Risk analysis helps in identifying and managing the risk that could pose a danger to the success of any business. The company may encounter various types of hazards such as cybersecurity, operation, finance, human resource, business insurance, as well as contract and agreement threats. Without recognizing risks, it is hard for the company to develop strategies for achieving its objectives.
The scope of the study is to intervene and analyze the fictitious risks involved in ABC Motor Corporation Limited. The ABC company is the leading brand in Japan that provides various automotive systems and parts to original equipment manufacturers (OEM) globally. The company sells over 2.5 million automotive parts in a year to more than 20 countries. ABC Corporation provides varieties of services and products. The ABC struggles to operate in compliance with state, local, and federal regulations and laws. The company updates and reviews its employee handbook every two years to ensure the policies are per the federal and state employment laws.
ABC defines risk as anything that would prevent them from reaching their business goals. To deal with threats, ABC came up with annual interviews from each department that investigates the different potential risks and their control levels. The company established an independent internal audit unit that manages effective auditing of the company's activities globally.
Financial Risk Management
Financial risk is the direct threat that arises from how the company handles cash flow or the loss of organizational funds in terms of interest rate, liquidity, and currency risk (Girling, 2013). The financial risk might result in businesses spending outside the budget.
Any business requires cash to cater for the day to day capital and future investment needs of the company. Liquidity also caters for future expansion and repaying debts. By the end of the fiscal year 2016, ABC business had cash of YEN1,500 billion. The ABC liquidity risk management policy ensures enough liquidity and mitigation of liquidity risks in the industry. They also benchmark their liquidity rates with other corporations to ensure they are on the right path.
Sales Finance Liquidity
By the end of March, the ABC company had a sales finance liquidity of approximately YEN 500billion. In the fiscal year 2016, the company managed to raise funding from banks, commercial papers, and bonds. ABC sales finance companies are in different countries, and each sales company liquidity is monitored regularly for adequate liquidity information. Although the company targets to match the maturity of assets and liabilities, the ABC company fails to match funds in countries with long-term capital markets.
The financial risks in the financial market include foreign exchange rates, product prices, and interest rates. Under the foreign exchange rates, ABC manufacturers their products in 20 countries but their sales are in over 170 countries. Therefore, the ABC company is exposed to different foreign currencies from the sales. To prevent foreign exchange risks, ABC has put measures such as shifting production to the foreign countries and acquiring raw materials from those countries, and this measure limits ABC exposure to foreign currency risks.
The two interest risk management policies are long term and short term rates. ABC manages these risks by applying the procedures and policies in risk management while dealing with derived products. In products prices, ABC manages commodity price risk by using lots of technological invention in cases of raw meatal products.
ABC company may encounter the risk of recovering full value finances from its retail customers for auto credit and leasing activities. ABC company, therefore, minimizes this risk by taking immediate actions of recovering actual losses from bad debts. ABC also offers variable pricing as per the customer's credit score so they can be able to compensate for the risk.
Once a company has established an investment, it requires to develop a risk management plan that might be used to cater for any risk that may arise as a result of a loss. ABC Corporations should hire competent financial risk managers with high qualifications to deal with financial matters. The executive committee should oversee budgeting and funding of risk mitigation and management of projects (Girling, 2013). Also, ABC Corporation should avoid the occurrence of financial risk in the future by investing in market research to obtain ideas on whether the business has a chance to grow or collapse. The process of predicting a company's bankruptcy is considered as a necessary activity in avoiding the risk of driving the business out of the market.
Operational risk management
Operational risk is associated with failure of internal company processes and system. In most cases, the company experiences breakdown in computer operations, employee leaving before the expiry of the contract, and complex governmental rules and regulations, thus affecting its performance (Girling, 2013). These operational risks include internal and external fraud, business distractions, and system failures and losses due to physical assets damages as a result of natural disasters like vandalism and terrorism. Other main risks include failure in the transaction, process management, or delivery leading to business loss and employee errors. Operational risk is not in the market and credit risk management. Also, the customers and supplier culture affect the organization due to differences in the reward structure, operation policies, and control system
In case of a natural emergency like earthquakes, the Global disaster Headquarters and the Regional Disaster Headquarters will make sure all employees safety information and the case damage of the business is collected. ABC, therefore, ensures a business continuity plan by working with the suppliers. The business continuity plan includes assessing every work and their functions and the measures for their continuity. The business continuity plan is reviewed annually. ABC has also put together the employees living near the business who can be able to prevent further damage to the site in case of a disaster striking on off-days. ABC company has conducted several simulation training on how to deal with natural disasters with their employees. In the future, the company desires to apply the PDCA cycle training as a measure of emerging issues.
