Executive summary
Risk is defined, by most of those who seek to measure it, as the product of the probability and utility of some future event. The future is uncertain and inescapably subjective; it does not exist except in the minds of people attempting to anticipate it. Risk management is big business; the formal sector of the authorities involves government, commerce, and industry; it employs actuaries, ambulance drivers, toxicologists, engineers, policemen, mathematicians, statisticians, economists, chaos theorists, computer programmers and driving instructors. The work of this sector is highly visible. It holds inquests and commissions research. It passes laws and formulates regulations. It runs safety training programs and posts warning signs. It puts up fences and locks gates. Its objective is to reduce risk ( 1995). Risk has become an important part of managing events in the business as well as local and international events. To further guide Heinz in making use of the right risks a risk management plan will be created. The risk management plan will be a comprehensive approach to the identification, assessment and analysis of risk. This risk management plan will contain parts such as the objectives of the risk management plan, the risk management policy, how the plan will be interdependent with corporate governance and strategic planning, the responsibilities in the plan of each member of the organization, the risk management programmed, the risk management processes, and the means to measure and implement the plan. This paper will also contain the evaluation of controls, risk treatment plans and the communication plan.
Definition of terms
Competitors: An opponent that an organization has is in conflict with in a commercial market.
Competitive Advantage: It is an advantage owned by a company with lower costs and prices than its rival.
Corporate Governance: It is a system of structuring, operating and controlling a company with a view to achieve long term strategic goals to satisfy shareholders while complying with the legal and regulatory requirements, apart from meeting environmental and local community needs.
Market Segmentation: It is the division of the market for a product into groups of customers with identifiable needs and characteristics.
Marketing: It is the business activity of presenting products or services to potential clients in such a way that the presentation to them will make them buy the product.
Pricing: It is the particular amount that is offered or asked for when something is bought or sold.
Risk: An uncertain event that can create good or bad things for the firm and its objectives (www.wikipedia.com)
Risk management: It is a structured process to manage risk and its effects.
Sales: Quantity of things sold or the rate these things are sold. It can also be
a demand that creates the opportunity to create something.
Objectives
The objectives of the plan are as follows:
Risk management policy
The risk management plan intends to make sure that will make use of the proper risks beneficial to them. The risk management plan will guide the company in choosing the right risk without hampering the company’s goal of providing products that are renowned and favorite for most people. The company’s management and staff are expected to participate in the planning and implementation process. The company’s president is the one responsible for the risk management efforts.
Interdependency with corporate governance and strategic planning
Corporate governance has come to imply good, in the non-moral as well as the moral sense. Its non-moral applications include efficient decision making, appropriate resource allocation, strategic planning, and so on. In its moral sense good corporate governance has come to be seen as promoting an ethical climate that is both morally appropriate in itself, and consequentially appropriate in that ethical behavior in business is reflected in desirable commercial outcomes. Here the links are with due diligence, directors’ duties, and the general tightening of corporate responsibility. Middle and lower management find it hard to be ethical when it seems that the top of the corporate hierarchy have no commitment. The message of sincerity will always filter down, and no amount of deception will foster the view that a board is ethical when it plainly is not ( 2000). The commitment to ethical corporate governance by a board will enhance the prospects of an ethical infrastructure within the organization. That ethical infrastructure is a manifestation of the commitment, a means of preventing and resolving ethical problems, and an impressive demonstration of sincerity. The notion of ethical corporate governance has a focus on leadership. Mergers, leaner organizations, and accountability have all had their impact ( 2000). Good corporate governance requires commercial insight and commercial courage; but no less than that it requires adherence to the principles of honesty and integrity. The overall significance of corporate governance is that ethics must start at the top, and be constantly fostered there. Without ethical leadership there will be no ethical following ( 2000). Corporate governance makes sure that an organization makes appropriate and justified decisions that will lead to success. Corporate governance changes the way a business performs and acts on certain issues that affects the company. Corporate governance deals with issues like accountability wherein everyone should be held liable for his/her actions. It advocates a company’s use of policies to protect the shareholders and make sure that people in the organization will be of best behavior. To make sure that the risk management plan will have proper guidance and will make the most appropriate movements, strategic planning and corporate governance will be used. Strategic planning will be used as a basis of how the procedures of the plan should be implemented. Corporate governance on the other hand will be used as a guidance to determine the actions of the risk management plan that will be deemed appropriate by the local and foreign environment. Corporate governance will make use of ethics in making decisions pertaining to the risk management plan.
