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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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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.
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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Source : Developed by Researcher
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
Source : Developed by Researcher
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
Source : Developed by Researcher
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
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
FinancialRisks
Economic Risks
Market Risks
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Unstable rates of stock exchange
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
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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Source : Developed by Researcher
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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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.
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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.
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