Risk Management in Business: A Case Study

gamble Management in Business A Case StudyINTRODUCTIONSITUATION either day, there is the outlook that just about sort of task interruption, crisis, disaster, or emergency lead occur. Anything that prevents access to lynchpin accomplishes and activities mass be defined as a disaster.Companies smoke experience m all different threats to their mission sarcastic dodges such(prenominal) as fires, floods, lightning storms and humidity to disgruntled employees, hackers, human error, power failures and viruses. A disaster rotter happen at either cartridge clip and it is rattling to be prep ard in the event that one occurs.NEEDTo be prep bed for a billet interruption, the organization must select a c arfully crafted and comprehensive envision that describes chances, repairs, and step-by-step rec o rattling strategies for critical worry processes in various disaster and emergency scenarios. Without a plan, the team give be flying blind when an interruption occurs. The plan provides the necessary tools to extenuate interruptions and resume operations as quickly as likely, greatly facilitating decision-making and winning fulfill when there is s depository financial institution time and stress levels are elevated. contendUsing the information in the endangerment assessment to create in effect(p) re cuty strategies for critical processes in exclusively plane sections, incorporating these strategies into a comprehensive furrow continuity plan, and encouraging give birthership of the plan across the organization, and ultimately, achieving the mellowedest resiliency tractable with limited resources.SOLUTIONCreate the recovery strategies department-by-department, process-by-process. This eitherows all(prenominal) department to centering on strategies detailally relevant to their critical processes without extraneous information from a nonher(prenominal) departments. Do the equivalent for your seam continuity plan, writing smaller pla ns by department. Also, use a template to document your recovery strategies to run into process consistency across the organization. Finally, have plans reviewed and approved by department heads and distributed to all employees to encourage possessership and pride in the plan.RESULTEach department in the organization result have a comprehensive action plan for contrast continuity outlining the steps to sustain to recover springy processes in various emergency scenarios. All employees give have their own copy of the plan, ready to use immediately when a disruption occurs. Employees will take ownership of the organizations business continuity effort and this effort will be further ingrained in the organizations unified culture.CHOCOLATE MANUFACTURING partyAN OVERVIEWThe coffee Company since inception in 1990 has been largely responsible for agreeable the countrys demand for Chocolates and Sugar Confectionery. Situated at Rusayl Industrial Estates in Muscat, Sultanate of Oma n, the institute has various strains producing a broad range of confectionary like clairs, Toffees, Fudges, Caramels, enceinte Boiled Candy and Enrobed Chocolates. These products are available in attractive promotion and premium Gift Boxes making them ideal for gifting as considerably as for own consumption. Most of the packaging in the Gift Pack separate has been heedfully selected to ensure its enduring utility, thereby giving our valued guests an added benefit. The confectionery is produced by experienced personnel under stringent musical note look into and hygiene themeards. State-of-the-art manufacturing facilities ensure products of international quality. The companionship in its persistent pursuit of quality obtained HACCP Certification in April, 2004.The Company, through its uncompromising stand on quality and competitive determine, has successfully penetrated countries all over the Gulf, the Afri groundwork continent, Asia, Australia, New Zealand, Canada, So uth Africa, USA and the UK.The principal business processes involved areProcurement of raw existents and consumables. yieldion and Quality control.Distribution and grocerying.Inventory Management. determine and cost control.Feedback from consumers and redressal systems.Publicity and promotional activities.Recruitment and HR.Finance Administration.Corporate communication theory and public relations.Legal and secretarial matters.Investor relations.Maintenance of equipment and other assets.Capital outgo for equipment and other purposes.IT systems and telecommunications.Transportation and Logistics.Today, manufacturing sector companies like chocolate manufacturing operates in progressively complex, competitive and global food commercialises. The ability to manage fortunes across geographies, products, assets, customer segments and working(a) departments is of paramount importance. The inability to manage these assays burn cause irreparable damages.Chocolate association will al shipway face the likelihood of organism squeeze by uncertain or adverse future events. These uncertainties will have an impact on a orders ability to generate slap-up and shareholders returns. The beau monde Board expects that oversight will not only look at where the ac high society whitethorn be undecided to tryiness, but also how these jeopardizes can be managed to bias favorable business outcomes.RISK AND RISK focussing hazard Management Methodology come throughed by the chocolate federationThe encounter perplexity methodology at the chocolate community encompass the chain of mountains of adventures to be managed, the process/systems and procedures to manage take chances and the roles and responsibilities of individuals involved in lay on the line wariness. The framework is comprehensive enough to capture all encounters that the troupe is exposed to