Organization and responsibilities
The company’s Chairman, President and Chief Executive officer is will be the person who has infinite control over the risk management planning, control and implementation. He will be assisted by other members of the management team in making decisions on the risk management process. The management team will act as the formulating and implementing body of the plan. They will formulate, plan, control and implement the plan. William R. John can hire a corporate risk manager that will report directly to him and he/she will oversee the creation and implementation of the plan. The lower ranking members of the organization will gather the data that will be used in creating the risk management plan. The data can be in the form of probable risks the company will take, the benefits or disadvantage of the risk and other information that will be helpful to the plan.
Risk management programme
Methodology
The risk management programme will make use of the information gathered by the lower ranking members of the organization. The risk management programme will be based on the ideas of the risk manager and the management team. The risk management programme will combine the ideas of the risk manager, the management team and the information that will be gathered by the lower ranking members of the organization. The President and CEO will then analyze the risk management programme and determine whether it has acceptable ethical implications.
Components of the risk program
Risk management in practice typically involves some mixture of anticipation and resilience. One key element of the risk management debate turns on where the emphasis should be laid between the two. Anticipations argue for extra weight to be given to measures designed to detect in advance the clues that signal potential threat in physical or organizational structures, and to act on those clues, even before scientific proof beyond a reasonable doubt has been obtained (1996). Such an approach means laying more emphasis on methods of pre detection and prevention, and on regular health checks or audits of potentially dangerous organizations, locations or structures. Risk management regimes should be designed to promote resilience against unexpected catastrophes, rather than to rely on being able to spot them coming in time to take action to prevent their occurrence or lessen their impact. It can even be claimed that placing too much emphasis on the anticipation of adverse outcomes may actually contribute to the crises it seeks to avoid. It reduces the capacity to respond to the unexpected and increases the shock when things actually do go wrong. For the advocates of resilience, the emphasis of a risk management regime should be directed more on promoting the capacity to cope with the unexpected (1996). The risk management programme focuses on determining the risk that should be implemented and the controlled by the organization. The risk management program involves the risk management process, controlling the process, risk treatment, communication plans and implementation of the process.
Risk management process
Determining the Business risks
Management must consider the risk that the firm must assume in its business affairs. Economic theory and common sense both argue that a dollar of risky profit is less valuable than a dollar of certain profit. In addition to considering business risk and financial risk in isolation, management must also consider the interaction of the two forms of risk. A well-run firm must strive to maintain an appropriate balance between business and financial risk. Thus, a firm facing a relatively low level of business risk can be much more aggressive in employing debt financing than a firm facing a relatively high degree of business risk ( 1997). Business management is about managing risk, because in running a business, the business professional is operating in an environment filled with uncertainty. Every decision made whether it is choosing a project, hiring an employee, investing in a new product, upgrading operations has risk implications that decision makers must take into account consciously ( 2003).
People launch and run businesses to make money. If they enter into a safe business they are not likely to make great sales, but neither are they likely to lose much. If they develop a technology breakthrough, they have a chance to make a fortune, as well as an opportunity to lose their life savings ( 2003).All business management is risk management. Whenever business managers make decisions, they are operating in a world of uncertainty. Their decisions may be on target, making them looks like business geniuses or they may be wrong. At no other time in the history of modern business was the gap between perceptions of brilliant decision making and reality more apparent than at the outset of the new millennium. In the last years of the twentieth century, the leaders of dot-com companies made pronouncements as if they were visionaries. They spoke with certainty about the dramatic changes in the terms of business that define the New Economy. They preached that stock prices of unprofitable companies were justifiably high because business reality had changed, and stocks were being valued according to their potential worth. But just a few months into the new millennium, it became clear that the pronouncements were a sham ( 2004).
The stock market lost more than trillion of value over the next two years, indicating that the old values still predominated and that if one cannot make a profit, their business is not worth much. The principal lesson of the dot-com experience is that the business fundamentals are always there. A company that does not understand its market, or that regularly spends more than it makes, or that has sloppy business processes in place, or that cannot plan and implement its projects effectively, or that is unprepared for regulatory surprises is a company foredoomed to fail ( 2004). There are many business risks that the company needs to consider and that includes changing the marketing scheme, improving the logistics system, reconfiguring the pricing scheme, engaging in more social activities and changing some policies towards the personnel.
