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Risk Management

Sitara Chemical Industries Limited

SUBMITTED TO:
Mr. Asif Masood

SUBMITTED BY:
Danish Maqsood Ahmed
Muhammad Arslan
Adnan Ghafoor
Nabeela Razzaq
Raza Usman Butt

Assignment: Final Assignment


CLASS: MBA 5th (Professional)
SESSION: 2013-2016
DATE: 19-02-2015

(14137)
(14140)
(14117)
(14105)
(14147)

ACKNOWLEDGMENT

Date: 19-2-2015
To,
The Director
Sitara Chemical Industries Limited,

SUBJECT:
Dear Sir,

RISK ANALYSIS FOR ANNUAL REPORT 2014

With this letter I would hereby like to inform you that as according to your
instructions, we analyze the annual report of the sitara chemical industries for
evaluation of risk level. According to your guidelines, I write a detail report after
reading all important aspects of the annual reports. The remarks &
recommendations are also given in the detailed report. I hope this report will find
you good in health.
Regards,
Manager Accounts

EXECUTIVE SUMMARY
We conduct study of Sitara Chemical Industries Limited Annual report 2014 for analysis of
risk. Sitara Chemical Industries Limited have a strong financial position and continuing
growth and diversification for bottom line results with risks well contained. Its profits are
increasing and appropriate accounting policies have been consistently applied, in the
preparation of financial statements and accounting estimates are based on reasonable and
prudent judgment and company successfully maintain fund for future strategies. Company
have a good capita income in business, their people are strength and key drivers behind all
our achievements of Sitara Chemical and company successfully meeting its profit targets and
also meeting its liabilities.
Comprises of Five Executive and two non-executive directors. The non-executive
directors are independent to management. Chief Executive. Senior Management took interest
in providing fraud awareness and conducting different trainings to avoided risks.
We believe in stimulating and challenging team oriented work environment that encourages,
develops and rewards excellence for providing accurate investments strategies and diligently
serve communities, maintaining high standards of moral and ethical values. Associates are all
entities over which the Company has significant influence, but not control, generally
accompanying a shareholding of 20% or more of the voting rights.
The physical assets of company are increasing which is beneficial for Company. Company is
committed to utilize the relevant developments in the IT sector to achieve its
strategic business goals. It is equipped with necessary hardware, software, applications, and
personnel to cope with all the business challenges and the developments taking place in the
market and they are using most secure Oracle systems to protect data. Company is
maintain its reserves and its major focus on future strategies and in the business continuity
plans are sufficiently manage by the organization to avoid the major loss.
Company has many products but caustic soda is its star product. Company has little risk
according to this point as company is taking interest in innovation. There is some risk as
companys sales increase as compare to previous year, but gross profit ratio has declined as it
was 30% last year & it is 24% current year. The main product of company is caustic soda and
its sales has declined as compare to last year. Due to managerial issues & declined in gross
profit, company can face the some risk in future.

TITLE:

SITARA CHEMICAL INDUSTRIES LIMITED

INTRODUCTION
Operation of Chlor-alkali plant, wherein Caustic Soda and Chlorine Gas are produced out of
common salt through electrolysis process. Caustic Soda is a basic chemical having a broad
spectrum application in various industrial processes. A number of bi-products being
manufactured are chlorine based.
Spinning units, wherein all types of yarn e.g. combed, carded, knitting and Slub yarn are
being spun to catering domestic/export market.
Agri application Nutrients and Soil yarn conditioner.
In addition to foreign technology based products various products have been developed by
company R & D department. Such products are covered in Specialty Chemical and
Agriculture products.

Purpose
The purpose of this risk assessment is to evaluate the adequacy of the Sitara Chemical
Industries Limited. This risk assessment provides a structured qualitative assessment of the
operational environment.
It addresses sensitivity, threats, vulnerabilities, risks and
safeguards. The assessment recommends cost-effective safeguards to mitigate threats and
associated exploitable vulnerabilities.
Scope
The scope of this risk assessment assessed the systems use of resources and controls to
eliminate and/or manage vulnerabilities exploitable by threats internal and external to the
Centers for Disease Control and Prevention.
This Risk Assessment Report evaluates the confidentiality (protection from unauthorized
disclosure of system and data information), integrity (protection from improper modification
of information), and availability (loss of system access) of the system.
Mission
Our mission is to evaluate the Financial Structure of Sitara Chemical Industries Limited using
Annual Report 2014. Continuing growth and diversification for bottom line results with
risks well contained.

