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Assignment Brief

MBA International Business & Finance


Academic Year 2017-18
Module Information:
Qualification: MBA International Business & Finance

Module Code & Title: MBAIBF 110007Managing Risks in Business

Assignment Title: Individual Report

Component Weighting: 50%

Date of Issue:30 Nov 2017 Due date:18Dec 2017, 5 PM

To be filled by the student:


Student ID:3039MBA16

Date of Submission:18 DEC 2017

*All work must be submitted on or before the due date. If an extension of time to submit work is required, a Mitigating
Circumstance Form must be submitted.

Has an extension been approved? Yes No

If yes, please provide the new submission date ….…/. /……., and affix appropriate evidence.

First Marker: Second Marker:

Agreed Mark: Refer: Yes / No


General Guidelines
1. A Cover page or title page – You should always attach a title page to your assignment. Use
previous page as your cover sheet and be sure to fill the details correctly.
2. This entire brief should be attached in first before you start answering.
3. All the assignments should be prepared using word processing software.
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printing.
5. Allow 1” margin on each side of the paper. But on the left side you will need to leave room for
binding.
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the Softcopy of your final document to assignment.mba2017@gmail.com.
7. The submission of your work assessment should be organized and clearly structured.

Word Processing Rules


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Important Points:
1. Check carefully the hand in date and the instructions given with the assignment. Late
submissions will not be accepted.
2. Ensure that you give yourself enough time to complete the assignment by the due date.
3. Don’t leave things such as printing to the last minute – excuses of this nature will not be
accepted for failure to hand in the work on time.
4. A printed version of the assignment needs to be submitted physically along with a soft copy
mailed to the email mentioned above on or before the stated deadline.
5. You must take responsibility for managing your own time effectively.
6. If you are unable to hand in your assignment on time and have valid reasons such as illness,
you may apply (in writing) for an extension.
7. Non-submission of work without valid reasons will lead to an automatic REFERRAL. You will
then be asked to complete an alternative assignment.
8. Take great care that if you use other people’s work or ideas in your assignment, you properly
reference them in your text and any bibliography; otherwise you may be guilty of plagiarism.

Statement of Originality and Student Declaration

I hereby, declare that I know what plagiarism entails, namely to use another’s work and to present it
as my own without attributing the sources in the correct way. I further understand what it means to
copy another’s work.
1. I know that plagiarism is a punishable offence because it constitutes theft.
2. I understand the plagiarism and copying policy of the University of the West of Scotland.
3. I know what the consequences will be if I plagiaries or copy another’s work in any of the
assignments for this program.
4. I declare therefore that all work presented by me for every aspect of my program, will be my
own, and where I have made use of another’s work, I will attribute the source in the correct
way.
5. I acknowledge that the attachment of this document signed or not, constitutes my agreement
on it.
6. I understand that my assignment will not be considered as submitted if this document is not
attached to the attached.

Student’s Signature: …………………………… Date: ………………


TASK

For an organization of your choice analyze the risks faced by the organization. Using any ERM
framework, recommend measures to mitigate or manage the risks.

Total word Limit: 2500


TABLE OF CONTENTS

SERIAL CONTENT PAGE


NO. NO.
1 Introduction 1-2
2 Category of risk 3
3 Strategic risk 3
4 Operational risk 5
5 Financial risk 6
6 Legal and compliance risk 7
7 Risk mitigation and communication 8
8 Conclusion 9
Bibliography
INTRODUCTION

Risk is an aspect which has dual outlook, both positive and negative. Risk is involved
everywhere both human as well as organizational activities, thus it is said that risk is
inevitable. Risk is said to be uncertain in nature, but certain remedial measures can reduce the
effect on it. Moreover this can be reduced with implementation of proper risk management
process, which includes identification, assessment and application of mitigation on that risk.

Here for completing this assignment I choose General Electric (GE) as my company. The
various risks General Electric facing is assessed and identified. And then these risks are
categorized on the basis of their nature. Moreover appropriate measures are also mentioned in
this assignment.

