Rolls-Royce Plc Good Governance and Risk Management
This assignment is an individual assignment.
This assignment requires you to consider the case study below:CASE STUDY: Rolls-Royce Plc
Assignment brief
Using your knowledge of Risk Management, you are required to systematically approach the following task:You are a graduate consultant working for a large risk management consulting firm, and have been asked by the board of directors of Rolls-Royce Plc to prepare a report in response to a number of questions that have been raised by an investment analyst (whowill be making recommendations to his clients in terms of your company being apotential investment). Your report should cover the following areas:a) Identification of FIVE key areas related to credit risk, and, in doing so, discuss theimpact such risks may have on investors’ willingness to invest in your financialinstruments.b) As part of your report, you are required to evaluate the current business continuitystrategy implemented by Rolls-Royce Plc, and, in doing so, recommend anyfurther improvements to such a strategy as part of the Group’s overall BusinessContinuity Management (BCM).This document is for De Montfort University use and should not be passed to third parties or posted on any website.Assignment Brief TemplatePage 2 of 5c) Addressing the shareholders, the board of directors for Rolls-Royce Plc provide thefollowing statement of compliance:“The Board considers that the company has complied in full with the provisions of theUK Corporate Governance Code 2018 (the ‘Governance Code’).”As part of your report, you are required to:i. Highlight and discuss areas where the company clearly demonstrates stronggovernance in terms of leadership, effectiveness and remuneration in line withthe UK Corporate Governance Code.Provide suggestions where improvements could be made in the areas discussed in part(c) (i) above.
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Introduction
Rolls-Royce Plc is a global company engaged in designing, manufacturing, and maintaining power systems. It is a British multinational engineering firm that operates in luxury, aerospace, defence, Marine, Nuclear, and other energy systems.
Part (a)
1 Counterparty risk: This risk arises from the potential for the other party in a financial transaction to default on its obligations. In the case of Rolls-Royce Plc, if the firm has significant exposure to highly leveraged counterparties or weak credit ratings, investors may be reluctant to invest in its financial instruments due to the increased risk of default.
2 Market risk: Rolls-Royce Plc operates in a highly competitive market. Any changes in market conditions, such as economic downturns, shifts in fuel prices, and increased competition, can have a significant impact on the entity's credit risk. Investors should consider how well the company is positioned to handle these market risks.
3 Operational risk: This entails the loss triggered by insufficient or failing internal processes, human error, or external occurrences. Rolls-Royce Plc faces operational risks linked to product quality, supply chain interruptions, and cyber-attacks. Investors should consider how the company controls operational risks and how well it is prepared for potentially disruptive occurrences.
4 Interest rate risk: This emerges from shifts in interest rates that can impact the value of a company's credit portfolio. If Rolls-Royce Plc has a significant amount of credit exposure with variable interest rates, investors may be concerned about the impact of rising interest rates on its credit portfolio.
5 Liquidity risk: This risk derives from a firm's inability to satisfy its financial obligations as they become due. Investors may be concerned about the company's capacity to satisfy its financial obligations if it encounters a liquidity crisis or if it has a considerable amount of debt maturing in the near future.
Impact of the Credit Risks
Credit risks’ impact on investors' willingness to invest in Rolls-Royce Plc's financial instruments would depend on their severity and the company's ability to manage and mitigate them. If investors perceive that the firm has a robust risk management framework to manage the risks, they may be more willing to invest in its financial instruments. However, if they think the risks are not adequately managed, or the entity is overly exposed to certain risks, they may hesitate to invest in the firm's financial instruments.
Part (b)
Business continuity management (BCM) is a crucial aspect of an organisation's risk management framework. The purpose of BCM is to ensure that the company can continue to deliver essential products and services during and after a disruptive event. Rolls-Royce Plc has a robust BCM framework in place that is aligned with international standards such as ISO 22301:2019 (Robinson, 2019). The company's BCM strategy is based on a risk-based approach that identifies, assesses, and prioritises risks to the business.
Rolls-Royce Plc's BCM strategy is supported by a Business Continuity Management System (BCMS) that provides a framework for managing disruptive events. The BCMS includes a documented Business Continuity Plan (BCP) that outlines the key actions to be taken during a disruptive event. BCP is regularly tested and updated to ensure that it remains relevant and effective. The company has also established an incident management team (IMT) responsible for managing disruptive events and coordinating the response across the entity. The BCM strategy demonstrates strong leadership and commitment to protecting the organisation's critical assets. The senior management is actively involved in developing and implementing the BCM strategy.
Recommendations to Improve Rolls-Royce Plc's Business Continuity Strategy
Although Rolls-Royce Plc's BCM strategy is robust, there are areas where the company can improve. First, it should consider conducting a business impact analysis (BIA) to identify critical business functions and prioritise their recovery. The BIA will help Rolls-Royce Plc to identify the resources required to recover critical functions, ...