risk and value management.docx

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RISK & VALUE

MANAGEMENT

1/1/2013


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Contents1.0. Introduction ................................................................................................................................ 3

2.0. Different Risks faced by the Company ........................................................................................ 32.1. Operational Risks .................................................................................................................... 5

2.1.1. Technological Risks ............................................................................................................... 5

2.1.2. Legislative Risk ...................................................................................................................... 7

2.2. Hazard Risks ............................................................................................................................ 8

2.2.1. Environmental Risk ......................................................................................................... 9

2.2.2. Political Risk .................................................................................................................. 10

2.3. Financial Risks ....................................................................................................................... 11

2.3.1. Economic Risks .............................................................................................................. 11

2.3.2. Market Risk ................................................................................................................... 12

3.0. Disaster Recovery Plan .............................................................................................................. 14

3.1. Revival Plan for Environmental Risks .................................................................................... 14

3.2. Revival Plan for Technological Risks ..................................................................................... 16

4.0. Value Chain Analysis ................................................................................................................. 17

4.1. Infrastructure of the Company ............................................................................................. 18

4.2. Human Resource Management ............................................................................................ 19

4.3. Technology Development ..................................................................................................... 19

4.4. Procurement ......................................................................................................................... 19

4.5. Primary Activities .................................................................................................................. 20

5.0. Conclusion ................................................................................................................................. 20


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Table of figures

Figure 1 Different Enterprise Risks ...................................................................... 3

Figure 2 Risk Management Steps ......................................................................... 4

Figure 3 Operational Risk and its Components .................................................... 5

Figure 4 Technological Risk Analysis ................................................................. 6

Figure 5 Legislative Risks and Its components .................................................... 7

Figure 6 Hazard Risks .......................................................................................... 8

Figure 7 Environmental Risks and Its Components ............................................. 9

Figure 8 Political Risk and Its Components ...................................................... 10

Figure 9 Financial Risks ................................................................................... 11

Figure 10 Ecnomic Risk and Its Components ................................................... 12

Figure 11 Market Risk and Its Components ...................................................... 13

Figure 12 Value Chain Analysis Model ............................................................. 18
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1.0. IntroductionRisk is a part of business which cannot be avoided by any company and enterprise (Power,

2004). There are many types of risks which are associated with the business and a proper

strategy is required to address these risks. This report is based on the Risk analysis of our

company Autoplast Ltd. The business of the company is to manufacture plastic products for

the automobiles. In the recent years company has been facing many problems, these problems

have occurred due to lack of planning and underestimation of risks faced by our company. A

new strategy needs to be framed for the risks faced by the company. A detailed analysis of

the company is done in this report.

2.0. Different Risks faced by the CompanyThere are several risks faced which companies face and shown in the fig below.

Figure 1 Different Enterprise Risks


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Source: (Viasla, 2011)

In the figure it is shown that there are four basic risks and other risks are sub parts of it. It is

important for the companies to understand and analyse these risks in an effective manner and

then take steps to mitigate the risks. This is known as Risk Management and the steps shown

in the Diagram are used to find and control the situation.

Now the company will be analysed to see that what kinds of risks are faced by the company.

First

Source : (Busster, 2011)

Figure 2 Risk Management Steps


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2.1. Operational Risks

Operational Risks are caused when people take actions and these actions could be deliberate

and non-deliberate. It could be caused by any Systems, this involve risks which could be

from any non-living source such as software or any physical object. Thirdly external factors

of any type such as change of legislation and failure in supplies could also cause risk to the

enterprise (Khan, 2008).

Figure 3 Operational Risk and its Components

Source : Developed by Researcher

2.1.1. Technological Risks

Technical Risk is the possibility of happening of damage due to any misuse of technology,

any damage or outburst. Technological Risks are mostly very dangerous and cause

irreversible damages to the enterprise and employees . There could be a big loss such as the

complete shutdown of the business or data loss to the enterprise. Damages caused by the

Technological risks are far too expensive for the company and impose a great challenge on

OperationalRisks

Technological Risks

Legislative Risks


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the Risk manager (Jay, H. and Barry, R. 2008 ).There are various examples of Technological

risks faced by enterprises such as

Inefficiency due to implementation of new technology without training the staff.Example of NESTLE SA Company is a fine example of this. The company spent a

large amount of money on the implementation of new software SAP, to improve the

overall efficiency of the company but did not train its employees about its usage. The

result was a complete disaster and more inefficiency of employees.

Old technology and intense competition in the market.

