security technique etc.6

1.2.c. Depending on the length of time:

a) Short-term risks - constitutes a danger for the entrepreneur within a defined period of time, which
disappears along with the termination of the action (for example, transport risk, the risk of failure to
fulfill obligations under the contract);
b) Permanent risks - has always been presenting danger for entrepreneurship, on a certain
geographical territory or in a field of national economy (for example, natural risks specific to a
geographical area, like Japan; risk of permanent nonpayment in a country where legislation is
imperfect).
1.2.d. By their nature, risks can be grouped as:
a) social risks - are caused by predictable or unpredictable social events, such as illness, death,
disability, reduced standard of living, unemployment, maternity, etc. Protection against these
risks depends largely on state policy, in the development of the national economy, quality of
education. In general, one can say that modern states pay primordial importance in protecting the
individual against social risks, the fundamental purpose of any modern regime is to protect the
interests of individuals, at a national level, under conditions of fairness and social justice.
b) natural risks - caused by natural disasters.
c) political risks - are determined by major political events such as wars, strikes, embargo,
nationalization, export restrictions. The coverage of political risks is difficult to achieve or even
impossible, given the serious consequences of these types of risks, triggered by the major
6Drucker Peter F., Managing for results,Harper & Row 1964, p. 203
9

interests of the state, which, in such circumstances are opposed the interests of individual or
operators. Possibilities to mitigate or compensate for the damage, in this case, depends solely on
the position and attitude of the state.
d) economic risks - are the most numerous 7
Financial risks have existed since the beginning of commercial relations. In time,
however, the extent to which they were identified, measured and controlled varied greatly.
Financial losses incurred by internationally renowned companies due to faulty risk management
activity and especially, highly publicized ones, led to the managers awareness of the major
importance of risk management.
In the financial and economic life, the risk is part of any activity, being in the daily agenda of
corporate managers. Unforeseen changes in interest rate changes, exchange rate or price of a
product, not only affects the financial results of a company, but can even cause bankruptcy. In
fact, the nature of financial decisions involves uncertainty. 8
1.3.

The factors that influence these risks

The risks are the result of the influence of several factors. Some of them may be in the
company's strategy, its mode of work, or can occur as a consequence of the activity directly
undertaken by the entrepreneur.
The emergence of risk may be the result of decisions received within the company or outside
of it, such as: actions of the competitors, the suppliers, the public opinion, the changes to the
market environment, lack of necessary information etc.
According to the study developed by the National Association of Manufacturers in the US,
on average 10 times a year the companies were affected by risk due to the influence of the
following factors:
-> Complaints and penalties for low quality goods;
-> Accidents at enterprises and the failures of equipment;
-> The leakage of confidential information;
-> Failures in the electronic system;
-> The influence of false rumors9
Less according to frequency but higher following consequences, these factors influence
activity: natural disasters, fires and explosions, unpredictable emergence of competitors, the
death of leaders or key specialists in the firm.
7Bbu, G., Moraru, R., Managementul riscurilor. Abordare global concepie, principii i structur, Editura
Universitas, Petroani, 2009

8Drucker Peter F., Managing for results,Harper & Row 1964, p. 203
9JonsGary Comportament organizaional, 1998
10

We can therefore highlight two main groups of factors that influence these risks:
1.3.1. Internal factors are those that occur inside the firm and that only influence its activity. In
turn, the entrepreneur can directly influence these factors, reducing the negative consequences
or taking advantage of the subsequent expected positive ones. To these factors relate:
The company's strategy is the general direction of activity of the company for a long period of time, bearing
embodiment binding, but it can be changed depending on the internal and external environment factors of the
enterprise.
The development and modification of the strategy can be performed using SWOT analysis
method.

The quality and the level of use of marketing, is an internal factor, which serves as an informant for
company management, without which the firm is "blind", answering the questions raised: what to
produce ?; for whom ?; whom to sell ?; when to sell ?, if the one in charge of marketing or marketing
department workers are not competent enough, or do not know all the ways of obtaining and processing
information, they generate a whole set of risks, including that of bankruptcy, even if company
management has been perfect. Therefore, correct management but with incorrect information is an
important cause in generating risks, but can be controlled and directed in the right direction.

Resources and their use. Any organization, regardless of its field, use the following
resources: human, financial, material, informational. The manner and intensity of use of
these resources generates the company a set of risks that directly influence the final
expected result.10

Figure 1.2. The internal factors influencing risk

1.3.2. External factors are those who present a danger to the outside of the company, which
the entrepreneur can not influence, but must take account of , as they contribute to its outcome
and activity.

10Negoiescu Gheorghe Risc i incertitudine n economia de pia, Galai, 1995

11

External factors are divided into two groups: the direct influence factors and indirect
influence ones.

Figure 1.3. External factors influencing risk

External factors of direct influence include:
Legislation regulating business activity is an external factor of direct influence that
dictates contractor "the rules of the game", which he must comply because his work
is conducted in a given country with total or partial use of resources from it. But
these "rules" are not always favorable to the effective entrepreneurship activity,
which creates the contractor some risk that he can not predict or influence, in most
cases.
Relations with partners, also directly affects the company's activity by lack or
shortage of raw material suppliers in the internal market, the failure of obligations
according to the contract etc.
The competition of entrepreneurs require them to permanently introduce large or
small innovations , in their activities, resisting the competitive battle in such a way
that, at one time, it has a high degree of tightening. Any decision of the competitor,
directly affects certain results of other producer or service provider, generating risks
for him and also, in turn, requiring him to accept other risks which would allow him
to dominate the situation some time .

12

External factors of indirect influence include:

The political situation in the country that favors or does not favor entrepreneurs'
access to various external financial sources, its expansion to other markets, creates a
favorable or unfavorable climate for the creation and / or development of
entrepreneurship within the country. Also, the political situation in the country can
contribute to the occurrence of force majeure situations, such as strikes, social
disruption, war, endangering some areas of entrepreneurial activity, thus the states'
economy being influenced.
The economic situation in the country. The conjuncture of market economy tends
to change on a cyclical basis. The high level of demand changes with periods of
depression, when the enterprise can not realize affordable price products.
Consequently, overproduction crisis contributes to increased level of entrepreneurial
risk. Inflation has a huge influence on the level of entrepreneurial risk. Inflationary
processes reduce incentives for economic growth, raising production efficiency from
the account of technical and scientific progress, because the technique and
technologies are becoming more expensive and inaccessible for entrepreneurs.
Inflation distorts economic calculations, makes the development prospects uncertain,
increases the risk related to new investment projects.

