Business expansion exposes organizations to different potential risks and hazards that can impede overall business success. Business expansion is key to the success of an organization because it increases the ability of an organization to capitalize on the existing market opportunities. Understanding the risks and hazards that an organization face improves the overall proactive management and quantification of risks to establish their implications on an organization. Prostay Limited Company, a company, based in Triccky Town in the UK, deals with the production of paints. Historically, the company has been in its present location for over 30 years. The company has grown over the years to attract more customers across the UK and other European Union countries due to the quality of its paints. The growing demand of the product, therefore, needs to addressed by the company through extension and expansion of its production facility. However, there has been an outcry from the public living in the factory's neighborhood due to pollution caused by the factory to the natural environment. Therefore, in my presentation, we shall examine why the company needs to balance between expansion and extension of their facility for the growing demand of their product and the increasing concerns about pollution by the public.
Need verification is an essential activity in any business risk and hazard management because it establishes the overall value of the perceived organization change in our case Prostay expansion to meet increased demand. Need verification can be conducted by creating a strategic fit study of the expansion and the business goals as well as the cost and benefits of Prostay expansion.
Strategic Fit Analysis
Business expansion plays a significant role in the growth of production and the ability to increase the overall profit margin. Prostay seeks to expand its industrial park, which is the organization production center to meet the growth of paint demand in Europe, which is one of the critical markets for Prostay paint products. The primary goal for the organization expansion is to be able to capitalize on the new market by creating enough products to meet the market demand. The current industrial complex where Prostay produces its paints in Triccky town does not have the capacity to meet the current demand which necessitates the extension of its industrial park which as a result will increase the business organization production capacity. Therefore, the extension and expansion of the company's industrial complex will be vital in meeting market demand and growing shareholder's wealth. The new industrial park will be strategic in that it will feature new technology which will not only increase production but also eliminate the negative environmental impact caused by the business operations.
Costs & Benefit Analysis
Every expansion project has a cost to be incurred and benefits to be accrued. Understanding the cost and benefits of Prostay's factory expansion is fundamental in identifying the need to extend the organization production complex. The extension of the factory will require the organization to incur new equipment cost, more labor, construction materials, and to acquire more land for the same. As such, the extension of the facility will come at a substantial cost, which should be estimated to be in millions of dollars. At the same time, the organization is bound to benefit significantly from the extension through increased production of paint, safety, environmental conservation, and compliance with the European paint standards by deploying new technology. As a result, Prostay will be able to meet the growing market demand and increase its overall revenue. It is estimated that the organization will be ready to break even and start enjoying profits in the first quarter of operation.
Possible Risks Identification
Possible Disruption of Production
The expansion of Prostay production facilities can lead to the disruption of business, which will lead to the product shortage. This is a significant risk to the business because it will not only lose revenue but also can lose its market share in Europe by giving its competitors a chance to sell their products to its consumers.
Litigation by Local Community
The risk of litigation will face Prostay by members of the community in Triccky town, mainly due to their past experience in which the company has contributed to environmental pollution.
High Investment Cost in the Expansion
The expansion project will be costly and time-consuming, which is a critical risk in case it will not help the organization to increase its revenue; it will be a loss of invested capital.
There is the risk of increased environmental pollution if safety and environmental sustainability measures will not be given consideration. An expanded production complex increases the chances of management lapse that could lead to adverse ecological implications.
Various risks can result from Prostay decision to expand its production to meet the growing demand in Europe by building a higher capacity production plant in the old location of the production plant in Triccky the United Kingdom. The risks vary depending on the risk probability and the overall impact on the organization. Using a scale of 1 to 5, litigation by the Triccky community members is the highest risk facing Prostay move to expand its production plant. Litigation risk stands at 4/5 mainly due to previous negative encounters of the community in which Prostay inadequate fuel reserve storage systems led to the pollution of river Antieuro which is a significant source of livelihood for a nearby fishing village and residential estate. Therefore, the community is likely to go to court to prevent Prostay expansion in fear of further environmental pollution. The second significant risk based on probability is the disruption of business during the production plant expansion. The likelihood of the business being disrupted stands at 3.5/5, and in the occurrence, the impact towards the transaction will be high due to decreased sales, loss of market share and potential loss of employees to other competing companies. Thirdly, the probability of environmental pollution is high due to the increase in the overall waste from paint production. Lastly, the return on investment is an essential consideration for any business that is interested in expanding its production capacity. As such, the failure to achieve revenue goals by Prostay after the expansion should be considered as a risk. However, the probability of this occurrence is very low due to the high demand of Prostay paint products in Europe.
Hazard Identification and Profiling
Operating New Equipment: After the paint factory expansion, Prostay will have to install higher capacity paint production machinery, which can be difficult to operate because of change in operation instruments which can cause accidents. Besides, in the bid to improve environmental conservation, Prostay will be required to apply new technology which can fail due to the employee's lack of experience in operating the equipment.
Fire: Fire is a technology hazard which can occur due to faulty equipment and electricity connection in the new paint production unit. As such, fire is a technological hazard because new technical modifications can lead to system complications and fire. Besides, new systems are prone to experience system malfunction due to the mistakes of the employees operating them.
Toxic Liquid Wastes: Paint production involves multiple chemicals, and the results are the product and toxic waste, which is harmful to the workers and the environment. Due to the toxic waste chemical discharge toxicity and the production plant proximity to the community poses a significant threat to the health of the employees and the community. The release of the toxic liquid effluent in the nearby rivers or being carried by floods to the rivers can significantly affect the biodiversity of the rivers and their environs. Toxic liquid effluent can lead to a negative organization public image in Triccky Town, which will reduce local support from the inhabitants. Therefore, safeguarding the health of the community should be a paramount activity to protect Prostay image and prevent costly litigations.
Toxic Fumes: Paint production chemicals contain glycols, hydrocarbons, toluene, ammonia, and xylene, which are extremely poisonous if inhaled in large quantities. As such, poor functioning air conditioners and chimneys within the paint production factory can negatively affect the health of the workers and the communities living near the newly constructed paint production factory. This could result in irritation when breathing, nausea, headaches, and even lung cancer. Therefore, it is essential to ensure that the new factory has measures in place to prevent toxic fumes from being directly released to the environment, which could be toxic. The occurrence of toxic fumes in the organization can result in adverse health outcomes of the employees and the immediate community, which can negatively affect Prostay Company public image.
Contingency Plans & Response Strategy
Due to the various hazards and risks facing Prostay Company, it is necessary to create a contingency plan and response strategy. These elements are vital in containing the negative impacts or risks and hazards to prevent negative consequences on the organization and stakeholders such as the employees and the community members. A contingency plan provides solutions in the case of the accidents and hazards occurrence, whereas a response strategy is actions that Prostay Company should use to protect property, reputation, and human life.
The contingency plan establishes alternatives or precautions necessary to prevent adverse effects on Prostay Company in the case of a risk or hazard occurrence. In the case of Prostay Company, the following are key contingency actions.
Creation of Multiple Paint Production Units
Mass product production organization such as Prostay Company should have multiple paint production units which are crucial in safeguarding the organization against the occurrence of a risk that disrupts the production of paint in one of the business production units. During the expansion process, it is essential for Prostay Company to establish alternative production units that are fully equipped and work autonomously, which can supplement production during times such as mechanical breakdown and fire.
Hiring a Professional to Design Prostay's New Production Plant and Measure Safety and Environmental Compliance
Ensuring professionalism in the design of the new production plant as well as compliance can be a proactive contingency plan to prevent the faulty designs that negatively affect the overall safety of the new factory and compliance to safety and environmental standards. Therefore,...
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