Updation of newTechnology.

company must applycost cuttingtechniques so morecan be spend onimplementation of thenew technology.

To avoid the confusionand unwillingness ofemployees to use thetechnology, trainingand workshops shouldbe arranged for theemployees by thecompany.

Risk Mitigation

Decrease in the Profitsof the company.

Competition hasincreased in themarket with company's inability to face thecompetition.

Decrease in Revenues.

Risk Evaluatiom

There is alot ofcompetition in themarket with manycompetitors offeringthe same product oncheaper price.

Technological Risk

Figure 4 Technological Risk Analysis


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2.1.2. Legislative Risk

Legislative risks are those which occur when there is a change in legislation and law by the

government and that change in turn affect the operational laws of the company (Cortada,

James W, 2007). These types of risks can disturb the operations of the company, as there

could be an addition to the responsibilities of the company, more tax can be added to its

products resulting in increase of price and less demand in the market Examples of Legislative

risks are

Change in government legislation.

Legal administrativeauthroities could beapproached in orderto resolve theregulatory issues.

.

New suppliers andDistributors can be

approched to get theraw materail atbetter cost.

Cost cutting methodin manufacturingcould be applied.

Risk Mitigation

To keep a margin onprofit, price per unitwill be increased.

Change of businesssite will cost extra inform of

transportationcharges.

There will be adecline in the profitsof the company.

Risk Evaluatiom

Governement isfrequently changingthe trade policies.

Tax has beenincreased on theproducts.

Legislative Risk

Figure 5 Legislative Risks and Its components


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Change in taxation policy. Change in policies related to consumer rights.

2.2. Hazard RisksHazard can be described as any agent (biological, physical, chemical, mechanical) causing

harm and damage to the surroundings. This could be of any type such as damage caused by

electricity, asbestos, vaccines and so forth. There are various examples of Hazard Risk such

as Trip hazard, working with sharp tools, UV rays, reaction to any chemicals, lifting of any

heavy objects and so forth. There are two further sub types of Hazard risk described below.

Figure 6 Hazard Risks


Hazard Risks

Environmental Risks

Political Risks


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2.2.1. Environmental Risk

Environmental Risk is a risk to the surroundings, environment and living being nearby, byany action of the organization. Any consequences faced by the environment in the result of

action taken by the organization are known as Environmental Risk (Drake, R. A.

2004).Organizations have a responsibility towards the environment and society in which it is

living. Any such actions, such as animal testing of the products, cutting trees, disposing of

waste into drinking water cause environmental Risk.

Figure 7 Environmental Risks and Its Components

Source: Developed by Researcher

.

The chemical substanceand waste of the factorymust be properlydisposed of following theinternational policies.

Past mistakes should becompensated byproviding a healthinsurance to the workersand taking proper stepssuch as Suitablesewerage system for

industrial waste andimproving themanufacturing system toavoid environmentalhazards.

Risk Mitigation

Health of the workers isat stake. Currently

organization is employing1350 workers form thelocal community. Theseworkers reside in thenearby residential areawhich is affected by theconitminated water andpolluted air by thefactory smoke.

Cruz river has a marinelife which is a source of

income for the nearbysmall scale fishingIndustry. Marine life inriver Cruz is gettingdisturb due to thispollution.

Risk Evaluatiom

Due to overflooding ofriver Cruz site wasfoolded and it causedcontiminated material toflow into the river. Thishas caused river water tobe contiminated.

Fire broke out in the2011 in the factory andthe smoke out of itcontiminated the Air.

Environmental Risk


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2.2.2. Political Risk

A political risk can be defined as a change in government and political Scenario of the

country. As the government changes there is a change in the government agenda and policies

are formulated according to that (Henisz & Bennet, 2003). These policies may have a

negative effect on the investors and entrepreneurs. There is a possibility that investors might

receive less on their investments. There are many examples of Political risks which

organization might face such as

Change of Investment regulations Increase in price and loss of share in the market Changes in Law of Import Export Civil war


Negotiationregarding taxationand regulation canbe done with thegovernmental agentson the change ofbusiness site.

Risk Mitigation

Tax rate can beincreased due toshift of site, andchange in policy ofgovernment.

There could be

overall decrease inprofit of thecompany as cost canbe increased on themanufacturing of perunit. Whole businessenvironment can beaffected form this.

Risk Evaluatiom

At present companyhas immunity for itssite formgovernment officialsbut it can facepolitical risks if itshifts its site.

Political Risk

Figure 8 Political Risk and Its Components


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2.3. Financial Risks

Financial risks occur when a company has less income and more expensive in simple terms.