International factors. As the global economic environment tends towards

globalization, the dependence of different economies to international factors
becomes increasingly obvious . The entrance of countries in various international
organizations leads to the assumption of certain liabilities of the member countries at
national and international level, which creates some limits in their activity and
economic development. Dependence on certain natural resources, geographical
location creates unfavorable micro and macroeconomic risks that block
entrepreneurship
Natural calamities. Under the long lasting influence of man over nature , the
situations related to the negative influences of natural factors on entrepreneurship,
occurr more frequently . "Fight" of nature with human desires has grown , with
various forms. For example, the cycle of floods throughout Europe in the summer of
2003, the snow in the middle of summer in New Zealand and the US, droughts in
2001 and 2002 in Moldova and the flooding in the summer of 2008.
The existence and influence of both groups of factors should not form barriers for
entrepreneurs in creating and developing businesses, but mobilize them towards forecasting and
accurate estimation of the possibilities and consequences in order to manage business
effectively, taking into account these factors.
13

Based on these general descriptions, we see that each type of activity, in addition to the influence of a
group of general risks, is affected by multiple specific risks, where there are specific tools for the identification,
assessment and management.

Chapter 2. Risk Management

2.1. Defining risk management
Content of risk management is a systematic process of knowing the potential factors that
threaten enterprise security, measuring their severity , reducing the effects of prevention and
protection, the transfer of those effects that can not be managed by the enterprise itself to
companies specialized in risk management .
Risk management is the systematic process of identifying, analyzing, responding to the
potential risk of a project. Risk management is a structured and formal approach focused on the
necessary steps and actions planned to determine and control risks, keeping them at an
acceptable level. The goal is to maximize the probability of success in an activity by increasing
the chances of improving performance and at the same time, reducing the chances for
unexpected developments. Success means that the business activity is feasible economically and
technically (resource consumption, the conduct and its programming so that it can be achieved
with the budget and within the deadline set).
Risk management is increasingly considered as a function of management organization
whose overall objective is to identify, analyze and control the causes and effects of uncertainty
and risk in an organization. The main purpose of risk management is to support the
organization's progress toward achieving its goals and objectives in the most direct, efficient and
effective way.
Creating a risk management enables decision optimization, mitigation of risk and
uncertainty in economic activity. Risk management consists in running a number of processes to
identify, estimate the consequences, evaluate, manage and monitor risks in a company. This stage
refers to techniques, tools, strategies and processes that are intended to avoid, prevent, reduce or
control the frequency or magnitude of losses or other adverse effects of risk; risk control also
includes methods that are intended to improve understanding or consciousness in the
organization about the activities that affect risk exposure. Although control programs and risk
management varies from one organization to another, due to the creativity of each organization in
particular, a classification of types of measures can be made: risk avoidance, loss prevention, risk
transfer and risk assumption.11
Risks can be known variables,such as risks that have been identified, assessed and quantified,
and for which plans have been developed. At the same time, the risks are unknown variables, that
risks which have not yet been identified or are impossible to predict.
In general, a good risk management is based on:
11 Williams Smith Young, 1995
14

Identification - first of all risks should be identified they become problematic, and
adversely affect certain situations or projects:
Analysis - risk data is converted into data concerning modes of action on this risk;
Planning - informations gathered are transformed into decisions and actions. It creates
plans for both individual risks and integrated management plans. Overall, several action
plans are developed regarding risks;
Monitoring - consists in continuous tracking of the development of risks and actions
taken to reduce their effects;
Control - corrects deviations from planned actions continuously improving process
management;
Communication - in most cases, good communication is a key feature of success. It
should be performed for all and between all the resources used, being the link between
the basic elements that characterize a good risk management.12

Risk management within an organization helps to understand the potential risks affecting the
entire activity of a company so that they can be managed. The main advantage of the existence of
such a risk management program is efficiency by which managers recognize the risks affecting
the company and by means of which they manage accordingly.
To fully understand the risk, it requires a detailed description. The list below provides details
on the range of information that should be recorded to describe a risky event. Risk description:
The name or title of the risk
Risk description, including the purpose and details of possible events that depend on that risk
The nature of risk, risk classification and the expected period until impact
Interested parties (stakeholders) in the respective risk
Attitude towards risk, risk appetite, risk tolerance limits
The probability and magnitude of risk event
Standard fighting measures
Experience with incident and loss
Mechanisms and existing control activities
Responsibility for developing strategies and risk policies
Recommendations for combating risks and timelines for their implementation
Responsibility for implementation of control measures
Responsibility for risk audit.
Although accepted definitions of risk postulate that risks can have particular impact on the
organization's objectives, there are several options in this regard.
Risks can impact:
- The organization's core processes
12Iepure D. Managementul riscurilor n cadrul ntreprinderilor mici i mijlocii.Economica, nr. 1, 2007, p. 36-39
15

- Main departments
- Critical success factors of the organization.
- Expectations of stakeholders of the organization.

2.2. Risk assessment.

Risk assessment is a quantitative determination of the degree of risk, its' characteristics,
the causes of its' existance and possible consequences arising from the influence of the results to
the business' activity.
Risk assessments should cover the whole range of risks within the entity, so work needs
to be done at all hierarchical levels. Risk assessment is an ongoing issue because the conditions
are always changing, new regulations appear, new people appear, actual objectives appear, and
all these changes constantly change risk format, which can never be completed.
Risk in entrepreneurship, as a concept, refers to the ability to quantitatively and
qualitatively assess the probability of variations or expected results from the values or levels
originally estimated, that may occur after certain actions or omissions by the company and
generate different consequences with negative character.
Risk assessment means identifying and analyzing relevant risks, in achieving the
objectives, in order to know the way they should be managed. Because economic conditions,
human and regulators are in constant change, internal control need to identify and deal with the
special risks associated with change13
In practice a risk management policy is required , which among priorities should include:

the existence of a formalized policy that includes risk identification,

determination of the major ones, establishment of risk owners, an analysis at a
certain time, assessment of the other risks;
identification and risk measuremen systemst;
adapted management and risk control strategies;
risk reporting system;
scoreboard realized in coordination with the organization's objectives
From the foregoing, the great problemtaic raised by risk assessment from their great
diversity, their permanent evolution, but especially the implications of the risks they induce,
nowadays, in the preparation of management, in politics, image and so on, which are transmitted
and have a large effect on individuals. 14
13Bbu, G., Moraru, R., Managementul riscurilor. Abordare global concepie, principii i structur, Editura
Universitas, Petroani, 2009

14Moraru, R., Bbu, G., Matei, I., Ghid pentru evaluarea riscurilor profesionale, Editura Focus, Petroani, 2002;
16

In this extremely hard context, we find that risk assessment respecting phases that must
go through resorting to the classic arguments against risks and control activities, focusing on
self-involvment , determining key-controls on the flow of procedures and, particularly relevant,
continuously adapting control activities to evolving risk .
Risk assessment is closely related to identifying risk areas. This meaning is conditioned
primarily by the fact that the future depends on correctly identifying risks overall efficiency of
the process of their management. In the case of incorrect actions carried out at this stage, further
efforts will have been inefficient and, the later the error is detected, the greater the loss the
business will support . At this stage, those types of risk faced or to be faced by the enterprise,
should be determined and accurately classified . This is necessary for subsequent accumulation
and application of appropriate information and other methods of evaluating the examined risk
assessment.
Risk assessment consist in estimating the probability of risks and their effects and use of
information obtained for risk quantification. Achieving this process allows decision makers a
comprehensive and accurate assessment of the relationship between risk and loss and potential
gain .