ENTERPRISE RISK MANAGEMENT

An organized approach is an important factor for a diversified organization like GE for


ensuring that they are executing according to their strategic objectives and their by it helps
the organization to accept the risk. GE measure risk at the individual transaction level and
evaluate the risk altogether at the customer, industry, geographic and collateral-type levels.

The company’s board of directors has forecasted the risk management with the most
significant risks faced by the company which includes: strategic, operational, financial, legal
and compliance risks. The board members and the responsible committee to which the duties
are delegated spend most of their time to review and to discuss on specific risk topic for the
entire year. This assignment provides an overview of GE enterprise approach to risk
management.

The purpose of the GE Enterprise Risk Management is to describe:

 Categorization of risk
 The framework used to identify and manage the events that may affect the
enterprise
 Accountability for risk management
 Governance and oversight of risk management activities
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GE STRATEGIC FRAMEWORK

Our company delivered in a year of sluggish growth and geopolitical surprise. There is deep
scepticism toward the ideas that powered economic expansion for a generation, with concepts
like innovation, productivity, and globalization being challenged and protectionism on the
rise. We’re in an era when some very basic assumptions about the global economy are being
tested—an era when trust in big institutions is so low that the most valued “strategy” is
simply change in any form. For an American company, our country is diverging from the rest
of the world. We will be less of a leader in trade. Meanwhile, we are stripping away years of
bad regulatory and economic practices to promote competitiveness. (GE.LTD (2016).GE
LTD.Annual Report... Retrieved from: www.ge.com/annual report)

RISK MANAGEMENT

In the financial world, risk management is the process of identification, analysis and acceptance
or mitigation of uncertainty in investment decisions. Essentially, risk management occurs any
time an investor or fund manager analyses and attempts to quantify the potential for losses in an
investment and then takes the appropriate action (or inaction) given his investment
objectives and risk tolerance.( Definition of Risk Management :
Retrievedfrom: https://www.investopedia.com/terms/r/riskmanagement.asp#ixzz51SyBoO2z )

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CATEGORY OF RISK

Type of risk Examples


Strategic risk  The global macro-environment
 Mergers and acquisition and restructuring activity
 Intellectual property
 Competitive threat
 Technology product and service innovations
Operational risk  Operations
 Product safety and performance
 Cyber security
 Supply chain
Financial risk  Credit risk
 Liquidity risk
 Foreign currency exchange rates
 Interest rates
Legal & Compliance  Laws, regulations and government policies
risk  Legal proceedings

RISK FACTORS

The factors of risk that are on discussion are at the point of view of “forward-looking”. The
risk framework in all the business of the company is based on the company’s overall
approach to its risk policies guidelines and review mechanism. The risk management of GE is
designed in such a way that would help to identify, evaluate and mitigate risk within each of
its risk category.

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STRATEGIC RISK

This kind of risk mainly focuses on the future business plans and strategies. It mainly
includes those risk associated with the global macro-environment in which the company
operates; mergers and acquisition and restructuring activity; intellectual property and other
various risks.

The company always depend on global economic and political risk. GE is a wide company
which operates every part of the world. The report says, it works for all most 180 countries.
57% of the revenue that the organisation earned from outside United States. Global
competition and geo political risks are the main factors which affect the company’s business
plans and strategies. Moreover local economic environment like, low interest, recession,
currency controls, political changes, changes in trading rules, taxation policies will affect the
global operating model. Mitigation in this case is too costly and will not be successful and the
ability of company to encage more on mitigation will decrease or become most costly due to
market condition.

The success of GE mainly depend on achieving their strategic objectives, which includes
acquisition, integrations, join-ventures, restructuring etc. in certain case, the company was
not able to achieve desired result, which may give rise to other risks like reputational risk,
which may also give rise to low margin rate. In 2016, the company announced, acquisition
GE’s oil and gas with Baker Hughes with high cost and certain synergy benefits but it was
not that effective . Also firm have number of joint-ventures with other companies and
government. This leads to operations, finance and legal risk. Mitigation is to limit the
acquisition and joint venture with those companies which will help the company in growth
and development.

