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RISK MEASUREMENT AND

MANAGEMENT: A CASE STUDY


ON BIN INN

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TABLE OF CONTENTS
INTRODUCTION .....................................................................................................1
Background of Research.........................................................................................1
Organizational Context ...........................................................................................3
Justifying need for the research ..............................................................................3
RESEARCH PROBLEMS AND QUESTIONS .......................................................4
Objectives ...............................................................................................................4
Research Questions.................................................................................................4
LITERATURE REVIEW ..........................................................................................5
METHODS ................................................................................................................8
Data Collection .......................................................................................................9
RESULTS AND DISCUSSION ..............................................................................10
Reasons for selecting these Methods................... Error! Bookmark not defined.
RESEARCH LIMITATIONS................................. Error! Bookmark not defined.
ETHICAL CONSIDERATIONS............................ Error! Bookmark not defined.
CONCLUSION AND RECOMMENDATIONS ... Error! Bookmark not defined.
REFERENCES........................................................ Error! Bookmark not defined.
APPENDIX............................................................. Error! Bookmark not defined.

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INTRODUCTION
Background of Research
The uncertain economic times in past years have change the way companies
operate their business. Companies prefer forecasting and projecting business
events rather than business judgment in order to operate business smoothly.
However, the aim here is to measure and manage risk. Riskare a main cause of any
uncertainty arising in an organization and thus companies aim to identify and
manage these risks before they even affect the business. Risk measurement
abilities encourage business to make better future decisions. Effective Risk
management abilities also helps an organization identify their core strengths and
the plan strategies to overcome weakness, this also help us respond to risk if they
arise in future.
Present research paper focuses on risk measurement and management in a retail
industry. Retail industry has always been subjected to changing trends and designs
(Gest, 2012). This intern enhances the level of risk to an organization. Risk
Measurement is techniques meant specifically to measure the impact of potential
uncertainties on the organizations. There are different ways to measure risk to an
organization, for example, with correlation estimating the impact of any variable
on an organization. However, the most commonly practiced approach here is of
assessing financial performance of an organization with techniques like Ratio
analysis. Once thr risk is measured by an organization, next step here is to plan
strategies to hedge risk to an organization and maximize benefits. For example, for
an organization with lowering profit margins, planning ways to reduce their
expenses and increase their sales are techniques of risk management. It basically
focuses on risk reduction and profit maximization.
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With advancements in communication and connectivity at global level,


organizations have also transformed their infrastructure. They have also clinched
the customer centric approach and focus on balancing the factors such as quality,
price, location, marketing, inventory management as well as profitability. A
Successful retail organization makes use of retailing policies where the effort is to
replenish and update inventories continuously. However, this system requires
product tracking and timely approach so that hot selling merchandize stock meets
consumer demands.
A Traditional store has relatively high overhead and cost structure, with the
unpredictable risk of economic fluctuations. Consumer spending and their income
also a strong variable related to profitability (Cruz, 2002). Apart from this, retail
business success is not just dependent on brand consciousness but also on repeated
visits. Riskiness on the retail business appears on every aspect. Top risks identified
by survey of Smart business, with clients interview are as economic slowdown,
reputation of brand, increased competition, supply chain failure, regulatory
legislative changes and many more.
With advancements in business structure and impact of technology, focus on
organization is majorly on changing and emerging risks. Product Liability,
Network Security, Wage and Hour Litigations etc, are some examples of modern
day risks, here the emphasis of retail organizations in data security, as it holds
critical information and may impact both goodwill and profitability. As Industry
margins are very thin, it is mandatory for the retail organization to ensure that their
capital is properly aligned (Duggan, 2016).
Measurement and Management of Risk in retail is a key to success, a retail risk
managers needs to vigilantly evaluate portfolios in order to make the best use of
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their organizations capital. An organization is exposed to many different types of