In the risk assessment, the following are taken into account:

a single risk factor can have multiple effects (eg, exceeding the time limit for delivery of
a product has the following effects: inconsistency in budget, penalties, failure to set
quality standards, failure of respecting execution duration);
Opportunities and threats can interact in unexpected ways (eg inconsistency in the
allocated time for an activity may determine the choice of a new strategy that will help
reduce the total length of its realization);
risk assessment depends on the experience and risk tolerance of the manager, according
to which an event can be seen as having little , medium or high impact on achieving
activity

Risk assessment is a process that can be summarized in two main phases: Phase 1 is the
estimation of the probability and impact of each risk, and Phase 2 uses this information in a
model that allows viewing the size of risk. 15
Risk assessment activity is an essential component of management and it must be
consistently performed at least once a year to identify all risks. It comprises the following steps:
a) identification of objects (items) that are auditable, which requires a structured
approach starting from general to detail

15Raiu-Suciu C., Raiu-Suciu I. Managementul riscurilor i viabilitatea societilor economice. Revista de

management comparat internaional, nr. 1, 2000, p. 55-60

17

b) determining risk for each audit subject based on analysis of the operations based on
certain criteria designed in advance and carrying out calculations for prioritizing and
classifying them;
c) risk measurement, which will be based on probability of risks and the impact and
consequence duration of the event.
In conclusion, the risk assessment is very important for the following reasons: the measures
taken allow obtaining a result both of quantitative and qualitative character, and this result
influences their methods of risk optimization and, eventually has an impact on the whole process
of risk management undertaking. The risk assessment is a serious point in the risk management
process and has a clear interconnection with other stages.
2.3. Control and risk management
Risk management is the totality of specific methods, procedures and measures by means
of which highlighting, assessing and, if necessary, the calculation of factors' influence on the
risk examined, are carried out, in order to reduce loss and / or increase company profits.
Risk management activity must be confirmed by regulatory documents and the
corresponding provision, which in each case determines frequency of risk examination, way of
reflection, storage and repeated use of monitoring results and risk analysis; the order in the
advancement of company management, the order of the recommendations to improve their
performance and risk control because one of the provisions of the report submitted by the entity
that prepares its consolidated financial statements and in accordance with Article 31 of the
Accounting Act, relates directly to the description of the main risks and uncertaintiesfaced by the
entity and group of entities.
Typically, enterprise risk management must be carried out following these substantial
principles:
complexity:
appropriateness;
continuity;
functionality;
lawfulness;
economic rationality (criterion "efficiency - effort").
In most cases the risk management process includes the following:
1. Formulating risk management purposes;
At this point it is important to determine the purpose and conditions of performing
evaluation. The purpose may be different: minimization (optimization) or full exclusion of risks
etc. At this stage it is necessary to consider the current status of the activities of the enterprise
18

and its development prospects, according to the information obtained, to determine risk
management purposes.

2. Identifying risk by areas of activity;

This meaning is conditioned first, by the fact that the efficiency of risks management
process depends on their correct identification. In the case of incorrect actions carried out at this
stage, further efforts will have been inefficient and, the later the error will be detected, the
greater the loss supported by the business. At this stage those types of risks that the eneterprise
is facing or will face should be determined and accurately classified . This is necessary for
subsequent accumulation and application of appropriate information and other methods of
examined risk assessment .
3. The collection and processing of information necessary for risk assessment;
The quantity and quality of information obtained depends directly on the effectiveness of
risk assessment - both quantitative and qualitative. Accurate assessment of risk is impossible
without the use of qualitative information. In cases where initial information is distorted and
calculations according to this information are made , the trader suffers losses because the results
are inaccurate, time is lost and additional resources will be needed for the processing of the
results in order to rectify them.
4. The risk assessment;
It is important to distinguish between qualitative and quantitative risk assessment.
Qualitative analysis involves highlighting the forming sources of risk, the stages and
work that lead to risk (determining potential areas of risk, risk of change in dynamics,
highlighting all the positive and negative moments on completing the decision containing risk).
The quantitative evaluation allows to determine the mathematic probability of occurrence
of identified risks , amount of loss (or profit) as a result of actions in risk situations , and the
degree of influence of a system of factorsof on risk the situations, to prepare the company
management the optimal behavior plan in the risk situation and get other information of a
quantitative character reffering to the assessed risks.
Interconnection between risk assessment and needed data collection is evident at this
stage again. If a lack of information isbe detected at the evaluation phase , it is possible to go
back and get necessary data. Such an approach on minimal sufficiency appears to be practical,
because it is better to get the missing information later (when it is necessary), than gathering lots
of excessive data from the start, spending additional resources for it. In this way, cyclical
information obtaining is ensured, which is necessary for an effective risk assessment .
5. The choice of methods and techniques to optimize risk;
19

According to the results of quantitative and qualitative risk assessment, a decision is taken on
the application of other risk optimization methods. Note that not only the results of the
assessment phase influnences the choice of risk optimization methods, but also a number of
additional factors, such as the existance of other risk management actions, time limits etc.
6. Application into practice;
Regarding the actual application of risk optimization methods chosen , it is necessary to
pay attention to the fact that in the process of risk analysis a lot of possible options for resolving
the matter are highlighted , and not one, because the risk is generated by the uncertainty of
conditions in which the adoption and implementation of management decisions takes place.
7. Evaluation of the results of risk management.
It allows us to determine both the overall efficiency of the whole process and his
vulnerable points in order to strengthen them, and, what is very important, if necessary, return to
the formulation of goals.16
A well-organized system of risk management at the enterprise allows to emphasize possible
potential situations related to the course of events, obtaining possible loss characteristics
(damage) or missed opportunities as a result of conduct of adverse events , taking into account
theorganizational efforts in decision making, significant time consumption and costs related to
risk assessment, rational influence on this level and reduction to an acceptable value.
Risk management is a complex and multidirectional activity and it usually requires
following some stages, in any management process. These stages can be successive or
simultaneous, representing the following specific steps:
Identify activities, operations;
Identifying the risks associated with them;
Establishing risk factors or criteria;
Risk assessment;
Risk ranking or setting priorities;
Establishing an owner, the person responsible for risk management;
Defining an action plan and monitoring its implementation;
Regular reporting on recommendations implementation.
In Romania, risk management activity is relatively underdeveloped. The risk is defined as
the exposure to a particular change or the possibility of adverse deviations from the referred
situation. Risk perception is a complex and subjective process; therefore aggregated global
perception in interested in analysis.
16Slobodeanu N., Diagnosticul i evaluarea riscului operaional (economic).// Simpozionul Internaional
Integrarea European i Competitivitatea Economic (23-24 septembrie), volumul II., ASEM, Chiinu, 2004.- p.
54-57.