Intellectual property right will not make competitor not to produce the products and services
due to external dependencies. This includes so many situations where competitive firm
produce similar products as if the company incurred hue amount as intellectual property right.
If the company is not capable of protecting their brand and other intangible asset, it becomes
one of the biggest issues. Therefore strict measures and policy should be implemented to
overcome these situations.

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OPERATIONAL RISK

This arises from system, process; people and external factors that affect the business. This
mainly includes, product life cycle and its execution; product safety and performance;
information management and data protection its security, cyber security, supply-chain and
various other risks.

GE is the company which produce their own products and incorporate third party products,
where they use latest technology, includes hardware and software. Company gives intensive
care on their design, manufacturing and servicing by meeting with at most quality standards.
Thus no customers would experience an operational failure. There are certain crisis
management arises due to organisational changes, labour relations, reputations and financial
position. The market in which GE work is where it requires skilled talent. Thus to customise
product and services, that can respond to market and technological change from emerging
risk and opportunity. Company should forecast the changes that may arise and act
accordingly to compete with the changes that can be in case of labour or on technology.

Since company uses latest technology the cyber-attack is another risk. The security of GE’s
customers, employees, partner’s suppliers and even third party is at risk. This may lead in
loosing confidential customers, personal data and information. Even though there are rules
and regulations imposed on cyber security still the attack continues. Programming errors,
employee errors, improper use of systems, defective products, destruction of information.
This leads to damage of reputation or even competitiveness increased production cost. For
avoiding these risks to an extent, certain measures like employee training, proper monitoring,
testing awareness and proper maintained of technology, security alarms can be placed.

GE depend more on third party suppliers, manufacture and raw- materials provides who are
limited or sole-source supplier. Any disruption in supplier of raw material, price increase,
decreased available of raw material would effect in the inability to meet the commitment to
GE’s customer. Thus, the company should always be alert on the availability of raw material;
proper ordering should be made to overcome such issue.

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FINANCIAL RISK

It relates to the ability of the company to meet financial obligation and to mitigate market risk
which includes foreign currency exchange rates, interest rates and commodity price; credit
risk and liquidity risk

Credit risk is the risk of financial loss that arises from customer’s failure to meet their
contractual obligation. GE faces it mainly in industrial business. Liquidity risk refers to the
potential inability to meet contractual or contingent financial obligation, this would reflect in
the financial conditions.

The businesses and operating of the industrial business will be affected by worldwide
economic conditions. This includes conditions in air, power generation, oil and gas,
renewable, health care and other areas as well. Due to this reason the existing customers
would cancel their purchase including large projects. This may lead to business deteriration,
cash flow shortages, low oil price etc due to slow global economic growth and other factor
that affect the economy. This same problem would be faced by GE’s vendors thus it become
difficult to get back the receivable, which results in the deterioration in the global economy,
financial position and cash flows.

GE always conducts routine evaluation on debt. This evaluation includes number of factors
financial strength as well as the transparency. As of December 31 2016 S&P rating services
and Fitch rating services rated as AA- that there was no surety on the ability of the company
to maintain the credit rating and failure. The failure to maintain the rating will affect the cost
fund, liquidity. More over this would result in raising additional capital on derivative
instrument, guarantees etc. Factors that affect availability of funding or an increase in funding
cost is because of decrease capacity and increased competition. This would reflect in
competitive position and also lower the interest margin, earnings and even cash flows.

Increase in the social cost, the company incurred increase in pension and healthcare benefit
cost which leads to reduction in profitability in year 2017 GE uses to estimate pension
expenses at discount rate and the expected long term rate of return on plan assets. Along with
it they are required to measure value of asset and liabilities the failure on achieving the
desired results in asset would reflect an increase in amount of cash that the company required
to contribute to pension plan.

