Corporate Risk Management: Outdoor Footprint Company (OFC)
Module Assessment:
Corporate Risk Management (Online)
Background
Outdoor footprint Company (OFC) is a national retailer that develops the very best outdoor gear from skiing accessories to camping necessities, and beyond. OFC has a chain of retail and wholesale stores across the UK selling outdoor gear to hundreds and thousands of consumers on a daily basis. The covid-19 pandemic increased online retail sales. In addition, online sales in France, Spain, and Germany rose rapidly in recent years. Ms. Flannigan is the risk manager of OFC and as such, her responsibilities include identifying, assessing, and managing any potential risks that may arise. She is charged with controlling any risk that may adversely affect the sales, security, and financial health of the organisation.
There are various measures in place that can protect or reduce the amount of risk that OFC may face. It is common to have mechanisms in place to control this and to have measures in place to reduce the impact on risk and transfer unwanted risks to limit risk exposure. In understanding risk, it is important to know the different types of risk, and how much risk an organisation is willing to take. Ms. Flannigan is aware of this and intends to assess the various types of risks in order to protect the organisation. However, Ms. Flannigan is not entirely sure that it is the most effective and economic way of managing risk.
You are required to critically discuss the following questions.
1. Identify and discuss five potential risks that the company is facing. (30%)
2. According to the five risks you have identified in question one, advise and discuss the appropriate methods that can be used to handle these risks. (30%)
3. Discuss the relevance of risk management philosophy and discuss whether incorporating such a philosophy at OFC would benefit the company in meeting corporate objectives. (30%)
Notes for the assignment
1. The word count is 3000-3600 words in the assignment, excluding contents page, appendices, and references, and the word count should be provided.
2. The assignment will contribute to 90% of the overall assessment mark for the module. Presentation and citations/referencing contribute to 10% of your final mark for this module.
3. Your answer may be in either report or essay style format.
4. The word count excludes contents page, final reference list and appendices (if you have any).
5. Unless you are otherwise directed, you should set in Arial at a 12-point font size and 1.5 line spacing when writing (diagram sources and the reference list that are not applied).
6. You must provide appropriate references in the assignment.
7. The assignment must be submitted through the Turnitin link within the module Moodle. You should submit your assignment in Word not PDF.
8. Late Submission: Coursework submitted after the agreed deadline will be marked at a maximum of 40%. Coursework submitted over five working days after the agreed deadline will be given 0%.
Corporate Risk Management
Student's Name
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Course Code and Title
Professor's Name
Due Date
Corporate Risk Management
Question 1
Business risks endanger an organization's financial goals due to uncertainties around the external and internal environment, compliance, health and safety, profits, and strategy. Business risks negatively affect a brand's reputation. Nevertheless, risk management processes can help address the risks. Outdoor Footprint Company (OFC) has potential threats that need timely mitigation, including competition, financial, operational, human, and strategic risks.
Competition Risk
The company has a competition risk regarding its online sales in Germany, Spain, and France. A competition risk could occur when competitors take an increasing market share for a service or product (Indeed Editorial Team, 2022a). Companies should continuously improve their services and products to strive in the competitive market. A company's competitors can hinder its success and growth since they compete and target the same distributors and customers (Indeed Editorial Team, 2022b). OFC faces a competitive risk since its products compete with other companies in Spain, France, and Germany. Companies like OFC that rely on e-commerce and other digital platforms experience significant competitive risk because their services and products compete with other e-commerce platforms globally (Indeed Editorial Team, 2022b). For instance, OFC could experience a competition risk since the local producers in France, Germany, and Spain already have a significant market share. Local producers in these foreign countries could take measures that hinder OFC and other similar companies from reaching customers or entering new markets in these countries. Therefore, OFC should develop competitive advantage strategies to join and thrive in the competitive market in France, Spain, and Germany.
Financial Risk
The company also has potential financial risks. These threats could occur due to market losses or changes, affecting the company's financial position (Indeed Editorial Team, 2022a). Online sales in countries like Germany, Spain, or France threaten OFC's financial position due to local producers' market shares and possible exchange rate issues. Furthermore, market risks could affect the OFC's financial position since they cause losses due to market share changes and competition of services and product sales with local producers (Migrator, 2000). For instance, OFC could face financial risks because competitors in foreign countries have local customers, reducing the company's market share. Additionally, the company could experience issues in currency exchange rates while transacting with customers in foreign nations, reducing its profits. Financial risks in organizations could also occur when there is a lack of proper financial planning or debt management (Indeed Editorial Team, 2022a). Organizations could experience financial risks due to currency risks that entail depreciation of currency's value, liquidity risks that involve the inability to convert assets to ready cash, or default risks which involve business loans with higher interest, subjecting the company to default in loan repayment (Indeed Editorial Team, 2022a). Thus, OFC should adopt strategies that control and mitigate market risks and other financial issues that could affect its financial standpoint.