20

Risk identification can be achieved by various methods, among which:

desk research: studying the documents, the organization developed plans, the results of
competitors, the commercial databases, information held by people involved in similar
businesses, descriptions of conduct of similar business/projects.

The main documents that can be studied are:

- Annual reports (types of activities, geographical distribution of organization, major sources of
profit, areas that can be developed, etc.);
- Financial documents - accounting, statement of fixed assets;
- Site plan, photos, descriptive materials about the premises in which the project beneficiary
activity is carried out, and where the product carried out by the project will be located ,
promotional material about the organization, technical documentation, speciality magazines,
publications for the protection assurance, development conditions of contracts , rental
documents, records about organization insurance etc.;
site visits: they allow the the discussion with the one exposed to risk, creating contact
information networks, necessary for the risk manager to improve the reports.17
Control and risk management refers to techniques, tools, strategies and processes that are intended to avoid,
prevent, reduce or control the frequency or magnitude of losses or other unwanted effects of risk, risk control
also includes methods that are intended to improve understanding or consciousness in the organization, about
activities that affect risk exposure. Creating a risk management decision enables optimization, risk and
uncertainty mitigation in economic activity. Risk management consists in running a number of processes to
identify, estimate the consequences, evaluate, manage and monitor the risks in a company.18
2.4. Process management and optimization methods of decisions in conditions of risk
Risk management is increasingly considered as a general function of the management of
organization, whose objective is to identify, analyze and control the causes and effects of
uncertainty and risk in an organization. The main purpose of risk management is to support the
company's progress toward goals and objectives in the most direct, efficient and effective
manner.19
17Gerald A. Managementul: teorie i practic. Editura tiina, Chiinu, 2004
18WilliamsSmithYoung,Managementriscandinsurance,SeventhEdition,Ed.McGraw-Hill, NewYork 1995
19Williams Arthur C., Risk Management and insurance, editia 7,Ed. McGraw-Hill New York, 1995, pp. 27 - 29
21

The whole decision-making system consists of all the elements that are interdependent
and which determine the choice of the most elaborate and effective decisions. The components of
decision-making system are approximately the same within different companies, but with
specific characteristics of each area and according to the complexity business activity.
In a market economy, there are many factors that may cause the company's efficiency - the
level of demand, selling price of products, consumer demands, competitors strategy - without
being fully under the control of people who decide, which increases the proportion of decisions
in conditions of risk and uncertainty, and their implementation entails the use of appropriate
methods and techniques in such conditions.
Generally in this process of identification of risk factors based on previous experiences
made in projects the manager must pay special attention to developments of the following
factors: analysis of registered performances in parallel with the forecasted ones , identifying the
elements that led to changes in the project and highlighting how these problems were resolved,
the overall analysis of the activities after the project, the final results of the project analysis and,
where applicable, the registration of direct beneficiaries opinions on the quality of products or
services resulting from the implementation of planned activities. The risk manager should
organize specialized documentation so that it may serve as a reference long after project
completion.
The making of a list of possible risks is based on the idea of consulting everyone
involved in a project, the factors that could contribute in a either directly or indirectly to the
negative influence on activities or results of the financing proposal. The primary means by which
a manager comes into contact with the ideas of the consortium partners on the possible risks that
may be posed to the project are: brainstorming sessions and interviews.20
The literature highlights some ways to optimize enterprise risk. The easiest way is to avoid risk.
In this case the enterprise simply does not risk conscious. Avoiding risk is the simplest and least
costly choice for the enterprise in risk situations. In some cases avoiding risk may be simply
impossible, and in some cases, can lead to other types of risk.
To avoid risk is to remove the condition that lies at the heart of the problem. For example,
if parts of the project is associated with high risks, then those parts are removed from the project.
Avoiding might take the form of refusal of assumming risk or abandonment of exposure to
losses that were assumed before. 21
Some risks may be so severe that the activity that generates them should be removed. However,
it is not always possible for the firm to cease certain risks generating activities.
Another method of neutralizing risks is the transfer of risk. Risk transfer is performed
using different techniques of finance, derivative financial instruments, payment methods, and by
contract conclusion.
20Carabol Anatol Managementul riscului,Bucureti 1999
21 Williams Smith Young, 1995
22

Risk transfer can be achieved in two ways. The first is the risk-generating activity
externalization to someone else. A classic example of such a transfer is subcontracting those
activities that the organization does not want to assume because it does not have the experience
or resources to carry them out. The second option consists in the transfer of risk, not the business
through a contractual agreement. This is achieved through the development of insurance
contracts. The insurance company assumes some of the risk for a price (the insurance premium).
If the risk occurs under conditions specified by the insurance contract, the insurer will reimburse
the insured or any losses caused by risk. If the risk does not appear, the insurer keeps the
premium.22
Unification or diversification of risks, is also one way of reducing them. In the first case risk
neutralization consists in the union with other participants of the business (or stakeholders in the
business) in order to tallocate responsibilities for possible consequences of risk.
In the case risk diversification , the distribution of risk within the company takes place, in
some way, in different directions and aspects of its business. The basic idea is to reduce risk,
having the reserve of some alternative source of resource substitution. In case of failure, of a
project for example, the possibility exists to cover losses on account of the profit of another
project. It is also necessary to mention that diversifying its activity, the company raises full
flexibility of its overall business, making it more stable and minimizes negative factors influence
on the results achieved.23
Risk assumption. In this approach, the manager examines the impact the risk situation
would have on the project and decides that the risk is not to be treated. This approach should be
used only in situations where the impact is low risk or probability that the risk will occur is very
low. This approach is dangerous for medium or high risk level.
This category also includes the risks in which the company's possibility of action is limited, or
for which the costs of the counter actions are disproportionate with the potential benefits.24
Losses prevention aims to reduce their numbers before they become reality. This can be
achieved either through intervention in the processes the organization is carrying, either through
intervention on the environment in which the action is carried. Reducing losses consists in taking
action after a negative event has occurred. It aims to reduce the unpleasant consequences for
those affected by the event.
Most of the risks are approached by companies in this way. The aim of treating (solving)
risk is that while the organization continues the risk generating work are, control measures and
countermeasures are taken to reduce the risk to an acceptable level.
22Moraru, R., Bbu, G., Analiz de risc, Editura Universitas, Petroani, 2000.
23Bbu, G., Moraru, R., Managementul riscurilor. Abordare global concepie, principii i structur, Editura
Universitas, Petroani, 2009;