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LEGAL AND COMPLIANCE RISK

Legal and compliance risk relates to those risks arising from the government and regulatory
environment, action from legal proceeding and compliance with integrity. Policy and
procedure including those relating to financial reporting, environmental health and safety.
Government and regulatory risk includes the risk that the government or regulatory action
will impose additional action on GE or required to make adverse change to the business
model and practices.

Since GE is having wide variety of business in different parts of the world. The company has
to follow laws, regulation and policies of US as well as non US. There is no assurance that
laws, regulations and policies will not be changed as if it keeps on changing, it would reflect
in the return on investment. The legislative regulatory and other actions that US and non US
government have undertaken, or considering areas like data privacy, foreign exchange
intervention in relation to currency volatility, controls which may restrict the liquidity in
certain jurisdictions, trade controls, import and export duties will affect the GE’s capital,
operation, sales, liquidity and tax payments. GE should be capable enough to handle the
change in rules, regulations and policies or else the impact would be seen in operations
financial positions and cash flows.

Legal Proceedings; there are variety of legal proceeding and compliance risk virtually every
part of the world. The representative and the industries in which they operate are subject to
continuous scrutiny by regulators and other governmental authorities. In certain cases it leads
to enforcement actions, changes to business practices, fine and penalties, litigation claim and
damage that would be material. Certain appropriate risk management and compliance
programmes, the global and diverse nature of operations and current enforcement
environment.

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RISK MITIGATION AND COMMUNICATION

The main advantage of GE is that it has very strong responsible risk committee which is
subdivided on the basis of risk. Those risks identified through the companies risk
management processes are prioritized on the basis of importance and on probability of risk.
The top level managers analyse the risk periodically and assign responsibility to those who
can handle it. The assigned force will continuously monitor, evaluate and provide proper
mitigation on the area in which they are responsible for.

Annually the organization’s risk leaders with in the business are responsible enough to
provide risk assessment and key risks to the senior manager. On the basis of risk involved in
the business, GE have a wide variety of mitigation strategies which include delegation of
authorities, standardization of processes and strategic planning reviews, operating reviews,
financial reviews, hedging and even insurance.

Usually the company use the policy of hedging the risk that arises on fluctuations in foreign
currency exchange rates, interest rates and price of commodities. The service business that
would measure the process which leads to the execution of contractual service agreement to
mitigate legal, financial and operating risk. Another strategy of GE to manage some risk by
purchasing insurance, this helps to balance the level of risk retained by increasing certain cost
of transferring risk to others. The risk fluctuations in economic activity and demand of
customer are overcome by continuously monitoring the complex industry and responding to it
accordingly. This may lead to adjust the capital, implementing cost reductions and more over
by involving in mergers, acquisition, dispositions and restructuring.

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CONCLUSION

The purpose of this assignment is to promote proper awareness of the need of sound risk
management and related internal controls. It also identified areas where improvement of firm
is required. In certain, situation it becomes more pressure to identify the risk to measure and
assess the risk. By doing this assignment it helps to study how risk can be identified and the
importance in mitigating that risk. The assignment was very encouraging and realise how
organization spent their time and resources to mitigate risk. Moreover, it helps the
management to take further decision by considering the factors that leads to risk. It is
important not to repeat the same mistake once we have done. Thus, every organization should
give importance for managing risk so as to meet the organizational objective and to attain
profitability.

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REFERENCES

 https://www.investopedia.com/terms/r/risk.asp#ixzz51SxLLu8n
 www.ge.com/annualreport
 https://www.investopedia.com/terms/r/riskmanagement.asp#ixzz51SyBoO2z
 https://www.wsj.com/articles/what-a-shocker-general-electric-is-becoming-attractive-
1507897540
 http://www.worldcat.org/title/general-electric-review/oclc/1570561
 http://aip.scitation.org/doi/abs/10.1063/1.1710233
 https://www.nytimes.com/topic/company/general-electric-company
 http://www.economist.com/topics/general-electric

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