ABC has developed a global policy for disease prevention. The company has established guidelines employees and the actions to be taken in case of another outbreak. ABC company future measures include educating team members on infection prevention and updating the business continuity plan.
Environment and climate change
Environmental risks affecting the automotive industry are noise, exhaust emissions, chemical substances, and recycling. ABC comes up with effective environmental strategies that analyze primary issues with them and their stakeholders. These strategies are based on the management of risk factors. ABC has invented the zero-emission cars since 2010 to promote zero-emission mobility.
However, ABC Corporation has not emulated advanced technology and quantitative models to manage the risk of the operation. Many operation risk managers operate as independent making it hard to focus on internal controls, compliance, and risk prevention. Therefore, the company should embrace advanced technology and quantitative models, which would help the managers invest in fewer resources in risk mitigation and identification (Girling, 2013). The company should also hire competent managers who would adhere to federal and state laws related to the business to handle insurance and management equipment issues in an attempt of reducing operational risk in the future. The ABC Corporation risk management team need to identify and introduce the mechanism for predicting the possibility of the risk occurring and begin insuring to avoid threat related to insurance companies (Heizer et al., 2016).
Cybersecurity threats refer to a situation where the normal functions of an information system are altered. The risk might be executed through data disclosure, destruction of the devices, unauthorized access to the system, and denial of service or the modification of data.
ABC Corporation should offer training to employees on technological matters so they can identify risk across the internet, such as the risk of unsecured networks. Employees should be informed about the significance of not accessing the unsecured network on their work devices. These uncensored networks allow cybercriminals to access their sensitive data, browse passwords, and histories (Girling, 2013). Also, the data or system websites should contain complex passwords to ensure only authorized individual's access. Also, the company should allocate the budget on cybersecurity insurance to gain compensation in case the risk associated with cybercrimes occurs.
Contract and Agreement Risk
Contract and agreement risk is the likelihood of the organization to experience risk as a result of the customer not fulfilling the agreement of the contract like payment. Contract risk involves legal accountability such as infringements and breaches of contract in intellectual property as well as threat surrounding operations and image of the business like the negative staff and public opinion towards the company.
ABC company involves business with many counterparties such as sales companies and financial institutions in the world. Therefore, they face the counterparties risks such as the company obligations being defaulted. To counter such risks, ABC company developed terms and conditions for different transactions on a credit assessment formula, and they can only get into business with an institution with a good credit profile.
Compliance and reputation
ABC company has a global code of conduct that applies to all its employees globally. Training and e-learning educations are always conducted to ensure their employees have full consent, and they understand all these codes of conducts. The regulations in the company provide minimal insider trading, secured information, and reduced bribery and corruption inside the company. ABC company also prevents the reputation risk by establishing various training programs to their staff and employees.
In minimizing contract and agreement risks, the ABC Corporation should not operate on good faith when dealing with formal matters but embrace written agreement for easy retrieval. Also, the ABC Corporation managers should comply with rules, regulations, and requirement, along with company expectations. For example, supplier and internal risk need to be analyzed, evaluated, and eliminated.
Business Insurance Risk
A company may encounter insurance risk since insurance organizations may fail to compensate the hazard insured against due to the introduction of complex and complicated rules and regulations.
Global Insurance Management Policy
ABC company minimizes global risks by putting together the external threats and the self-retained risks using insurance. The company adheres to all the comprehensive insurance policies. The policies cover damage from unpredictable world disasters.
Global Insurance Programs
Global insurance programs have been developed to minimize the cost of risks that occur globally. The programs cover for property damage, liability accidents, and storage of vehicles. In the fiscal year 2011, ABC company combined these global insurance programs with Renault's program to negotiate with the insu...
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