and have flexibility to accommodate any channelise in business activities.The chocolate smart sets e ffective risk management methodology includes bump polity framework.Identification of risks.Measurement and tinge Assessment.Management of the risks.monitor Reporting and Control.A. endangerment Policy FrameworkThe hobby fundamental principles should be considered by the follow to germinate and implement a proactive risk management course and help them to identify any potential areas of concernAcceptance of a risk management framework A formal risk management framework is needed at this fellowship, to guide the integration of risk management into the callers day to day operations.Corporate political science and risk At this bon ton,corporate governance is the prime responsibility of the Board of Directors and the General Manager. It combines legal duties with responsibilities to improve and reminder the performance of the company.Establish the risk response strategy Following the covenant on the risk assessment rankings in all functional departments, management action w ill need to be taken to reduce the risk levels where they have been deemed unacceptably high or alternatively remove constraints where they are preventing the business from pursuing opport social unities.Assigning responsibility for risk management limiting process It is eventful for the company to ensure that the daily operation of the business supports this strategy and that the staff understands the proposed changes.Re-sourcing Risk management is the responsibility of all levels of management. conversation and training Implementing a communication and training program is important to cite the concept of risk management.Monitoring of risk management process To ensure that risk responses gaps are filled and that the risk responses continue to operate efficaciously and remain appropriate in light of changing conditions.B. Identification of versatile Risks of The Company man drafting this Risk management Policy, the primary risk exposures at the company X that are determine is provided below, which are comprehensive but not exhaustive and it will be the responsibility of the Risk Management Committee to review these on a periodic basis.I. commercialize RisksIt is the risk that the value of the company will be adversely moved(p) by movements in market rates or equipment casualtys, foreign veer rates, national global fluctuations, credit spreads and/or commodity prices resulting in a loss to earnings and enceinte.The market risks determine at this chocolate company are as follows administration Policy risks ingathering Risksenvironmental risks capriciousness of tradeingationing ordersPrice Competition in the topical anaesthetic export marketCurrency fluctuation for export ordersII. Operational RisksThe usable risks identified at chocolate company are as follows flak catcher Allied RisksMachinery dislocation/ obsolescence volatility of stark stuff Packing material pricesQuality/ ripening risks of edged material/ Packing materialDelivery risk of Suppliers departure of data information- IT securityManpower Availability risksAccidentsInventory looking riskIII. theme RisksThese are risks arising from negative public opinion resulting from failures of process, strategy or corporate governance.The Reputation risks identified at this company are as followsContamination-hygieneProduct expiry/ shelf lifeCorporate GovernanceIV. opinion RisksNon know of receivables or delay in receipts is the credit risks attributable to the company.These whitethorn be identified asPayment risk from customers- topical anesthetic anaestheticPayment risk from Customers- exportSecurity from customersAdvance to SuppliersV. Liquidity RisksThe possibility is that the company will be unable to fund present and future financial obligations.These whitethorn be identified asCash flow working capital managementCAPEX decisionsCost overrunsVI. Strategic RisksRisk those are arising from adverse business decisions or the im straightlaced implementati on of such decisions.These whitethorn be identified as followsBusiness Plan forecasts.Attrition of key people.C. Risk Prioritizing and Impact AssessmentRisk PrioritizingTo adequately capture institutions risk exposure, risk bar should represent aggregate exposure of the company to both risk eccentric person and business line and encompass short run as well as long run impact on it. To the maximum likely extent the company should establish systems / models that define their risk profile. even, in some risk categories, quantification is quite difficult and complex. Wherever it is not possible to quantify risks, soft measures should be adopted to capture those risks.The company should utilize a Risk Matrix to evaluate the level of risks which are identified in the Company. The Risk Matrix is formed by assessing the probability of the risk, the bitterness of the risk, and the quality of control that exists specific to those risks. Scoring is attributed for separately the three p arameters namely probability, severity and Internal control. The aggregate score is computed and ranking of the risks is ascertained.The probability of the impact occurring is arrange ranging from low to high. Scores assigned as 4 for High, 2 for speciality and 1 for low.Severity of the Risk is assessed as High, Medium and low base on the experience and normal prudence. Scores assigned as 4 for High, 2 for sensitive and 1 for low.Quality of Internal control is also similarly categorized as high, sensitive and low. The scores assigned in the reverse order since the better the existing control the disdain is the impact and vice-versa. So scores here can be assigned as 4 for Low, 2 for Medium and 1 for High.Aggregate Score was thereafter computed after adding the individual