Risk Management Assignment: Innov8 Risk Assessment Report

Question

Task:
Question 1:
You have been asked to report on the top 3 risks in the following case study. Using the template below as a guide and the processes that you have learned throughout the different modules of the course, write a risk report to management or the board presenting the top three risks that you have identified. Note that the case study does not necessarily contain all the information that is required; therefore, assumptions, external information or indicators are permitted, however the use or reasoning thereof should be supported in the text.

Risk Management Assignment Case Study: Innov8

• Innov8 is a public company listed on the JSE and as such their focus is on delivering long-term value to the shareholders. They design, manufacture, and assemble computer chips which automate many of the functions for the luxury car market, particularly the ABS braking and fuel injection systems. Fully 60% of its inventory purchases, which are the parts being used in the manufacturing process are imported from Japan. Manufacture and assembly is done in South Africa using local labour, and then the final product is supplied to automotive production plants, both locally and internationally. The trend in vehicle manufacture is to use alternative energy and this is increasingly becoming a reality, making the current fuel injection systems developed by Innov8 possibly obsolete in the not-too-distant future. It is estimated that Innov8 has six years before its core product, the Inject-o-Matic, which accounts for 55% of its total sales, becomes unusable in automobile manufacture.
• The current economic outlook is not favourable globally and the situation is even worse in South Africa. There is a possibility that the prevalence of strike and protest action across many industries within the country, including the automobile manufacturing industry, could drive it into recession within the next year. This will mean a significant drop in the average income of citizens, which means they will have less money to spend on luxury items of any kind. The instability in the labour force is also creating negative foreign investment sentiment, which means that foreign investors are reluctant to invest into South African businesses or their products. They see South African businesses as a risk, because of the high likelihood of production stoppages or other business disruptions. This has implications on the exchange rate, and the rand has dropped consistently for the last three months in relation to major world currencies.
• Labour regulations are currently under review and a proposal has been put forward that the concept of a minimum wage should be applied across various bands of labour as opposed to being solely applied at the lowest level. According to estimates, this means that the amount Innov8 spends on salaries each month could increase by 15%, as the businesses lose the discretion to award salaries as they see fit.
• Innov8 has been operating for many years, and as their focus has been on growing the business, most of the financial resources have been utilised for expanding international sales markets through numerous distribution channel acquisitions. To do this various overseas distribution companies have been acquired and are in the process of being integrated into Innov8’s own distribution network. The purpose of this is to create more robust product distribution channels internationally.
• A side effect of this has been an underinvestment in production plants and the equipment necessary for manufacture. As a result, production time and product quality have started to significantly deteriorate in the last year and the value of production assets have depreciated dramatically. The General Manager: Production has been promised new machinery for a number of years now but still has to make do with the outdated and worn equipment. Currently, customers are still accepting of delayed deliveries, as the Innov8 design team regularly designs products that are for more advanced than those of competitors. This is largely due to the Head of Product Design, who is exceptional at her work, but who has nevertheless been struggling to cope with the workload of late. Soon, customers may also start looking for alternatives, since Innov8’s competitors are continuously improving their product offering in comparison.
• Various positions within the company

The Board of Directors (Board) has been appointed by the shareholders and meets once every three months to compare their management results with their predefined strategy, sales targets, and budget. The Chief Executive Officer (CEO) and her Executive Committee (Exco) are responsible for the day-to-day running of the business. The Exco comprises a number of individuals responsible for various functions and middle management is made up of the heads of those various functions.

Exco

• Strategy Director
• Chief Risk Officer
• Finance Director
• General Manager (GM): Marketing & Communication
• General Manager: Production
• General Manager: Information Technology (IT)
• General Manager: Product design
• General Manager: Sales
• General Manager: Human Resources

Middle management

• Head of Marketing & Communication
• Head of Production
• Head of Information Technology (IT)
• Head of Product design
• Head of Sales
• Head of Human Resources

Each division has staff reporting to it, including a Risk Officer and a Compliance Officer. The organisation also has an internal audit department.