Operational Risk
The company could also be experiencing operational risks. These risks occur when threats against an organization's day-to-day activities decrease profits (Indeed Editorial Team, 2022a). Operational risks make business operations fail because of breakdowns or inefficiencies in its systems, human resources, procedures, or internal processes (Migrator, 2000). Employees' failures, actions, decisions, and mistakes during daily business procedures and activities can cause operational risks (Segal, 2020). The COVID-19 pandemic could adversely impact the day-to-day operations in OFC, necessitating it to shift to online retail sales. The pandemic is preventing the normal processes of OFC, such as physical purchasing, thus the need to implement an online retail sales strategy. For instance, the health and safety issue due to COVID-19 could affect OFC's operations since human resources may fail to report to work due to fear of infection. Customers and suppliers could also not go to OFC premises to prevent the spread of the disease. Consequently, possible failure in the company's operations due to the pandemic could cause massive losses or shutdown. Operational risk relates to human risk since thinking processes and human procedure errors cause business operations to fail (Segal, 2020). Therefore, companies should strive to mitigate human errors to ultimately minimize their operational risks.
Human Risk
The pandemic also subjects the company to human risk. Human risks occur when employees cannot perform their essential roles due to health issues (Indeed Editorial Team, 2022a). Employees can also risk the company due to possible errors, shortages, insufficient skills and knowledge, and lack of motivation. Mistakes in human procedures and organizational decision-making processes also cause human risks (Segal, 2020). Organizations that significantly rely on human interactions during production, business transactions, and distribution have higher operational and human risks (Segal, 2020). In OFC, employees are at risk of contracting the disease since it quickly spreads among people. Consequently, these human risks (health issues) would cause the company to experience losses due to decreased labor supply associated with COVID-19. Furthermore, the COVID-19 pandemic has affected the human aspect of physical purchasing, requiring the company to increase its online retail sales. This aspect could negatively impact the company due to the previous customer base preferring physical business transactions. For example, new COVID-19 regulations could force employees, suppliers, and customers to restrict movements into the company, adversely impacting its production, sales, and profits. OFC should thus train its workers and comply with health standards and regulations to mitigate human risks and prevent the spread of COVID-19 among the few stakeholders that might access its premises.
Strategic Risk
In addition, the company is potentially facing a strategic risk because its strategy of shifting to online retail sales could fail, especially in foreign countries. Strategic risks happen when an organization's business strategy needs to be more robust; the workers fail to follow it; or when it faces stiff competition from companies with similar business strategies or products (Indeed Editorial Team, 2022a). Migrator (2000) highlighted that strategic risks occur as organizations try to accomplish strategic goals, and external and internal circumstances can prevent businesses from achieving those objectives. The threats could be related to business goals of expansion or new market entry. Additionally, an organization could experience strategic risks if it adopts an inappropriate strategy or fails to respond to industry changes (Migrator, 2000). For instance, the increase in online sales in Germany and other foreign nations can pose a strategic risk for OFC since local competitors impact OFC's online market share. Therefore, the company could experience strategic risk if the new online sales strategy is defective due to stiff competition from other companies with substantial market shares in foreign nations. It should thus assess its business strategies, including the online retail system, before implementing them to ensure they align with its strategic and future business goals.
Question 2
Methods of Managing the Risks
Risk Management Process
OFC can use suitable methods to manage the competition issues, financial threats, operational problems, human risks, and strategic risks it could face. The company could implement a risk management process to identify its various risks, assess and evaluate the likelihood of their occurrence, respond to the risks, report and monitor risk performance, implement recovery plans, and review the controls and approaches for risk management (Migrator, 2000). For instance, OFC can identify the competition risk and plan for strategies to thrive and overcome the risk. It can align and fortify its products with industry characteristics in Germany, France, and Spain to succeed in the competitive markets due to the presence of local producers (Dawar & Frost, 2014). It could also form joint ventures with some local producers to enhance its survival in Spain, German, and France. Additionally, OFC should aim to adapt to and satisfy the local consumers' needs, preferences, and demands to thrive in foreign nations' markets. Furthermore, the company can leverage its assets in market segments where foreign nations' producers are weak (Dawar & Frost, 2014). In addition, it should strive to formulate unique products, affordable prices, and brand positioning strategies to manage foreign competition forces. Consequently, OFC can thrive in the competitive market despite the presence of local producers in foreign nations.
Financial Risk Management Method
OFC can adopt a financial risk management process to manage and control its market and financial risks (Migrator, 2000). The method involves measuring and identifying the involved risks, deciding the risk level that the company can accept, considering insurance coverage, recognizing issues with the company's cash flows, reviewing financial agreements with creditors, reassessing the risks, and diversifying income sources (Migrator, 2000). Furthermore, businesses assess external factors that are out of their control, such as law and regulation changes, industry issues, market rates, stiff competition, and economic downturns during the financial risk management process. They also assess the internal factors affecting their financial standing, including employee turnover rates, underperformance, poor investment decisions, and lousy cash flow management (Migrator, 2000). For instance, OFC can identify, assess, and measure the financial and market risks associated with its products and strategies. It can evaluate the competitiveness level in foreign markets, its market share in the online market, and the likelihood of currency value depreciation. Consequently, OFC can plan for actions to mitigate its financial risks. For instance, it can use its competencies to expand into foreign markets that match its demands in the UK (Dawar & Frost, 2014). Ultimately, the financial risk management process would enable the business to diversify its income sources to help it sustain its financial position and withstand possible financial and market risks.
Operational Risk Management Method
OFC can implement an operational risk management process to assess and implement appropriate controls for operational risks, leading to risk avoidance, mitigation, or acceptance (Migrator, 2000). The process will help the company recognize, evaluate, monitor, mitigate, or manage the risks. OFC can manage operational risks by performing a cost-benefit analysis, delegating decision...