24Budica A. Metode specifice de asumare a riscului", Tribuna Economic 2006, nr.22

23

Recovery of losses and plans for critical situations are known as measures to reduce
losses. Recovery of losses relates to the capitalization of all that can be saved after the negative
event and suing for damages to those who are responsible for the damage done. Plans for
extreme situations include actions that must by taken by the organization in response to such
events.
Prior to seeking help from other organizations, the company must use all its internal possibilities to reduce
the risk:
Primarily, the control of its business partners;
Secondly, the correct formation of the business contract ;
In the third place, planning and forecasting business activity by drafting the business plan;
Fourthly, the correct choice of company staff.25
Risk management program requires companies to carefully review staff, administration, financial
accounts, management, finance department as well as insurance policies. A careful assessment of risk
management policies can lead to both real immediate benefits and long-term advantages.
2.5. The probability and extent of risks
The probability and magnitude of risk can be highlighted best by a diagram called the
risk matrix. It can be built in many forms, being a valuable tool for the risk management
specialist. The basic principle of risk matrix is to report the probability that an event will
materialize depending on the impact (magnitude, extent, severity) of that event.
Figure 2.1 illustrates a simple risk matrix. Probability is depicted on the horizontal axis. It uses
the term probability rather than frequency, because the term frequency implies that the event is
definitely materializing, and therefore the chart would record how often these events occur.
Probability is a broader term that includes frequency, but also includes the possibility that the
event does not occur.

25Popescu D. Combaterea riscului n afaceri,Tribuna Economic nr. 16

24

Figure 2.1 The risk matrix

According to the matrix, the impact is located on a vertical axis and probability on a
horizontal axis. In the matrix the aggregate scores of impact and likelihood of a given scenario
and how the scores determines the position on the risk matrix scenario.
Risk matrix scales are used in probability and the impact assessment phase, allowing assessment
of the two objects mentioned earlier. This scale, depending on the combination of the 5 ranges of
probability and impact for each scenario, will provide results on the extent of the risk. It is a
scale that generates four classifications of risk: low risk, medium risk, high risk, very high risk.
After completing matrices for each type of risk, scenarios will be represented on the risk
matrix. The scenarios will be represented on the matrix using impact and probability scales
described in previous chapters. In this way it is possible to prioritize their seriousness in order to
identify the risk representative at national level.
For the estimation process of impact, there may be some indicators that may not always
be calculated precisely to the specific situation. There are times when it is difficult to offer a
value of some indicators, but some estimates are recommended according to the specific
scenarios evaluated. 26
The index (risk factor) is used for risk assessment and occurs as a result of the probability of
materialisation of a risk, and its impact if it materializes:
Risk index= Probability x Impact
The index (risk factor) values between 0 ... 1 (or 1 ... 10, 1 ... 100); where 0 (the probability of
the impossible event ) and 1 (probability of certain event).
The value of risk can then be represented on the risks Matrix .
26A Method for Risk Analysis of Disasters and Emergencies in Switzerland (2013), Federal Office for Civil
Protection

25

Risk matrix may also figure mechanisms and risk control measures that can be applied,
or levels of inherent, current (or residual) risk, and the level resulting from the application of
countermeasures. For this purpose color codes can br used on the risk matrix in order to provide
a visual representation of the importance of each risk. As the risks "are moving" to the top right
corner of the risk matrix, they become more important and have a greater impact, so they are
becoming urgent and need to be addressed with priority.
The probability-impact matrix allows the use of two dimensions of risk (probability and
impact) to determine which risk is low, moderate or high for a project.
The organization must determine which combination of probability and impact
corresponds to high risks (red), moderate risks (yellow) and low risks (green). This produces a
risk score that allows the introduction of each risk into one of three categories which will guide
the choice of a particular type of response to risk. Responses to risk are the same in both
approaches, namely: avoidance, transfer, mitigation and acceptance.

Table 1. Values of risk index

Risk index= Probability x Impact
Risk probability
0,9

0,05

0,09

0,7
0,5

0,04
0,03

0,07
0,05

0,14
0,10

0,3

0,02

0,03

0,06

0,12

0,1

0,01

0,01

0,02

0,04

0,08

0,20

0,40

0,80

0,05 0,10
Risk impact

Before proposing and applying response measures it is ideal to have:

26

-The list of risks, the probability and impact of each one;

- List of potential responses;
- The list of those who may be appointed as responsible for different risks (risk owners);
- the maximum permitted values to define a target of responses to risk.
Risk matrix helps reduce the probability that unwanted events occur, as well as, reducing
negative impact on the company's activity once the event has materialized. This step may include
shaping, quantification, measurement elements and involves determining probability, as well as s

Chapter 3. Case Study: Managing Risk in the SNLO Tg Jiu company

3.1. The evolution of lignite mining activity in Oltenia, brief history
The most important mining basins, exploiting lignite in mines and quarries, are situated
in the northwestern part of Oltenia, in a strip that makes the transition between the the Getic
Subcarpathians and Getic Plateau , deployed in about 120 km from the Luncavului Valley in
east, near the Danube and Obria Huniei in the southwest.
The first basin in Oltenia in which lignite mining exploitation works were executed was
Rovinari basin. In the fall of 1949, the management of Gorj county founded the
company"Lignite" that operates as a branch of "Fuel" Gorj. On this basis some research in the
area has been done and opening the works in Rovinari has been decided.
Thus, on 22 March 1950, at Rovinari, the first mining works in the "Lignite"
exploitation, the future Rovinari Mining Enterprise, are starting. The coal extracted is transported
by trucks and delivered to common utility facilities from Tg-Jiu.
On 27 May 1953 the Ministry of Local Common Households is proposed to develope the
Rovinari mine, by opening a new sector and by switching to the stripping operation, for which it
is proposed and obtained opinions and approvals from competent forums on landscaping works.
In 1957 the production phase starts at the first lignite career in the country, where
stripping is done with 3mc bucket excavators and the transport of sterile is executed with a
dump truck. With the help of rubber bands the transport of coal was done to the claubare-silage
station, where they are loaded in the railway wagon, the main consumers being the thermal
power plant Doiceti ( chopped sort) and CFR for lumps sort.
In 1967 Rovinari careers enter a new stage of development, in which stage improvements
have always been brought , applying modern working technology based on imported equipment
at Cicani career, conventional technology being used further at the preliminary excavations in
hilly areas, creating vehicular platforms of rotor excavators.