Responsibilities of the various positions are as follows:

Board: Primary responsibilities include governing Innov8 by establishing broad policies and objectives; selecting, appointing, supporting and reviewing the performance of the CEO; ensuring the availability of adequate financial resources; approving annual budgets; accounting to the stakeholders for the organisation's performance, and setting the salaries and compensation of company management.

CEO: Responsible for leading the development and execution of the company’s long-term strategy with a view to creating shareholder value. The CEO’s leadership role also entails being ultimately responsible for all day-to-day management decisions and for implementing the company’s long and short-term plans. The CEO acts as a direct liaison between the Board and management of the company and communicates to the Board on behalf of management. The CEO also communicates on behalf of the company to shareholders, employees, government authorities, other stakeholders,0 and the public.

Executive Committee (Exco): Responsible for supporting the CEO in meeting Innov8’s objectives.

Strategy Director: Responsible for formulating and monitoring performance of Innov8’s organisational strategy.

Chief Risk Officer: Responsible for the development of the risk framework, methodology, oversight and monitoring of risks.

Finance Director: Responsible for the accounting function and sufficiency of funds to meet business needs.

General Manager: Marketing & Communications: Responsible for both external and internal communications as well as identifying and managing reputational risk.

General Manager: Production: Responsible for raw material purchases and conversion into the finished product.

General Manager: IT: Responsible for ensuring all IT systems are functioning effectively with minimum downtime.

General Manager: Product design: Responsible for Innov8’s design strategy and maintaining market leading capability.

General Manager: Sales: Responsible for customer acquisition and retention.

General Manager: Human Resources: Responsible for maintaining a healthy working environment and supply of labour with the right skill set, together with the provision of ongoing training.

Heads of each of the above functions: Responsible for the execution of functional strategies through staff.

Risk Officer: Responsible for risk management within each function.

Compliance Officer: Responsible for ensuring each functional area is compliant with legislative and ISO standard requirements.

Internal Audit: Responsible for evaluating the adequacy and effectiveness of the control environment.

Answer

1.1 Executive Summary
Provide a brief executive summary on the main theme of risk management assignment drawing out the key points of relevance:

The success of a business organisation is majorly influenced by the ability of the company to address the risks that they are exposed to. Risk management is hence considered to be one of the key aspects that contribute towards improving the efficiency of the business organisation to succeed in the long run. Innov8 is an organisation that operates in the field of advanced technology which offers the company with the opportunity to grow in the future. The company is well structured and all the tasks are being performed in a systematic way that makes it easier for the employee to operate hassle free. The case study highlights a number of risks however, all these risks and their ability to impact the business will be analyzed to be able to prioritise the risks and hence work towards addressing them at the earliest. This report will identify three risks and will discuss all the necessary details associated with these risks in specific. The limitations caused by these risks and the steps that needs to be taken to mitigate these risks will be discussed considering the availability of resources of Innov8.

The primary risk that has been identified is that one of its core products that contribute to about 55% of the total sales will become useless within the automobile industry. This risk can be referred to as a systematic risk as it has the efficiency to impact the overall organisational performance in the global market. The company needs to focus on this issue at the earliest. The second risk that has been identified is that of the world economic condition at present. It has been found that the economic conditions are not favorable for the business at this point in time as a result of which the company will be restricted from achieving the success that they aim to. One of the major external business environmental factors associated with this organisation at present are the prevalence of protests, strikes and the significant fall in the currency exchange rates. These factors are some of the aspects that are not under complete control of the company and hence the business organisation needs to look for an alternative that will help them accommodate to these issues without letting these issues impact the performance of the business organisation.

