The cost of facility maintenance has become so expensive in the modern economic world. Organizations are under pressure to reduce operational costs, increase revenues and achieve competitive advantages. Operation costs here include transport, depreciation, staff salaries, sales, and marketing expenditure. This proposal presents an analytical study about KJO which is a mining and exploring company situated between Saudi Arabia and Kuwait in its bid to reduce the corrosion risk facing its plant facilities.
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Mining companies are often faced with corrosion risks; the overall effect is significant on the financial statements. Corrosion risk reduces the life cycles of fixed assets. These include plant and machineries, motor vehicles, etc. The proposal is therefore aimed at identifying corrosion risk at KJO, measuring and quantifying it, and finally recommending assessment and prevention procedures.
Corrosion risk is the exposure of an organization’s fixed assets to adverse weather conditions that result in rapid depreciation hence reducing facilities’ estimated life span. In accounting, depreciation is defined as the systematic allocation of an asset’s depreciable amount over its period of use in business. (Liao 2002) Depreciation is therefore an operational cost. KJO is an oil mining organization; due to the nature of its core activities, mining facilities are more vulnerable to corrosion risks than service organizations.
The proposal is therefore aimed at studying circumstances that might lead to high chances of facilities being exposed to corrosion risk. In the contemporary business environment, different firms found within one industry are engaged in fierce competition, the main reason is to achieve sustainable competitive advantage. (EUB Report 2007)This can only be possible if cost minimization becomes part and parcel of an organization’s core objectives.
Managing corrosion risk will ensure that KJO reduces its facility maintenance cost and therefore achieve strategic competitive performance over time. It should be noted that almost all the organizations in the manufacturing, service, and product industry are currently facing the impact of the global credit crunch either directly or indirectly. (The Institution of Engineers Australia 2009)
Background of the study
Corrosion risk is one of the biggest challenges facing mining industries in the world. The proposal, therefore, seeks to highlight corrosion risk as one of the main problems that often complicate managers’ decision-making processes in an attempt to restructure organizational performance in the industry. As has been said, the main reason why risk will always feature as an interesting area of study is its relationship with an entity’s financial as well operational performance. Corrosion risk is directly related to a firm’s reported profit for any financial period. (Jones1999)
The more corrosion risk that facilities become exposed to, the more depreciation cost will be incurred, all being charged to the income statement for the period in which they are actually incurred. The study of this paper is based in KJO, an oil mining company found between Saudi Arabia and Kuwait places believed to be rich in minerals deposits than any other in the world. Corrosion risk management, therefore, becomes critical in the mining industry. (The Institution of Engineers Australia 2009)
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Relevance of the study
Mining remains one of the biggest contributors to economic prosperity, in fact, countries whose landmasses contain oil deposits are the richest. This can be seen among the Middle East countries featuring Iran, Iraq, and some African countries like Libya, Angola, Nigeria and etc. Managing corrosion risk is therefore instrumental in ensuring that organizational main facilities are safeguarded and that they are free from any physical or material damage that can significantly curtail the smooth running of mining activities. (Jones1999)
Aims and objectives of the study
The main aim of the study is to analyze the impact of corrosion risk on an organization’s mining facilities. The study unleashes a comprehensive analysis on both existing and emerging risk assessment and evaluation techniques and compares whether there are considerable results. (EUB Report 2007) The objectives of the study there are as follows;
- To find out how corrosion risk can be mitigated
- To investigate mechanisms for determining Corrosion risks
- To find out how a standard can be developed to protect KJO’s facilities
- To establish a means through which corrosion costs can be reduced
- To evaluate the benefits of managing corrosion risks
The rationale of the study
The framework of the study is built on the basis that corrosion cost increases operational costs by increasing depreciation which is an expense. This cost is charged in full to the profit and loss account for the period in which it relates thereby significantly reducing an entity’s recorded profit. The main objective of a profit-oriented organization is to make reasonable profits so that shareholders are fully compensated for their capital as well as the organization being able to meet its long-term and short-term goals. (Liao 2002)The essence of a mining organization, therefore, remains to record reasonable profits. Corrosion risk, therefore, appears to be a stumbling block and hence the rationale of the study.
This proposal is based on understanding the impact of corrosion risk at KJO, so that this is understood, a greater emphasis should be put on the meaning of the corrosion risk management process. (Sandberg LLP 2005)The study evaluates all possible sorts of literature ranging from primary to secondary data.
Impact of corrosion risk management at KJO
- Managing corrosion risk at KJO will ensure that facilities are operating at full capacities thereby ensuring production efficiencies.
- Risk management will also reduce insurance costs; this is a plus to the company.
- Plant and machineries depreciation costs will reduce, this will transform to lower operational costs and hence reasonable profit margins. (EUB Report 2007)
- Instituting adequate systems and procedures for assessing and evaluating corrosion risk will ensure minimal chances of occurrence; this will imply that operational activities would not stop at any given point.
The main problem is to look at corrosion risk that affects the operation at KJO. This paper is aimed at looking at the specific impacts of corrosion risk at KJO’s entire mining process. (IQPC 2009) This can be aided by asking the following research questions;
- Is it possible to use the findings of this research to mobilize mining companies including KJO to prioritize corrosion risk assessment in their entire organizational management practice?
- Is the research effective in highlighting techniques of managing corrosion risk?
- Aggressive risk strategy is likely to eliminate corrosion risk
- Corrosion is high in humid weather
- KJO’s financial performance was adversely affected by corrosion costs.
Corrosion risk is a threat to good performance; it is the responsibility of the overall management to ensure that organization’s activities and assets are not exposed to any kind of risk whether financial, operational, or corrosion risks. The impact of any risk is material taken on the basis of financial statements.
List of references
IQPC 2009, Corrosion risk management. Web.
Sandberg LLP 2005, Corrosion Risk Assessment of Reinforced Concrete Bridges. Web.
Liao, M 2002, Corrosion Risk Assessment of Aircraft Structures. Web.
EUB Report 2007, Corrosion / Risk Assessment. Web.
Jones 1999, Risk assessment approach to corrosion Management. Web.
The Institution of Engineers Australia 2009, Corrosion management and protection of Infrastructure. Web.