Risk 1: Changing the marketing scheme
Advertising forms the central plan of most communications programs. The information conveyed in advertisements may be in the form of words or symbols. It can work to educate, persuade or simply to inform. An image can be supported or created, enquiries can be elicited and the functions of a product can be demonstrated. Advertising is far more likely to reinforce rather than create a good image (1999). A strong image is a function of the positive experiences which people have with a product or company. Attempts to create a positive image, while providing poor products or services, are likely to make customers cynical. A common mistake made in advertising is the tendency to over promise. While a creative advertisement may make a consumer buy a product once to try it, it cannot force them to repurchase. Thus, if a product does not deliver on the promise made in the advertisement this too will create resentment and negative feelings ( 1999). The marketing scheme is the means for the company to advertise itself to its target clients. Changing the marketing can help in attracting newer clients on the other hand the change in marketing scheme can cause the loss of regular clients.
Risk 2: Improving the logistics system
The risk situation in the context of logistics management can related to having a secured record of supplies. In logistics management having a secured record of supplies is an important thing. Having a record of supplies is a risky thing that a company has to do. Having a record of supplies may give a company benefits such as efficient list of supplies but it can also cause problems with regards to the secrecy of the information contained in each record. To counter problems coming out of the risk a system would likely be used. The system would be able to input different information and data that are important to the logistic section of a company. The system would then arrange the said records according to the classification they belong to. To protect the system a specific password would be asked to the user so that only those authorized by the company can access the information they need.
Risk 3: Reconfiguring the pricing scheme
The market pricing approach is used when the environmental improvement under consideration causes an increase or decrease in real outputs and/or inputs. Examples may include a decrease in timber harvest and/or extraction of minerals from a legislative enactment that effectively expands the acreage set aside as a wilderness area; the expected increase in fish harvest due to the implementation of a new water pollution control technology; or an increase in crop yield arising from a legislative mandate of a higher air quality standard. In the above examples, benefits from environmental improvement are identified in terms of changes in outputs or inputs; more specifically, timber, minerals, fish and crops (2000). These outputs or inputs are expected to have market prices that accurately reflect their scarcity values or, where this is not the case, shadow prices can be easily imputed. Thus, where environmental improvement is directly associated with changes in the quantity or price of marketed outputs or inputs, the benefit directly attributable to the environmental improvement in question can be measured by changes in the consumers’ and producers’ surpluses ( 2000). A variety of motivations explain the adoption of a new customer approach by global companies. A major reason is the cost of conducting personal visits or customer sales call continues to increase (2003).
Firms have come to believe that a more efficient method of marketing is to establish and maintain long-term relationships with their customers. When a long-term relationship is established and nurtured, it is less necessary to spend significant amounts of money advertising to make customers aware of the product offering and then employing a sales force to stimulate demand for unwanted products/services to potential customers ( 2003).Global customers expect low manufacturing costs, excellent design, and having their needs met. The firm wants to form a relationship with its best customers because this orientation appears to generate lower-cost customers. The firm expects the sales force to work the marketplace to reach new customers or to find outlets for products that have been overproduced or under-engineered. While a firm’s orientation may change slightly, depending upon the market situation, the firm normally adheres to a single orientation more than the rest ( 2003). The risk in changing the pricing schemes is the reduction of clients who buy a certain product. Some clients might not agree with the change in pricing schemes.
Risk 3: Engaging in more social activities
Society plays a role in the operations of a business. They are the ones that dictate how long the company will stay in the industry and they can be the measures of success or failure for the company. The society is not only the main consumer of the company and its product but they are the primary critic for whatever unacceptable actions the company does. The positive effect of engaging in social activities is a better image for the company. Engaging in more social activities will give the clients a notion that the company has a high sense of corporate responsibility. The negative effect of engaging in social activities is the rise in expectations to the company particularly on the number of social activities they do. People might expect that the company will more than the average social activities.
Risk 4: Change the policies on personnel
An important thing that business owners should be concerned of is the welfare of the employees. Employees who are properly cared for can work well and they can be an asset of the company. The positive effect of the changes on personnel policies includes a better relationship with the personnel and a better image. Once the company chooses to take a risk on changing their personnel policies this leads to a more productive workforce and better image. On the other hand the changes in personnel policies may lead to abuse from some personnel. Some personnel may use the change in policy as an excuse to not do their job or to be less productive.
Choosing the risk
From all the available risk the recommended one is changing the logistics system. Changing the logistic system can reduce the issues between the suppliers and the company. It can reduce instances of low inventory levels for the company. Improving the logistic system would also help the company compete against rival firms that have upgraded their inventory system.