risks with their simultaneous impact on growth and profitability. Here if the risk to
an organization are reduced profits are increased, else increase in risks results in
lowering of profit margins. Present research project is aimed at measuring and
managing different risk Bin Inn is exposed to.
Organizational Context
As stated risk measurement and management for this project is based on retail
organization, selected organization here is Bin Inn. Bin Inn, is a New Zealand
based nationally recognized retail brand where they focuses on selling whole foods
and Specialty Grocery items. Company currently owns 37 stores across country
with a wide range of operations from baking to brewing. Goodwill of this
organization is enhanced due to factors like relaxed atmosphere, friendly service
and helpful owner and staff.
Bin Inns biggest strength is a strong brand image in New Zealand with god inflow
of money. However, their weakness is the financial inconsistency which intern is
reflected in their financial statements. They intern have opportunity to enter into
market of other country like Australia. There are many threats to company such as
financial inconsistence, multiple risk surrounding organization such as operational,
financial, liquidity and market. They also faces a strong competition from domestic
as well as international competitors.
Justifying need for the research
With impact of globalization, there are a large number of available options for the
customers, in terms of products catalogue, number of retail stores and also online
shopping which intern increase competition and riskiness. There are many more
challenges and risk a retail organization is exposed to, failure to accomplish any of
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these may lead an organization into losses. As the present issue in this research is
to evaluate the impact of various risks such as market risk, credit risk or financial
risk, here impact of these variables could only be calculated on firms profitability
with help of financial statements analysis.

RESEARCH PROBLEMS AND QUESTIONS


Outlining Problem
Cont.
Aim
The main aim of the research is to examine impact of risk management and
recommend strategies to manage them.
Objectives
Following are the set of objectives which will be accomplished in the industrial
project:
To critically evaluate Credit Risk, Market Risk and Financial Risk.
To assess the impact of Credit Risk, Market Risk and Financial Risk to an
organization.
To Recommend Strategies to manage Credit Risk, Market Risk and
Financial Risk.
Research Questions
How Does Credit Risk, Market Risk and Financial Risk impacts a business
organization?
How much is the impact of Credit Risk, Market Risk and Financial Risk to
an organization?
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What are various ways or strategies to manage Credit Risk, Market Risk and
Financial Risk?

LITERATURE REVIEW
Risk Management and Its Significance
Risk Management is defined as a Process of identifying analyzing and responding
to risk factors and with a life of a project in order to accomplish the desired aim
and objectives. It is an approach which implies control of possible future, it is
proactive rather reactive. Risk Management is also defined as process of
investigation, assessment and management of any uncertainty which impacts
economically or non-economically is risk management ((Gest, 2012)). Risk
management is also defined as identification of potential risk and then taking
precautionary risk for its evasion.
This process is very significant as without risk management an organization
cannot define their objectives for future. If an organization defines their future
objectives as well as their plans, there are chances that they will not be able to meet
the future objectives.
Risk Management plans contribute to project success by establishing a list of
internal and external success, it also helps in identification of probability of
occurrence and their economic impacts (Anolli and et.al. 2013). These factors
make achievement of success more likely to achieve. Risk management is also
necessary as their direct impact is on finances as well as goodwill.
Types of Risk

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Impact of risk to an organization is majorly on their financials, here financial risks


are majorly classified into following broad categories which are as: Market Risk,
Credit Risk, Liquidity Risk and Operational Risk.
Market Risk Involves uncertaintieswhich arise due to changing market conditions,
for example fluctuations in stock market impacts individual stock prices. In retail,
inflated in prices of groceries also impact the retail sales. Credit Risk, it is the types
of risk which arise on an organization due to extended credit for a customer. While
giving a credit to a customer an organization must ensure that they have sufficient
cash flows to pay its account payable. Liquidity risk is further defined on basis of
asset liquidity and operational liquidity. Here operational liquidity is referred to as
daily cash flows to run a business operations smoothly. Lastly Operational Risk, it
arise due to inconsistency in daily operations of a business enterprise. For example,
in retail business inventory mismanagement may result into operational risk.
Risk Management is a necessary approach and a need for the current project,
however this research paper also focus on its way to evaluation and thus further we
have critically evaluated findings from similar researches.
Cont..
For a Retail Store Like Bin Inn, costing is a critical parameter, as if any stock
inventory turnover is less its replenishment increases cost, as cost of carrying an
inventory and its management carry a cost. Apart from this to evaluate the
efficiency of bank, financial ratios were utilized. On a similar note, if the
performance evaluation of a retail store is to be done, there are appropriate
financial and efficiency ratios, most importantly Inventory turnover and working
capital turnover (Ballou, 2000).
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It basically calculate the number of times and inventory turns over in a financial
year, if the number is high it showcase an organizations efficiency in management
of their inventories. Apart from this higher the inventory, lesser is the carrying cost
and lesser the cost of product, higher are the profit margins.
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This ratio showcase a firms efficiency of how effectively they are using their
working capital to generate increased sales. Higher the ratio more is working
capital effectively used. To calculate the Average current assets, CA of past and
present year is added and divided by 2.
However, Hess and Graham study failed to obtain meaningful comparative cost
data and thus it was not possible to disclose and ideal cost to income ratio.
Dubelaar, Garland and Larson 2001 with their research Relationships between
inventory, sales and service in retail chain storeAim of their research was to
quantify the relations between inventory, sales and service levels (availability of
stock). They evaluated relation between inventory sales and service in a retail
chain store operations is significantly notable. Inventory Turnover is the measure
of how many times an inventory could be upend in a year. Higher the rate, more is
profit margin, lower inventory turnover is a clear indicator of lowering profits.
Supported by Choi, 2001,emphasized a fact that effective inventory management is
critical to retailing success.
They firstly identified the determinants of retail sales such as merchandise variety,
number of employees, hours of operations store size and number of competitors.
On basis of theoritical evidences on based on various other researchers which
concluded that stock is square root of sales and it was calculated on basis of
Economic order quantity. This also led to develop various hypothesis such as H1:
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Inventory increase by Square root of sales, H2: Greater Product Variety results in
higher inventory levels, H3: Greater demand uncertainty results in higher inventory
Levels, H4: Service Levels increase with inventory at an exponential rate.
Methodology, their research conducted a survey of more than 100 chain stores
units, with 75% response rate and concluded a positive relation with inventory
management, sales and service management with business success. Their research
developed and tests series of hypothesis in this research, about retail inventory.
Here the data and information was collected in two stages, at first stage a
management information system was provided to 100 retail stores for data size,
sales and stock levels. In the second stage an email was sent to all the store
managers asking them a number of questions related to retail operations and their
management. However, only 72 complete and usable survey returned and on basis
of which a positive relation was located in sales and inventory turnover and
concluded