RISK MANAGEMENT FOR CHEMICAL INDUSTRIES


Chemicals have become a part of our life for sustaining many of our day-to-day activities,
preventing and controlling diseases, and increasing agricultural productivity etc. An
estimation of one thousand new chemicals enters the market every year, and about 100000
chemical substances are used on a global scale. These chemicals are mostly found as mixtures
in commercial products. Over one million such products or trade names are available.
The chemical industrial sector is highly heterogeneous encompassing many sectors like
organic, inorganic chemicals, dyestuffs, paints, pesticides, specialty chemicals, etc. Some of
the prominent individual chemical industries are caustic soda, soda ash, carbon black, phenol,
acetic acid, methanol and azo dyes. Chemical manufacturing sector in Pakistan is well
established and has recorded a steady growth in the overall Pakistan industrial scenario. The
Chemical and allied industries have been amongst the faster growing segments of the
Pakistan industry. The Pakistan chemical industrial sector had a turnover of around Rs.1765
billion in 2013-2014. The chemical exports also accounts for more than 19.70% of the total
Pakistan exports during 2013-2014.
The risks associated with the chemical industry are commensurate with their rapid growth
and development. Apart from their utility, chemicals have their own inherent properties and
hazards. Some of them can be flammable, explosive, toxic or corrosive etc. The whole
lifecycle of a chemical should be considered when assessing its dangers and benefits. Though
many of chemical accidents have a limited effect, occasionally there are disasters like the one
in Bhopal, Pakistan, in 1984, where lakhs of people were affected and LPG explosion in
Vizag refinery where huge property damage in addition to 60 deaths was experienced.
Therefore chemicals have the potential to affect the nearby environment also.
Design

and Pre-modification review : Improper layout like location of plant in


down wind side of tank farm , fire station near process area , process area very close
to public road and wrong material of selection had caused severe damages to the work
and outside environment

Chemical

Risk Assessment: Not assessed for new chemicals from the point of view
of compatibility, storage, fire protection, toxicity, hazard index rating, fire and
explosion hazards

Process

Safety Management: HAZOP, FTA, F&E Index calculation, reliability


assessment of process equipment, incorporating safety trips and interlocks, scrubbing
system, etc. not done before effecting major process changes, lack of Management of
Change procedure (MoC), etc.

Electrical

Safety: Hazardous area classification , protection against static electricity ,


improper maintenance of specialized equipment like flameproof etc were ignored.

Safety Audits:

Periodical assessment of safety procedures and practices, performance


of safety systems and gadgets along with follow up measures were not carried out.

Emergency

Planning: Lack of comprehensive risk analysis indicating the impact of


consequences and specific written down and practiced emergency procedures along
with suitable facilities had increased the severity of the emergency situations.

Training:

Safety induction and periodical refresher training for the regular employees
and contract workmen were not carried out.

Risk Management & Insurance Planning: Thorough identification and analysis of


all risks and insurance planning were not done so that interruption risks and public
liability risks could also be managed effectively.

RISK ASSESSMENT APPROACH


This risk assessment methodology and approach was conducted using the guideline of Risk
Index which consists of twenty sub-components under for main heads Financial Components,
Infrastructure components, Reputational Components and Market Components
Operational Components: This analysis based on human risk; it is the risk of business
operations failing due to human error. Industries with lower human interaction are likely to
have lower operational risk.
Financial Components: This analysis based on availability of funds, Funds Investment
Strategies, Fraud evaluation and meeting liabilities.
Infrastructure Components: This analysis based on infrastructure of company and
evaluates protection of intellectual property.
Reputational Component: This analysis is based on Reputation of company among general
public and its stakeholders.
Marketplace Component: This analysis is based on stability of company regarding
innovation, advance technology and market fluctuations.
Detailed Performa of Risk Index Analysis is attached at the end of report. We use financial
report of Sitara Chemical Industries Limited Annual Report 2014 for this Risk Analysis.

ANALYSIS
To determine overall risk levels, we conduct deep study of Sitara Chemical Industries Limited
Annual Report 2014, integrity, and confidentiality of the system is in relation to it being able to
perform its function, and focus on the types of damage that could be caused by the exercise of each
threat-vulnerability pair.

We give rating 0 to 5, 0 for No Risk and 5 for Extreme Risk.


Operational Components:
Sitara Chemical considers the full range of material operational risks and lists examples
ranging from fraud and data entry errors to hardware failures and floods.
The risk of loss resulting from inadequate or failed internal processes, people and systems or
from external events.
Further complicating sitara chemical risk management efforts, organization may differ widely
in its exposure to operational risk, depending, for instance, upon their investment strategies,
the markets in which they operate and the instruments they employ. As with investment risk,
firms also have varying tolerance levels for operational risk. Consequently, there is no
generic checklist for identifying operational risk, nor is there a single, universally applicable
set of mitigation measures in the organization. comapny believe virtually every investment
management firm can benefit from taking a fresh look at common areas of risk, and
considering the variety of relatively straightforward risk management measures that can
readily be deployed by large and small organizations alike.
Financial Components:
The Financial position of company is strong and continuing growth and diversification for
bottom line results with risks well contained. Its profits are increasing and appropriate
accounting policies have been consistently applied, in the preparation of financial statements
and accounting estimates are based on reasonable and prudent judgment and company
successfully maintain fund for future strategies.
We believe in stimulating and challenging team oriented work environment that encourages,
develops and rewards excellence for providing accurate investments strategies and diligently
serve communities, maintaining high standards of moral and ethical values. Associates are all
entities over which the Company has significant influence, but not control, generally
accompanying a shareholding of 20% or more of the voting rights.