Controlling the risk process
Closely related to risk monitoring is risk control, or the actions a firm takes to keep its actual risk profile at or below its risk tolerance. Sound risk control decisions are only possible when the measurement and risk monitoring/reporting parts of the process are working properly ( 2001). In other words, unless a firm can compare its actual risks to its risk tolerances, the firm cannot determine whether actions should be taken to reduce those risks except on a purely sole purpose. In some cases, a company’s risk control response to a divergence between actual and desired risk exposures is to take no action. Consequently, a well-functioning risk management process does not always yield actions that change the risk profile of the company. But if the risk profile of the company can be changed in a manner by which the marginal benefit of the change in exposure is equal to its marginal cost, risk management products are the means by which this is possible ( 2001). To control the risk management process proper communication is needed to ensure that the risk taken would result to positive benefits for the firm.
Communication plan
At the heart of any successful change communication program is effective employee communication, for without effective employee communication any change program will fail. Useful change is possible. Without credible communication, and a lot of it, the hearts and minds of the troops are never captured. Therefore, companies need to apply the same analytical energy and rigor to employee communication and the design of their change communication plan that they give to the financial and operational components of any change program (2004). The specifics of any change communication program are particular to the company; they must come from inside the organization and not from outside. No one should force the strategic employee communication model or any other model on a company from the outside. Instead, the strategic employee communication model and change communication approach should be used to work from the inside of the organization to determine what is needed and to design the appropriate change communication program to fit those needs ( 2004).The specifics of any change communication program are particular to the company; they must come from inside the organization and not from outside. No one should force the strategic employee communication model or any other model on a company from the outside. Instead, the strategic employee communication model and change communication approach should be used to work from the inside of the organization to determine what is needed and to design the appropriate change communication program to fit those needs (2004). The risk process would not be successful if it does not have communication plan. The communication plan would link the lower and higher members of the organization. It would help the members of the organization to coordinate every movement with regards to the risk management process. The communication plan would feature various channels such as the internet, and other telecommunication devices. These channels would hasten the delivery of information from one member of the company to another. It would reduce miscommunications before and after the process is implemented.
Risk treatment plan
Risk has two components: likelihood and impact. When examining a risk event, one concern the people should have is how likely it is to occur. A second concern to address when examining a risk event is the level of its impact if it occurs. Will it be impact free? Will it lead to serious loss? In any planning to treat risks, attention should focus on two dimensions (1995). First, risk response plans should be developed to lessen or eliminate the likelihood of untoward events arising. Second, risk response plans should be developed to lessen the impact of risk events. When planning to respond to risk events, risk treatment strategies should be created that build on one or a combination of these approaches (1995). The risk treatment plan would make sure that untoward events would not result from the risk taken. The risk treatment plan would feature back up plans that can be used once the risk management process results to additional problems for the firm. The risk treatment plan would also feature means to lessen the impact of the risk management process.
Implementation of the process
The system will be well operated and maintained so that the system will provide benefits to a company and not problems. The system will run smoothly if there will be able and responsible personnel that will check the system and make sure that people who use it will comply to guidelines in using the system. The system will be able to grow and be upgraded as soon as a need for such becomes imminent. The system is highly adaptable to change and it can still accept upgrades. The upgrade will depend on how beneficial the system is and how imminent is there for changes to transpire. Implementing the process would require the various steps that include:
Performance measurement of the process
The role of performance measurement and evaluation is to help keep the organization on the operating on a straight and narrow track. The measures are used primarily by business specialists, and the action taken as a result of such analysis may also be exclusively good for the business. The performance of the process and the plan would be measured through knowing the effect of the process to the firm. Nevertheless, it is also clear that evidence of business problems may occur because of deficiencies in other areas of business operations. In this case, the ratios can provide the company’s director with the information necessary to convince other managers that operating action needs to be taken in order to avoid any company problem. However, the primary role served by this type of performance measurement lies within the province of the business function, and is concerned with the effective and efficient use of the company’s resources ( 2002). The risk management process and plan would be a success if it creates positive changers to the firm. A criteria would be used to check the performance of the risk management plan/process. The criteria will include: The impact of the risk management process; the number of positive changes the risk management process created; the number of negative changes; the increase or decrease of complains with regards to the implementation of the risk management process; and the status of the company after the risk management process. These criteria would determine whether the risk management plan/process made sure that it attained its goal and brought needed changes to the firm.
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