27

Rovinari Mining Exploitation , was the single mining unit of Oltenia region until 1964;
of this year industrial production falling in the second coalfield region of Oltenia, the Motru
Basin.
The Mining Company of Oltenia was founded in 1959 with headquarters in the city of
Craiova. The lack of specialists in the area has made the Ministry of Mines to solicit the Mining
Trust Muntenia to approve the transfer of staff with higher education and even economic and
technical skill in order to be assigned to the newly established enterprise.
After 1960, new mining basins are developing in the Gorj county, respectively that of
Motru and Jilt, and after 1980 Cerna-Olteu basins appear in Valcea county and respectively, that
of the Mehedinti county stationed at Husnicioara and Zegujani.
Because of the existence of such coal reserves in Northern Oltenia, the current energy
infrastructure was created in Romania, from the power plants of Rovinari, Craiova (Ialnia and
Craiova II), Turceni, Halnga, Govora.
The extraction of lignite in the period 1990-2004 was achieved by going through the the
following forms of organization :
1991- REGIA AUTONOM A LIGNITULUI TG-JIU - 80.121 employees, in 199473.400 employees
1997- COMPANIA NAIONAL A LIGNITULUI OLTENIA -32.976 employees
2001- COMPANIA NAIONAL A LIGNITULUI OLTENIA 20.495 employees in
2002- June 2002 - 18.029 employees in 2003- employees 16.868
2004- SOCIETATEA NAIONAL A LIGNITULUI OLTENIA S.A. 9 442 employees
Changing organizational forms was made during this period on the basis of government
decisions, respectively, of restructuring programs, still maintaining Romanian State 100%
ownership .
By HG no.103 / 2004 operating activities in Oltenia lignite basin was reorganized ,
respectively of SC National Lignite Company of Oltenia SA, division and merger of power
plants in the area, the establishment of three companies with the status of energy complexes (of
Rovinari, Turceni and Craiova) and an operating carrying only company, and National Lignite
Company of Oltenia SA has changed its name to Society of Mine Closure Tg-Jiu, with the main
activity of collecting receivables and payment obligations registered on 31.12.2003.
According to article 14 of the decision, the four newly established companies are being
privatized , respectively atracting investment fundraising.
3.2. Description of the S.N.L. Tg-Jiu of Oltenia company
The interest shown in the companies strategy was caused by the fact that the external
environment has become increasingly dynamic and unpredictable, allowing the company to
influence, by anticipation, changes in his environment.
S.N.L. Tg-Jiu of Oltenia was established in 2004 by reorganizing CNL Oltenia S.A. TgJiu according to H. G. no.103 / 2004. In 2004 C.N.L. Oltenia S.A. Tg-Jiu is divided into National
Society of Lignite Oltenia SA Tg-Jiu and Commercial Company Mine Closure and Preservation
28

SA Tg-Jiu, and some of the careers unite with the power plants of Rovinari, Turceni and Craiova
forming the complexes Rovinari, Turceni and Craiova.
S.N.L. Oltenia S.A. Tg-Jiu took over the main object of activity of CNL Oltenia S.A.
Targu Jiu, respectively lignite exploitation. The underground activity was also taken with its
economic and social issues , and also a growing number of development perimeter that require
significant funding to achieve the planned parameters.
National Society of Lignite Oltenia SA Tg-Jiu whose main activity is the geological
research to identify lignite reserves, exploitation, transportation and marketing, and operates
across three counties: Gorj, Valcea and Mehedinti, in 14 perimeters of mining quarries of which
9 quarries and 5 underground mines, grouped into 6 production units and 4 auxiliary units, the
product being delivered to large producers of electric and thermal energy based on solid fossil
fuel from Romania.
The company aims to conduct geological research for discovering reserves of lignite,
brown coal extraction, electricity production based on lignite, maintenance and supply so as to
operate integrated and to become a major player in the regional plan by exploiting in the most
efficient way the potential Romania has in the field.
Industrial experience gained by S.N.L. Oltenia S.A. Tg-Jiu in coal mining extends over a
period of over 50 years during which the extraction of 780 million tonnes of lignite was carried.27
Lignite extraction activity in SNL Oltenia S.A. Tg-Jiu practiced on the territory of three counties
Gorj, Mehedinti and Valcea in 12 perimeters of which 9 quarries and 3 underground mines
grouped into 5 production units, 2 technical and material supply bases, services provision,
transport and one asset recovery unit and a recovery center and a workforce perfection training
training center.28
The share capital is fully owned by Romanian state represented by the Ministry of Economy
and Finance. Production capacity is 18 million tons / year of energy lignite, of which 96% in
daily mining and 4% underground mining , as determined by technical equipment, material and
technological conditions.29
The purpose of S.N.L. Oltenia S.A. Tg-Jiu is to ensure continued development and
restructuring of viable restructuration subunits and subunits with no potential for development
and economic efficiency, so as to ensure power plants producing thermal power with an energy
coal to keep them competitive compared with manufacturers who use other energy sources and
for energy complexes to ensure supply of coal at a price comparable to that achieved in their
quarries and still lower than the price obtained for additional quantities through forced
development of their output.
27Regulament intern, Art. 1. (2)
28PROGRAMUL DE RESTRUCTURARE AL S.N.L. OTENIA S.A. TG-JIU, pp. 3-6
29PROGRAMUL DE RESTRUCTURARE AL S.N.L. OTENIA S.A. TG-JIU, pp. 10-15
29

Also, S.N.L. Oltenia S.A. will deal with preparation of medium and long-term contracts
with companies benefiting from lignite.
3.2.a. Presentation of products and services
Solid Fossil fuels are the important primary source of energy in Romania's energy
structure, representing a share of 39%. Production of energy coal of S.N.L. Oltenia S.A. Tg-Jiu
provides necessary for the production of 36.3% electric and thermal energy .
Dynamics of the production of lignite conducted by SNL Oltenia S.A. bears the imprint
of refurbishment and restructuring processes traveled and the transition period traversed in
Romania's energy market, continue changes in the demand for energy coal imposing the
developing of very flexible policies in mining planning.30
National Society of Lignite Oltenia SA Tg-Jiu has a production capacity of 20,000 tons / year
of energy lignite, 90% and 10% in quarries in underground mines.
The main market for lignite production conducted by SNL Oltenia SA is the fuel market
in the production of electricity and heat.
The quality of lignite extracted, the amount that can be insured and the seriousness with
which contracts are honored, places SNL Oltenia S.A. Tg-Jiu in first place in the hierarchy of
mining companies operating in the field.
The low level of oil and natural gas reserves available to Romania, as well as the ongoing
trend of increasing the price of these natural resources worldwide, constitute serious reasons to
relaunch recovery of solid fuels in the production of electricity and heat.
The process of extraction of lignite in cast mining include the following technological
operations: selective excavation, transport, the deposit of sterile in dumps and lignite in the
warehouse.
Lignite is a lower coal used as fuel, mostly for production of electricity and heat and to a
lesser extent for domestic consumption.
Product lignite extracted from quarries and underground mines in the SNL Oltenia is
marketed to 9 beneficiaries which are companies or autonomous state owned companies, which
are owned by Economy and Commerce Ministry, but also by local or county councils, being used
to produce heat for powering the cities of Craiova, Drobeta Turnu Severin, Ramnicu Valcea,
Arad, Timisoara, Motru and electricity.
Of the total electricity produced in the country, SNL Oltenia can provide the raw material
for the production of approx. 20% of this. Because the lignite mining site is closer to the place of
production of electricity and heat, the cost price of lignite is lower.
The main beneficiaries of lignite production by SNL Oltenia S.A. Tg-Jiu are:
S.C. Complexul Energetic Rovinari S.A.;
30PROGRAMUL DE RESTRUCTURARE AL S.N.L. OTENIA S.A. TG-JIU, pp. 10-15
30