Its research and development activities at its exclusive R&D department that constitutes
highly professional and fully dedicated staff which evaluate performance and create control
over environment to prevent fraud.Audit Committee was established to assist Board in
discharging its responsibilities for Corporate Governance, Financial Reporting and Corporate
Control.
Company have a good capita income in business, their people are strength and key drivers
behind all our achievements of Sitara Chemical and company successfully meeting its profit
targets and also meeting its liabilities.
Infrastructure Components:
The Board comprises of Five Executive and two non-executive directors. The non-executive
directors are independent to management. The Board has delegated day-to-day operations of
the Company to the Chief Executive. Senior Management took interest in providing fraud
awareness and conducting different trainings to avoided risks.
There is low risk in employee turnover because they are using effective and energetic people
who have sufficient skills to overcome the problems in industry and Sitara Group of
Industries has setup Sitara Institute of Management & Technology (SIMT) for quality
training to the desirous youth under real working environment and with support of its large
back-up of Groups entities.
The physical assets of company are increasing which is beneficial for Company. Company is
committed to utilize the relevant developments in the IT sector to achieve its
strategic business goals. It is equipped with necessary hardware, software, applications, and
personnel to cope with all the business challenges and the developments taking place in the
market and they are using most secure Oracle systems to protect data. Company is
maintain its reserves and its major focus on future strategies and in the business continuity
plans are sufficiently manage by the organization to avoid the major loss.
They are using Oracle ERP technology through this they integrated with one another. This
integration allows various departments and units of an enterprise to share and maintain the
same information.

Reputational Component:
Company repaying its debts due to improved cash fellows company s long term loans have
declined. Due to this public perception is high about company. Sitara Chemical Industries
Limited is proactive for health and welfare of local community. The company manages and
awareness campaigns frequently. Trainings, awareness session and workshop are held
continuously and average 500 people are trained per year. Company maintained high
standards of moral and ethical values. So that company has no risk. They has been no
material departure from the best practices of the Corporate Governance. BOD is mindful of
its responsibilities and duties under legal and corporate framework.
Company has high risk regarding customer services because many textiles company prefer
EPCLs (Engro Polymer & Chemical Limited) caustic soda over SITCs (Sitara Chemical
Industry Limited) because EPCLs higher quality product than SITCs. If company does not
improve it quality product so may be company lost its reputation in the eye of people or
public/customer.
Marketplace Component:
There is some risk as companys sales increase as compare to previous year, but gross profit
ratio has declined as it was 30% last year & it is 24% current year. The main product of
company is caustic soda and its sales has declined as compare to last year. Due to managerial
issues & declined in gross profit, company can face the some risk in future.
Currently technology is getting better every day & new competitors are entering in the market
day by day. As last year company was earned more profit in 2012 and also increase its sales.
But this year company increases her sales but gross profit tends to down. Company should
have to work on its manufacturing techniques so that it can compete with her competitors.
Due to economy instability & increasing inflation, there will be medium risk for company. As
companys gross profit has downed due to interest rates & high value of expenses & inflation.
But still company is successful in increasing per value of share in market.
Company has many products but caustic soda is its star product. Company has little risk
according to this point as company is taking interest in innovation.
There is little risk in supply chain management because due to some issues, companys
expenses has increased by previous years. Sales increased but profit has down. In future it
can be more dangerous for company.

RECOMMENDATIONS
In above analysis we some areas where company need to focus and bring some changes to
reduce the level of risk.

Company need to be focus on customer feedback and work on its quality because
competitors are already in market and they are focusing on customer services.
The gross profit of company is declined due to decrease in sale of Caustic soda
which may show serious impact on financial position of company in future.
Company need to upgrade their technology because competitors in market are
improving.
Company need to be strong focus on sales team because sales are not increasing as
compared to previous years.
Company have to provide employee benefits and also get their feedback regarding
their work which can help to minimize risk of fraud.
Company motivate its employee which perform a role in making employee loyal
which can decrease employee turnover.

REFERENCE
1. http://www.sitara.com.pk/
2. http://opim.wharton.upenn.edu/risk/library/06-11.pdf
3. http://www.sciencedirect.com/science/article/pii/S0263237399000663