scores for each parameter.Companys Risk Matrix employ the above method is shown in Annexure Iii. Impact AssessmentThe company being a median(a) scale manufacturing unit should focus on the manageable risks l ike Operational risks, Liquidity risks and Strategic risks. Market risks, Credit risks and Reputation risks though an integral part of risk management whitethorn not need detailed impact assessment at this pegleg unless the probability of such factors seem to be out of proportions in time to come. Impact assessment of the Operational risks, liquidity risks and strategic risks at the company termed herein as Manageable risks, can be assessed as followsRisk associated with any event has two components, loss severity and loss probability. Loss, in itself consists of expected and unexpected components. The unexpected loss component could be dread(a) or catastrophic. Usually, expected losses are adjusted for in pricing or in reserve allocation. Unexpected losses require capital allocation. Given that operational risk, liquidity and strategic risk events are virtually often subject to internal control, any manageable risk system that passively measures these risks would cl untimely be scant(p).Once risk factors are identified as likely causes of the Risk losses, mitigating steps need to be initiated. While quantification would indicate risk magnitude and capital charges, it may not by itself suggest mitigating steps. This makes it advisable for the company to combine qualitative and quantitative approaches to manageable Risk.The broad steps involved here would bedetermine the types of operational losses that could occuridentify the causal risk factorsestimate the sizing and likelihood of lossesMitigate associated risksQualitative ApproachesQualitative approaches involve take stocks,Self-assessments nice / collective judgment.Critical Self-Assessment (CSA)This is one of the common qualitative bottom-up approaches where line managers of the company can critically analyze their business processes given specific scenarios to identify potential risks and gaps in their risk management processes. Tools like questionnaires, checklists and work marks are used to help th e managers analyze the risk profile of their business units. The key idea behind this method is that businesses managers of this company are in the outmatch berth identify and manage the Operational Risks pertaining to their business units.Risk AuditEmploying the services of external (or internal) auditors to review the business processes of a business unit is another approach. This process not only helps identify risks but also helps put in place the oversight organization for the manageable risks. advert Risk Indicators (KRI)Using the KRI approach the company can blend the qualitative and quantitative aspects of Operational Risk management. Factors that have predictive value and that can be easily measured with minimum time lag can serve as risk indicators. virtually risk indicators inherently carry risk related information, for instance, indicators like sales volumes, order size, etc. former(a)s are indirect indicators, for instance, toil bud reduces, production lifecycle, pe rformance appraisal etc. linchpin indicators are identified from several potential factors and are tracked over time. The predictive capabilities of the indicators are tested through regression analysis on historical loss data and indicator measurements. Based on such analysis, the set of indicators of the company being tracked can be modified suitably. Over time, as the model gets refined, the set of indicators can provide early warning signals for operational losses.D. Management of the risksManaging Market Risks The chocolate company may be exposed to Market Risk in variety of ways as described earlier such as environmental issues, export orders, future contracts, Price competition, customer profile and marine transportation risks. Besides, market risk may also arise from activities categorized as off-balance piece of paper item.Government Policy Risks Change in government policies, tax rates, display of new tax regimes, reduction or abolition of incentives etc carry risk to any entity in terms of its costing and pricing. In the short and medium term the company does not perceive any major risk in this segment, however the management has to be aware of any extrovertive changes that the government might envisage. Should there be any drastic change in Government policies that would affect its profitability especially in baptistery of exports the Company has contingency plans for producing at an alternative location outside Oman.Product Risks Since the product is that of food item the company has to be 100% careful to prevent the product quality, product specification, pack sizes, contents in each pack etc. Producing lesser or poor quality products and not as per specification is a risk which company X ineluctably to constantly be aware off. To moderate such risks the company X should stupefy a well defined production insurance policydevelop a well defined Quality control and checks policydevelop a well defined computer memory and Distribution polic yEnvironmental risks The company does not use and generate hazardous substances in its manufacturing operations. so the chances that the company may in future are subject to liabilities relating to the investigating and clean-up of contaminated areas is negligible. However the company should have a pose cumulation policy of disposal of waste at pre-designed disposal points mainly for the rejected, discontinue and damaged items of raw materials, finished products and pugilism materials.Volatility of export orders Some customers and sectors served by the company are directly reliant on oecumenical economic breeding, competition and