It is the phase when the company does not receive enough in return of its expenditures to

cover its expenses and enjoy the profit. These risks are real danger in the business terms for

an organization (Preston, et al 2006).

Figure 9 Financial Risks


2.3.1. Economic Risks

Financial risks can occur due to several reasons and these could be increase in the price of the

raw material, changes in tax regulation, change in trade policy and so forth (Karapetyan,

2010). The result of financial risk is declining in profits, increase in expenditures and overall

loss of customers. There are several examples of Economic Risks such as

Increase in production cost

FinancialRisks

Economic Risks

Market Risks


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Unstable rates of stock exchange

Effect of regulations on the cost of production.


2.3.2. Market Risk

Market risk can be defined as the situation in which there is an intense situation in the market

and the organization is losing its share in the market as there are many competitors present in

the market offering the same product at cheap rate (Walker, 2012).

When an organization faces competition in the market it causes a decline in the overall

position of the company in the market and can lead to a big difference in sales revenue and

profit earned by the company. If the situation remains like this for Autoplast there will be a

decline in the position of the company in the market. A plan is needed to review overall

Cost cuttingtechniques andmethods can beapplied inmanufacturing toreduce the cost.

New suppliers couldbe approached toget the raw materialat the cheaper rates.

Risk Mitigation

Cost of productionon per unit can beincreased if there is achange in rate ofcurrency in thecountry

Risk Evaluatiom

Increase in the priceof Raw Material.

Increase intransportationcharges affecting the

overall price ofproduction.

Unstable stockexchange rates

Economic RiskFigure 10 Ecnomic Risk and Its Components


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strategies of the company which would help the company to revive its position in the market

and be innovative to attain its former position. There are many examples of Market risk such

as

Arrival of new product with attractive features at the same price offered by the saidOrganization

Us

e

of

n

e

w

t

e

c

h

nology and innovation in product

Achievecompetitiveadvantagethrough startgicmamangement

Add new featuresin the productwith the samecost of

production

Risk Mitigation

Shift of

customers to thenew company

Decrease in salesof the company

Risk Evaluatiom

Manufacturing of

new plasticproducts withadded features atcheaper rates bythe competitor

Entry of newcompetitor In themarket

Market Risk

Figure 11 Market Risk and Its Components


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3.0. Disaster Recovery PlanThe rubber manufacturing company is required to construct a disaster recovery plan that is

extra developed in contrast to the existing one. Organization at present is in a vital need to setup the plan that is well-built enough to feature the disarray. The disaster recovery plan

comprises two ecological dangers and two technical dangers.

3.1. Revival Plan for Environmental RisksRISK IDENTIFICATION

SeepageCONTIGENCY PLAN HAZARD RESPONSE


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Company chemical

substance leakage can

cause serious

problems for the

corporation as it can

cause flare out of the

plant.

Hazards for localCommunity

Local community isaffected by the smoke

of the factory.

Respiratory disease

common in the local

community.

Contaminated waterThrash and waste

substance thrown by

the Autoplast in River

Cruz is affecting

marine life and local

fishing industry.

There is possibilitythat wildlife

Association and local

fishing industry can

sue the company for

damaging the marine

life by contaminating

the water of river

Cruz.

If a company changesits present under the

pressure of the

following conditions,

there will be an

immense increase in

its cost. The company

has been operating at

the present for 24

years and its products

are transported

through local railway,

thus have minimal

cost of transportation.

By moving to another

site its transportation

cost will be increased.

Secondly companysite is immune to tax

changes, if it moves

from the present site

it will have to bear

the additional cost of

A team should beformed by the

company to frame

echo friendly

programs.

New technologiesshould be adopted by

the company toreduce pollution in

the manufacturing

process of the

company.

A new scheme forproper sewerage anddumping of waste

materials should be

framed by the

company.


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tax.

3.2. Revival Plan for Technological Risks

RISK IDENTIFICATION

Latest Technologyused by the

competitors

In the manufacturing

of the plastic products

company has many

competitors in the

market who are

producing the same

product with latest

technology and have

low cost of

production.

Plants with less risksOf pollution used by

the Competitors

The manufacturing of

plastic for automobile

industry involves

emission of

hazardous substances.

In market there are

many competitors

CONTIGENCY PLAN

Investors' lessinterest

Due to following

reasons it is also

possible that

Investors might be

reluctant to invest in

the company and this

is a serious problem

for the company.

Less Market ShareWhen there will be a

better choice

available for the

customers at reduced

prices, the company

will lose its market

share.

