RISK & VALUE MANAGEMENT

1/1/2013

Contents
1.0. 2.0. 2.1. Introduction ................................................................................................................................ 3 Different Risks faced by the Company ........................................................................................ 3 Operational Risks .................................................................................................................... 5

2.1.1. Technological Risks ............................................................................................................... 5 2.1.2. Legislative Risk ...................................................................................................................... 7 2.2. Hazard Risks ............................................................................................................................ 8 Environmental Risk ......................................................................................................... 9 Political Risk .................................................................................................................. 10

2.2.1. 2.2.2. 2.3.

Financial Risks ....................................................................................................................... 11 Economic Risks .............................................................................................................. 11 Market Risk ................................................................................................................... 12

2.3.1. 2.3.2. 3.0. 3.1. 3.2. 4.0. 4.1. 4.2. 4.3. 4.4. 4.5. 5.0.

Disaster Recovery Plan .............................................................................................................. 14 Revival Plan for Environmental Risks .................................................................................... 14 Revival Plan for Technological Risks ..................................................................................... 16 Value Chain Analysis ................................................................................................................. 17 Infrastructure of the Company ............................................................................................. 18 Human Resource Management ............................................................................................ 19 Technology Development ..................................................................................................... 19 Procurement ......................................................................................................................... 19 Primary Activities .................................................................................................................. 20 Conclusion ................................................................................................................................. 20

1|Page

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

2|Page

1.0. Introduction
Risk 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 Company

There are several risks faced which companies face and shown in the fig below. Figure 1 Different Enterprise Risks

3|Page

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 Figure 2 Risk Management Steps

Source : (Busster, 2011)

4|Page

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

Technological Risks

Operational Risks
Legislative Risks

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
5|Page

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. Figure 4 Technological Risk Analysis

Technological Risk
There is alot of competition in the market with many competitors offering the same product on cheaper price.

Risk Evaluatiom
Decrease in the Profits of the company. Competition has increased in the market with company 's inability to face the competition. Decrease in Revenues.

Risk Mitigation
Updation of new Technology. company must apply cost cutting techniques so more can be spend on implementation of the new technology. To avoid the confusion and unwillingness of employees to use the technology, training and workshops should be arranged for the employees by the company.

6|Page

Source : Developed by Researcher

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. Figure 5 Legislative Risks and Its components

Risk Mitigation Legislative Risk Risk Evaluatiom

Governement is frequently changing the trade policies. Tax has been increased on the products. To keep a margin on profit, price per unit will be increased. Change of business site will cost extra in form of transportation charges. There will be a decline in the profits of the company. Legal administrative authroities could be approached in order to resolve the regulatory issues. . New suppliers and Distributors can be approched to get the raw materail at better cost. Cost cutting method in manufacturing could be applied.

7|Page

Source : Developed by Researcher

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

2.2.

Hazard Risks

Hazard 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

Environmental Risks

Hazard Risks
Political Risks

Source : Developed by Researcher

8|Page

2.2.1. Environmental Risk

Environmental Risk is a risk to the surroundings, environment and living being nearby, by any 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

Environmental Risk
Due to overflooding of river Cruz site was foolded and it caused contiminated material to flow into the river. This has caused river water to be contiminated. Fire broke out in the 2011 in the factory and the smoke out of it contiminated the Air.

Risk Evaluatiom
Health of the workers is at stake. Currently organization is employing 1350 workers form the local community. These workers reside in the nearby residential area which is affected by the conitminated water and polluted air by the factory smoke. Cruz river has a marine life which is a source of income for the nearby small scale fishing Industry. Marine life in river Cruz is getting disturb due to this pollution.

Risk Mitigation
. The chemical substance and waste of the factory must be properly disposed of following the international policies. Past mistakes should be compensated by providing a health insurance to the workers and taking proper steps such as Suitable sewerage system for industrial waste and improving the manufacturing system to avoid environmental hazards.

Source : Developed by Researcher

9|Page

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 Figure 8 Political Risk and Its Components

Political Risk
At present company has immunity for its site form government officials but it can face political risks if it shifts its site.

Risk Evaluatiom
Tax rate can be increased due to shift of site, and change in policy of government. There could be overall decrease in profit of the company as cost can be increased on the manufacturing of per unit. Whole business environment can be affected form this.