There were certain changes proposed in the labour regulations that suggest that an increment of about 15% on the labour charges which will impact the budget of Innov8 and the entire concept of being benefitted by the low labour charged in Africa will not be applicable anymore. This change has not yet been implemented however, if implemented; it will impact the performance of the company significantly. The distribution of the product was done with the help of different distribution channels however, the company has integrated its own distribution network in order to operate successfully, however, there are a number of risks associated with this specific decision as the distribution channel acquisitions had the knowledge of distribution and further they maintained strong network to execute their tasks successfully. Further, it has been observed that the company has to compromise on the investments in production to accommodate the self-run distribution channels. This will hence impact the quality of the products which will further impact the brand name. It is evident that the company is exposed to a set of risks that needs to be addressed at the earliest in order to be able to maintain a sustainable position within the market.

1.2 Top Risk Summary
Insert the relevant content in the below table:

1.3 Detailed Risks

Risk 1: Inject-o-Matic is the product that contributes towards 55% of the entire sales of the company will be unusable in the next six years of time.

Organisational objective: The company aims to achieve growth in terms of sales to maintain a gain progress in the existing market conditions.

Risk description: Every organisation has a product that contributes towards maintaining their brand name. It is essential for the organisation to work towards growing and developing their products in order to enhance their sales which will further have a positive impact on the business and the business performance. However, the main product that contributes to over 55% of the sales of the entire company. The risks associated with this issue are that the company will experience a significant decline in sales and revenue if they do not have an alternative to offer their customers. This can further lead to losing the existing customers to potential competitors which will hence impact the number of loyal customers earned by the brand.

Insert the relevant content in the table below, limiting the causal factors and mitigating actions to no more than 3 each.

Key risk indicators: Insert the relevant content in the table below, limiting the number of indicators to no more than 3 each.

Recommendation: It is further necessary to conduct team meetings quarterly in order to keep the employees updated about the progress achieved in terms of developing the new products. Further, it is important to gain the trust of the employees and hence participation of the employees in various decision making procedures will contributes towards keeping them motivated and feel valued by the brand. It is hence necessary to keep all the employees updated about these aspects to ensure that they perform their tasks as per the organisational requirements.

Risk 2: The issues created due to the investments made in the self-run distribution networking.

Organisational objective: This impacts the ability of the organisation to invest on the products offered by them.

Risk description: Considering the competitiveness that prevails within the market it is significantly necessary for the business organisations to focus on the aspects that contribute towards maintaining the quality of the products and improving it with time. The sales and the aspect of customer loyalty are majorly dependent on the quality of the products offered by the brand. However, if the company does not have availability of resources then they will not be able to work on improving the quality of the products offered by them. This will impact the performance of the business as it will impact the bond that the company shares with the existing customers. Further, distribution is one of the major aspects associated with business, the company lacks knowledge of distribution and networking and a third party vendor who is associated with this task can actively get the task done as they work in their field in specific.

Insert the relevant content in the table below, limiting the causal factors and mitigating actions to no more than 3 each.

Key risk indicators: Insert the relevant content in the table below, limiting the number of indicators to no more than 3 each.

Recommendation: Distribution plays an important role within the organisation and it further allows the business organisations to directly interact with the clients. The company needs to offer its employees with proper training in order to help them understand the business and the products offered by them. Further, they need to focus on understanding their clients and their needs to be able to work effectively towards addressing their needs.

Risk 3: The changes in the external business environmental factors

Organisational objective: This will impact the overall performance of the business organisation

Risk description: External environmental factors are not under the control of the business organisations and hence it is essential to make necessary changes that can help to accommodate these changes. The global economic condition has impacted the currency exchange rates which will hence impact the import export procedures. The change in labour charges will impact the performance in terms of not being able to get the tasks done within the assigned budget. Further, the prevalence of protests and strikes within the automobile manufacturing industry contributes towards distribution of the operations that further impacts the performance of the business.

Insert the relevant content in the table below, limiting the causal factors and mitigating actions to no more than 3 each.

Key risk indicators: Insert the relevant content in the table below, limiting the number of indicators to no more than 3 each.

Recommendation: The Company needs to further work towards analysing the external business environmental factors to be able to identify any changes that may demand their attention and hence work towards addressing them at the earliest to ensure that these issues do not impact the business operations and business performance.