HAZARD RESPONSE

A comprehensiveplan is needed to

install new

technology and cost

effective production

process. It will

enhance the

productivity of thecompany.

New agreements andattractive offers

should be presented

by the company to its

investors.

The Echo friendlyproduction process

must be determined

through the use of

new technology and

its implementation.

An effective


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who are using latest

technology to

manufacture the same

products in a safe

way.

procedure should be

adopted to dump the

waste materials.

4.0. Value Chain Analysis


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Value Chain Analysis of the company will help the company to look for the available

resources to bring value to its manufacturing process and end product. It is very essential for

the manufacturers these days to add value in their business process to gain competitive

advantage and market share. Michael Porter has given a model of Value Chain Analysis that

could be applied to the process of thecompany business to get fruitful result.

Source

: (MSDN, 2008)

Following model could be applied by the company. In this model there are two types of

activities described in the model.

Along with the Primary activities it is also necessary not to overlook secondary activities of

the company.

4.1. Infrastructure of the CompanyThe infrastructure of the company must be Efficient enough to make a SMART

decision. In current situation company is facing multiple pressures efficient and

Figure 12 Value Chain Analysis Model


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vigilant administrative decisions are required to take the company out of this scenario.

Instead of avoiding the problems suitable strategies are required.

4.2. Human Resource ManagementCurrently the company is employing around 1350 local people but as the competition is

increasing there could be a turnover and employees can switch if they find a better

opportunity. So, better human resource policies are needed by the company to retain the

employees, as it is known fact that Human Capital is very vital for any company or enterprise

to lose.

4.3. Technology DevelopmentNew technology should be adopted to acquire market share and this must be done

with the willingness of the employees. Employees must be given proper training to

use technology for its successful implementation. This technology must be

environmentally friendly and should not harm employees using it and the

environment in which it is operating.

4.4. ProcurementGood decisions made by the company in its Procurement process lead to higher

efficiency of the company. Autoplast must purchase its raw material at cheaper rates

by entering into agreements with suppliers providing discounted rates. Analysis must

be done to know that to produce plastic through its own sources will be cheap or not.

Based on this analysis future strategies can be framed to establish a production unit to

produce its own plastic. Inventory must be managed in a skillful to avoid wastage and

less storage cost.


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4.5. Primary ActivitiesPrimary activities must also be analysed by the company to figure deficiencies in the existing

system. In current scenario company must improve its marketing and use marketing

techniques to enhance the features of its products. It will attract more customers and will add

value in its products. Moreover operations of the company can be improved by employing

skillful employee withy advance knowledge. This will add into the expertise of the company.

5.0. ConclusionAfter the current analysis of the company it is concluded that the company is moving slow in

the path of progress and technology, hence need to reform its strategies. Risk Managers need

to work on the operational policies of the company to make it possible for the company to

retain its position in the market.


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References

Drake, R. A. (2004). Selective potentiation of proximal processes: Neurobiologicalmechanisms for spread of activation. Medical Science Monitor, 10, 231-234.

Jay, H. and Barry, R. (2008),Principles of Operation Management, Vol 5, pp 35-37. Cortada, James W. (2007) The Digital Hand, Vol 3: How Computers Changed the

Work of American Public Sector Industries USA: Oxford University Press pp. 496.

Preston, Smith J. and Guy, Meritt M. (2006), Proactive Risk Management,Controlling Uncertainty in Product Development, pp 78-93.

Busster, R., 2011. Riiseko Busster Business. [Online] Available at:http://www.riskmanagementbusiness.com/af/category/risk-management-plans/page/6/[Accessed 24 Apr 2013].

Henisz, W.J. & Bennet, A.Z., 2003. The strategic organization of political Risk andOppurtunities. Startegic Organization, pp.451-60.

Karapetyan, L., 2010. Methods of Managing Financial Risks. SRH University Berlin. Khan, A.S., 2008. Modern Operational Risk Management.Emphasis , pp.26-29. MSDN, 2008. A Business-Driven Evaluation of Distributed-Computing Models.

[Online] MSDN Available at:http://msdn.microsoft.com/en-us/library/cc984967.aspx[Accessed 24 Apr 2013].

Power, M., 2004. The Risk Management of Everything.DEMOS. Viasla, 2011. Viasla. [Online] Available at:

http://www.vaisala.com/en/sustainability/economy/riskmanagement/Pages/default.asp

x[Accessed 24 Apr 2013].

Walker, D., 2012. Market Risk Management.Ernst & Young.
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