condescend fluctuations in demand for their products. The prices for these products are, in part, dependent on the prevailing relationship between supply and demand. Possible price fluctuations are therefore apt to have a direct allure on each customers working capital management decisions, with subsequent influence on the customers Order Intak e. This may lead to volatility in the development of Order Intake of the company. The company has a policy of geographically diversifying its customer base, as also expanding the customer base in each export market, so that transfer to less volatile locations can be make in short notice.Price Competition in the local export market The Company does business in very competitive local and export markets. In spite of the competition the company has a 70% market share in the local market and its export business is expanding.Both these local and export markets in which it competes are highly fragmented, with a a few(prenominal) large, international manufacturers competing against each other and against a high build of smaller, local companies. Sometimes new entrants or existing players suddenly lower their prices to get rid of the companys products. This has, in some matters, adversely impacted sales margins recognize by certain of companys products.To mitigate this risk the company has taken the following stepsMaintaining complete information of its Competitors with respect to their latest technological developments, market strategies, new investments, management changes etc.Has developed emergency alternative plans to enclose different product ranges with minimal structural changes with similar or lower prices.Currency fluctuation for export ordersThe Company exports its products to a large number of countries like Canada, USA, Australia, African countries, and the Middle East. Almost all export orders of the company are fixed in US dollars. Since Omani Rail is pegged with US Dollars, the fluctuation of the currencies in would have negligible impact on the export realizations at company X. Company X has a policy of participation export orders in terms of US dollars to avoid the risk of currentness fluctuations.Managing Operational Risks Being a chocolate manufacturing company, it deals with the retail market. The most important risks are those of Operationa l risks. Operational risk is associated with human error, system failures and inadequate procedures and controls. It is the risk of loss arising from the potential that inadequate information system engineering failures, breaches in internal controls, fraud, unforeseen catastrophes, or other operational problems may result in unexpected losses or reputation problems.Fire Allied risks These are general risks applicable to almost all establishments. This includes actual damage to the companys property due to Fire lightning, Earthquake, Third party impact, unintended damage, explosion, riot strike, storm tempest, burst pipes, Own Vehicle impact, malicious damage, and theft. The company should take necessary steps in mitigating such risks by pickingsProperty All Risks Insurance PolicyLoss of profit indemnification coverMachinery breakdown/ obsolescence This risk identified is a major risk segment as the company has been established two decades earlier by using import refurbished Plantand machinery. Though most of the machinery is in ladder condition as of now the chances of spare part obsolescence is quite high in a absolute majority of such machines. The physical status and the possible mitigation for major machinery can be shown in ANNEXTURE IIVolatility of Raw Material/ Packing Material prices The Company faces a medium level risk in its Raw material Packing material prices. The main raw materials at are Sugar, Glucose, Milk Powder, vegetable fat, cocoanutnut, coco whey powders. The packing material required is Wrappers, Bags, Gift boxes, Gift Tins and cartoons. Other than a few packing materials almost all of the raw materials and packing materials are imported as shown belowQuality risk Raw material Packing material This is a medium sized risk and the company should take reasonable care to mitigate such risks. Since the majority of the raw materials and packing materials are imported by the company, the purchase commission should implementing a stringent policy ofShould have a multiple suppliers from the same country or region.Should have proper Quality checks for each lading while receiving address.Should have a stringent penalty clause on variation of specifications in the arrangements with suppliers.Delivery risk of Suppliers This is major risk element at the company because of the fact that in most cases purchases are imported and made through Letter of Credits. Non Delivery or delayed lurch in such purchases may affect the performance of the company. The company is implementing proper penalty clauses in the purchase savvy for delayed and/ or non-delivery of the request items.Transporting risks In case of local sales, the company transports the products mostly through its own personnel. The company therefore, takes a general Transit Insurance policy natural covering accidents and theft.Inventory carrying risk Inventory Carrying risks are of three typesStorage riskOverstocking under stocking riskExpiry riskStora ge riskThe storage policies currently areThe company can keeps the entire archive in closed warehouses.Over-stocking Under-stocking The company can maintain a frank optimized production planning system in correlation with its sales plan so that it can have a optimum stocking policy. The current production plan is quite satis pulverisation and hence the risk is low to medium. But the company is mostly dependent on Export market, the volatility of export orders may lead to overstocking or under-stocking of