S.C. Complexul Energetic Turceni S.A.;

S.C. Complexul Energetic Craiova S.A.;
S.C. Electrocentrale Oradea S.A.;
S.C. C.E.T. Arad S.A.;
S.C. COLTERM S.A. Timioara;
R.A.A.N. ROMAG TERMO Halnga;
S.C. C.E.T. Govora S.A.;
S.C. C.E.T. Braov. 31

The foundation of its development is the approach, development and exploitation of complex
human resources that are at its disposal, based on a vision and dynamic economic management,
professionally implemented . It takes into account achieving an organizational culture
characterized by motivation, creativity, participation and effectiveness, which prioritizes
obtaining satisfaction for both customers and employees, developing team spirit and achievement
of stable economic growth.

3.2.b. Evaluation of the internal potential of S.N.L. Tg-Jiu Oltenia

The first step in using a SWOT analysis to evaluate existing and future strategies may
involve listing and evaluating the company's strengths, weaknesses, opportunities and threats.
For SWOT analysis within S.N.L. Tg-Jiu Oltenia was taken into consideration the analysis of
several areas of activity of the organization that have been synthesized into a table of four
categories: strengths, weaknesses, opportunities and threats.
The cause evidence of the main strong points in SNL Tg-Jiu Oltenia is summarized in the
table below:32
Strengths
- Major interest of
company management
for recovery and
rehabilitating its
economic
management;

Weaknesses
- Not using or use of
early stages systems of
modern management:
project management,
management by
exception, methods to
stimulate creativity;

Opportunities

Threats

- Ability to develop
the region due to
Romania's integration
in the European
Union;
- The existence of coal

- The possibility of
migration of
specialized personnel
to competitor
companies or of other
specific in the EU as

31PROGRAMUL DE RESTRUCTURARE AL S.N.L. OTENIA S.A. TG-JIU, pp. 18-22

32STRATEGIA DE EFICIENTIZARE I MENINERE A S.N.L. OLTENIA S.A. TG-JIU CA LEADER
NAIONAL N CEEA CE PRIVETE EXTRACIA LIGNITULUI, pp. 24 50
31

- A relatively stable
market conferred by
traditional
beneficiaries of SNL
Oltenia - Upgrading
and reliability of
machinery and
installations
- Stability of
personnel;
- Structure by age,
gender, training
according to field; Multi-qualification
staff existing within
S.N.L. Oltenia;
- Production capacity
of SNLOltenia
provides energy coal
needed to produce
20% of electricity
production in the
country, as well and
providing heat for
cities: Arad,
Timisoara, Oradea,
Craiova, Drobeta
Turnu Severin,
Ramnicu Valcea,
Motru, Braov, with
the possibility of
modeling the
production capacity
based on the
consumption of
potential customers.

- Duration of
recoverability show high
levels over the level
considered normal for
this indicator.
- Deficiencies reported
to some products related
toand unreliable;
- The existence of a
single supplier for a
number of parts;
- Increase the average
age of the staff in the
company, robust age
growth of qualified
personnel in escavating
equipment due to
collective redundancies
made in recent years and
the failure of direct staff
employment.

deposits in the vicinity

of large consumers
(Complexul Energetic
Rovinari,
ComplexulEnergetic
Turceni, Complexul
Energetic Craiova) or
in other words the
company location in
the center of the
beneficiaries gives
superior capitalization
of the existing market
opportunity;
- The emergence of the
stream of management
modernization in the
Romanian society;
- The emergence of
additional sources of
financing investments
using grant funds
(structural funds, etc.)
- Diversification of
foreign firms for
multiple forms of
cooperation: strategic
alliances, joint
ventures, leases and so
on

a result of Romania's
integration and
liberalization of labor
migration;
- Tightening
environmental
legislation, which
calls into question the
future existence of the
company;
- Instability of the
legislative , fiscal,
banking system
evidenced by frequent
changes in
regulations;
- Manifestation of the
phenomena of
bureaucracy and
corruption, which
generates an
unfriendly business
environment,
removing major
investors;
- Low interest of
potential business
partners due to risk on
the country and
unfavorable image of
Romania
internationally;
- High interest rates
and reduced grace
periods for investment
loans.

S.N.L. Oltenia S.A. Tg-Jiu intends to remain a national leader in the extraction of lignite to
produce electricity and heat and become a competitive and known firm. And the foundation of its
development approach is the development and exploitation of complex human resources at its
disposal, based on a vision and dynamic economic management, implemented professionally. It
32

takes into account achieving an organizational culture characterized by motivation, creativity,

participation and effectiveness, which prioritizes obtaining satisfaction for both customers and
employees, developing team spirit and achievement of stable economic growth.
3.3. Identifying and assessing specific risks in SNL Oltenia Tg-Jiu
SNLO activity in economic conditions is largely dependent on the critical situations of
economic and political order, lately, leaving their fingerprints abusively on its financialeconomic activity.
1) The risk of insufficient investment activities because currently such investments are necessary for
improving the situation of the company, its financial resources are reduced compared to the outsiders.
These investments would help upgrade existing equipment and increase their duration of use, and
purchasing of new ones.