that

inventory

is

function

of

square

root

of

sales.

Cont..

METHODS
This Industrial Project is aimed at examining the impact of risk management and
also recommend strategies to manage them. In order to accomplish it, it is critical
to locate important data and then analyze it with proper procedure. Methodologies
are an integral part of a research they help a researcher to generate relevant data
and information and guides with proper plans to its successful analysis. It also
helps in developing a philosophy thereby supporting with relevant theories and
models. For the Current research paper, we have collected data and information
from secondary sources, and also analyzed already existing theories, thus a
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positivism philosophy is practiced. This intern helps us in development of research


approach, thus we have also selected deductive approach. With Deductive
approach we have measured risk for Bin Inn with already set standards and
theories. Method applicable for risk management is ratio analysis. Fundamental
analysis and financial ratio analysis is a powerful tool to evaluate an organization
performance and risk at various parameters. It is an intellectual framework which
not only help businessmen to evaluate firms financial standing but also let us know
areas of improvement. On Basis of Daryakins research, we will also evaluate Bin
Inns financial standing on various parameters through Ratio analysis.
Data Collection
In order to measure and manage risk we have selected case study with which we
will critically evaluate the impact of credit risk, market risk and Financial Risk at
Bin Inn. With help of financials from Bin Inn, we will evaluate impact of these
risks and then recommend suitable strategies to its management. Research
comprise of both qualitative and quantitative data, here we have evaluated various
theories which focuses on different types of risk to an organization, keeping as
base of research, research papers of previous researchers. Apart from this, we have
also evaluated the financial statements of Bin Inn, We have done a ratio analysis
on basis of information from balance sheets, Income statements and cash Flow
Statements. With these we have focused majorly on evaluating following ratios:
Liquidity, Profitability, Capital Structure and Activity Ratios with major highlight
being Inventory Turnover and Debt And Debt to Equity Ratio.
Research being completely secondary in nature all the data and information has
been gathered from varied secondary sources. We have studied books and research
papers on risk measurements and management. Apart from this, we have also
gathered secondary information from various research papers. However the biggest
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problem which came across in data collection from the secondary sources was of
availability of appropriate literatures. However, most researches focused on only
one type of risk and then recommended ways or models to overcome those risks.
Problem arises for us because Bin In being a retail organization is exposed to many
different types of risk and thus evaluating all different types of risk, becomes
challenging. Thus to overcome this issue, we have critically evaluated all the risk
which could be measured with help of financial analysis.
As the risk focuses majorly on evaluating financial performance and finding the
impact of credit risk, market risk and financial risk, It was mandatory to have the
financial information of Bin Inn, being an employee, I was able to get access to
financial statements of company, however due to some security restriction I was
strictly prohibited to share every detail of Bin Inn but with available information
we were able to calculate required ratios.These ratios are intern compared with the
ratios of past year and then by a comparative analysis important conclusions are
drawn.

RESULTS AND DISCUSSION


Cont
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