inventory.Expiry risks This risk is low to medium. Expiry risks of inventory can be mitigated by proper planning of Sales, Purchase, doing and Distribution. The Storekeeper needs to maintain up-to-date records. A system is being implemented to provide on-line information about the stock position i.e. the quantity in stock, Re-order period, Ordering level and the Expiry dates of each of the Raw material, packing material and finished stocks to the Sales, Production and Purchase d epartment so that immediate action can be taken by the several(prenominal) departments.Manpower Availability risks There is a shortage of skilled manpower in Oman. This is however met with the expatriate staff employed mainly from the sub-continent. The company therefore faces a medium risk in terms of accessibility of skilled manpower. The company can met unskilled manpower availability with the local Omani population and also from expatriate staff. The gap of skilled compass availability is likely to increase and therefore the costs also increase. To mitigate such risks, the company can develop long term strategy to invest in higher capacity production machines so that the requirement of manpower is kept low.Accidents The Company can face a chance of accidents at the factory, however the accident risks at the company is low, as it does not deal with hazardous material and the production processes are not complex. However the company may face risks from mechanical or electrical installations which cant be entirely ruled out. So the company needs to take the following stepsBy providing ELCB (Electric Leakage Circuit Breakers) in all electrical circuits and ACBs for the main transformersBy providing Hot masks to the manpowerHaving a good machinery breakdown policyConstant monitoring of the gas line leakagesThe company needs have a Manpower Accidents and Injury Policy to cover the possibility of injury or death of manpower within the factory premises.Managing Reputation RisksReputation of the company may also get halter in various situations some of which areContamination-hygiene Being in the pabulum sector the company should take utmost precaution to avoid any sort of contamination in its products which will reach to the general mass. The company should take precaution for the quality of the raw material and packing material that is required for the entire production process and the stocking procedure.The company can follow the following policyStringent Q uality control checks of Raw materials and packing materialsStringent Quality checks of the entire production processMaintaining Hygiene standards of the Government of Oman both in production and stocking.Sample testing at each stageHave a third Party damage policy insurance coverage owing to contaminationProduct expiry/Shelf life risks This is again a very vital risk to the company as it is in the Food sector. The Government of Oman is very stringent in its laws to avoid expired products to be sold to the general public. So the company should take utmost care to avoid this risk byproviding a stringent Distribution policy of its finished productsChecks and controls before distribution of products.Monitoring distributed products on a daily basisAttributing Responsibility to a precedential Personnel for the managementCorporate Governance Corporate Governance Policies and Procedures manual of arms are already in place at the company. Hence the risk associated with it is low. The manag ement has to ensure proper compliance of the policies already undertaken to avoid any risk of reputation arising out of non-compliance of corporate governance.Managing Credit RisksCredibility Risk of Customers The Company should develop a credit policy based on regions, volume and credibility ranking of the parties.Export The Company exports to a wide range of countries. The contacts of customers are mainly through visits and through mail. It is initially very difficult to assess the credibility of the customers abroad. The risk element is therefore medium and high.The company should mitigate this risk in the following mannerThe company should back up the export orders by Letter of Credit from the parties.In case L/C mode is not practicable, the company can ask for advance payments or Security deposit, or post go out cheques which will cover the entire order taken prior to effecting delivery of the goods.The company currently did not enter into any distribution agreement with any e xport party and deals with parties on a case to case basis The Company can set up a mesh of distributors for handling exports sales as far as practicable. The company can also set up more than one distributor in each region/country, so that price advantage can be achieved through minimal risk. The company should select distributors with proven track record, and the distributorship agreement should be through a internationally dorsum legal contract. local anaesthetic Local sales are affected by the company mainly to retail customers like supermarkets and hypermarkets, small shops and to two distributors in the interior.The company should take the following stepsSale to all hypermarkets and supermarkets where the volumes are above a certain limit are, as far as possible, affected by means of an annual contract with all modalities and terms and conditions clearly laid out.For single shop outlets, the company may face the risk of shop closing down and non-payment or delayed payment.To counter this company should maintain small stocks with such shops and should have a regular but frequent collection system.In case of distributors the company should have legally binding distribution agreements.Limit setting An important element of credit risk management is to establish exposure limits for each single customer and distributors. The compan