2)
4.4% of the production given by S.N.L. Oltenia is done underground, which means
production costs per tonne of lignite outweigh competing economic agents who extract lignite
only from activity of quarry, so there is a risk the product to be denied, and even the image and
its sales will suffer. This has the effect of increasing production costs of tons of lignite, or even
closing and preserving unproductive units.
3) Risks from human resource management in SNLOltenia are characterized by the need of
proper operation development using appropriate employment in quantitative, structural and
qualitative level . The materialization of personnel migration risk, strikes triggering or labor
disputes, the occurrence of accidents at work, etc. has adverse consequences on the production
volume achieved, on the achieved production quality , respecting contracts with customers, on
the company's performance and its image in the market.
4)
A representative SNLO company risk, being an extractive industry company, is the tougher
legislation regarding environmental protection, which questions the future existence of the
company. Enterprise activity can lead to changes in surface water quality, hydrographical and
hydrological regime, may lead to landslides and cracks on the ground.
5) Difficulty in terms of new land occupation through extensive excavation or dump, roads,
lanes routes etc., is an inherent risk leading to some rising costs.
6) Another risk to consider is the absence of a genuine national economic strategy and partial
areas strategies. This risk arises difficulty of forecasts, company development plans and staffing,
due to the fluctuating evolution of the economy and social environment.
7)
The risk of various forms of bureaucracy and corruption, which generates an unfriendly
business environment, removing major investors. Low interest of potential business partners and
country risk due to unfavorable image of Romania internationally.
8) The risk of fire in the establishment, for which you must obtain permits and licenses of
prevention and extinguishing provided by law, and also to develop defenses against them, and
elaborate defence instructions and settle the tasks for employees, for each workplace. The
training in emergency situations, for persons engaged in work constitutes part of the fire

33

protection activity and their training and aims to acquire knowledge and skills necessary to
prevent and extinguish fires at work.33
9)
The risks of disclosure of secret information , which can cause damage to society. Some
lists of secret information can include information that refers to the activity of the unit / subunit
and which should be known only by the people that are required to perform their duties.
Marking the classified information is aimed at alerting people that manages or accesses them
because they are in possession of information about the specific access and protection measures
that need to be implemented, in accordance with the law.
Staff access to secret information is only allowed based on the access authorization issued by
the unit / subunit chairman.
10) The risk of conflict between their interests and the interests of SNLOltenia Tg-Jiu. In any
event, employees who have business relations with clients, contractors, suppliers must act solely
in the interests of society and to exclude any kind of personal advantage. Duty, loyalty and tasks
of the employees should not be compromised in any personal interests. Employees will avoid
any direct or indirect involvement - for example through family members (husband / wife or
dependent children) - in joint ventures or investment that influence or can influence individual
decisions of any employee when it acts in the interests of society. Where an employee is
involved in a conflict of interest, company management must consider and resolve the situation
with the Legal Department.34
11)
The risk of exhausting reserves in certain perimeters, which would increase the risk of
social problems arising in particular from ending the activity. The material basis consists of
lignite reservesin perimeters leased in amounts of approx. 178 million tons of energy lignite . In
administrative and territorial terms, reserves are distributed as follows: Gorj- 80%, Mehedinti 10%, Valcea - 10%. Lignite is a lower coal used as fuel in bulk for production of electricity and
heat and to a lesser extent for domestic consumption. The production cuts caused by depletion
from 2014 leads to increased social problems by job losses related to the capacities to be
closed.35
12)
Risk of equipment damage. Technical equipment of production units in the SNL Oltenia
consists of machines that are not currently produced internationally, keeping them running and
with increased performance being achieved only through modernization. Of the 43 rotor
excavators the first was put into operation in 1973, the last 6 being put into service during 1990 2000. In 2004 - 2006 only 11 machines have been upgraded from 43 excavators . Restructuring

33Regulament intern, Art. 36.

34Regulament intern, Art. 4
35STRATEGIA DE EFICIENTIZARE I MENINERE A S.N.L. OLTENIA S.A. TG-JIU CA LEADER
NAIONAL N CEEA CE PRIVETE EXTRACIA LIGNITULUI, pp. 3 6

34

programs require to further modernize the machinery but also bear in mind also to attract sources
of financing for purchases of high performance machines.36
13) The risk of lignite market to decline and thus the product may not be sold with the desired
standards. Lignite is a lower coal used as fuel in bulk for production of electricity and heat also
to a lesser extent for domestic consumption. Lignite selling price is below the inflation rate,
under the growth rate in electricity prices. Production of lignite based electric energy is done at
the average cost at country level, which demonstrates the competitiveness of lignite in relation to
oil production carried out in general. Ability to adapt to demand by the fact that the lignite has
ensured overcoming the moments of crisis caused by drought, lack of energy or other primary
resources due to rising prices of these primary resources influenced by certain events that
occurred worldwide during certain periods, constitutes a main advantage but also irrational
management of these periods can give rise to situations difficult or impossible to fix.37
14)
Foreign exchange risk affects the financial results of enterprises from a country in a
similar way , when they convert , in the settlement time, their contract price, expressed in
national currency, to a foreign currency.38
15)
Natural risks may affect the industry both directly and indirectly . Natural disasters such
as earthquakes, floods, landslides, can affect both factories, warehouses and points of sale.
Deviations from normal weather conditions may affect sales.

36STRATEGIA SOCIETII NAIONALE A LIGNITULUI PENTRU PERIOADA 2007-2020, Ianuarie 2008,

pp. 7 9

37STRATEGIA SOCIETII NAIONALE A LIGNITULUI PENTRU PERIOADA 2007-2020, Ianuarie 2008,

pp. 11 13

38Prunea, Petru, Riscul n activitatea economic. Ipostaze.Factori. Modaliti de reducere, Editura Economic,
Bucureti, 2003

35

Conclusions
In conclusion, the risk is not an isolated event, it is basically the foundation of all business
because our world, without borders and strongly globalized causes rapid transfer of risk from one
country to another. There is no immunity to risks so their management is crucial. Risk managers,
take risky decisions because "the future is not unique and perfectly predictable".39
Risk analysis at the level of an economic entity is very important for company
management, because it supports managers in adopting risk strategy, it warns them against
deteriorating business climate and represents basic support in adopting and implementing
intervention strategies in critical situations .
The purpose of risk management in an organization is to help understand the risks
affecting the organization and their management so that the organization meet its goals. The
main advantage of a risk management program is economic efficiency because managers
recognize the risks affecting the organization and administrate them properly so that they do not
happen or to minimize losses. Risk management is a process of identifying, analyzing and
responding to potential risks of an organization.
Any organization that aims to join the market economy requirements, regardless of
the activity profile, legal form, the size and socio-economic area in which it operates, has to
adapt continuously to risky situations that can occur in both current activity, and in the future.

39M. Crouhy, D. Galai, R. Mark, The essentials of risk management, USA, The Mc. Graw Hill Companies, pag.5
36

The current phase of development of internal audit, both internationally as well as nationally,
face a constant state of change. Therefore the systematic assessment of the risks that are always
changing is also necessary.
Any risk registration must be accompanied by proper registration. In fact, long before the
commencement of risk identification, a registration system must be developed and implemented .
After identifying the risks, all relevant data must be inserted in order to be used as a reference in
the analysis of the next period .

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