Risk Mitigation
Negotiation regarding taxation and regulation can be done with the governmental agents on the change of business site.

Source : Developed by Researcher 10 | P a g e

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

Economic Risks

Financial Risks
Market Risks

Source : Developed by Researcher

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

11 | P a g e

Unstable rates of stock exchange

Risk Mitigation Risk Figure 10 Evaluatiom Ecnomic Risk and Its Components Economic Risk
Increase in the price of Raw Material. Increase in transportation charges affecting the overall price of production. Unstable stock exchange rates Cost of production on per unit can be increased if there is a change in rate of currency in the country Cost cutting techniques and methods can be applied in manufacturing to reduce the cost. New suppliers could be approached to get the raw material at the cheaper rates.

Effect of regulations on the cost of production.

Source : Developed by Researcher

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
12 | P a g e

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 said Organization U s e

Market Risk

Risk Evaluatiom Risk Mitigation

Shift of customers to the new company Decrease in sales of the company

o f

n e w

Manufacturing of new plastic products with added features at cheaper rates by the competitor Entry of new competitor In the market

Achieve competitive advantage through startgic mamangement

t e c h nology and innovation in product

Add new features in the product with the same cost of production

Figure 11 Market Risk and Its Components

13 | P a g e

Source : Developed by Researcher

3.0. Disaster Recovery Plan

The 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 set up 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 Risks

CONTIGENCY PLAN HAZARD RESPONSE

RISK IDENTIFICATION Seepage

14 | P a g e

Company

chemical

There is possibility that wildlife

A team should be formed by the company to frame echo friendly programs.

substance leakage can cause problems serious for the

Association and local fishing industry can sue the company for damaging the marine life by contaminating

corporation as it can cause flare out of the plant. Hazards for local

the water of river Cruz. If a company changes its present under the pressure of the

New

technologies

Community Local community is affected by the smoke of the factory. disease

should be adopted by the company to

reduce pollution in the process company. manufacturing of the

Respiratory

following conditions, there will be an

common in the local community. Contaminated water Thrash and waste

immense increase in its cost. The company has been operating at the present for 24 years and its products are transported A new scheme for proper sewerage and dumping of waste

substance thrown by the Autoplast in River Cruz is affecting

materials should be framed company. by the

marine life and local fishing industry.

through local railway, thus have minimal

cost of transportation. By moving to another site its transportation cost will be increased. Secondly company

site is immune to tax changes, if it moves from the present site it will have to bear the additional cost of
15 | P a g e

tax.

3.2.

Revival Plan for Technological Risks

RISK IDENTIFICATION Latest used Technology by the

CONTIGENCY PLAN Investors' interest Due to it following is also that might be less

HAZARD RESPONSE A comprehensive plan is needed to install new technology and cost effective production process. It will enhance the productivity of the company.

competitors In the manufacturing of the plastic products company has many competitors market in the are

reasons possible Investors

reluctant to invest in the company and this is a serious problem for the company.

who

producing the same product with latest

technology and have low cost of Less Market Share When there will be a better available for choice the New agreements and attractive offers

production. Plants with less risks Of pollution used by the Competitors The manufacturing of plastic for automobile industry emission involves of

should be presented by the company to its investors. The Echo friendly process

customers at reduced prices, the company will lose its market share.

production

must be determined through the use of new technology and its An implementation. effective

hazardous substances. In market there are many competitors

16 | P a g e

who are using latest technology to

procedure should be adopted to dump the waste materials.

manufacture the same products in a safe way.

4.0. Value Chain Analysis

17 | P a g e

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 the company business to get fruitful result.

Figure 12 Value Chain Analysis Model

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 Company

The infrastructure of the company must be Efficient enough to make a SMART decision. In current situation company is facing multiple pressures efficient and

18 | P a g e

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 Management

Currently 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 Development

New 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.

Procurement

Good 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.

19 | P a g e

4.5.

Primary Activities

Primary 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. Conclusion
After 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.

20 | P a g e

References Drake, R. A. (2004). Selective potentiation of proximal processes: Neurobiological mechanisms 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 and Oppurtunities. 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.

21 | P a g e