Risk Management is one of the process which identifies the process of threats, then assess the threats which are likely to affect the company’s capital and earnings and then identify the controls which needs to be implemented so that the risks and threats can be neutralize. Usually, threats occurs by various sources like, financial uncertainty, legal liabilities, strategic management errors, accidental and natural disasters. All these Risk should be identified and should be tackle by the management. Usually the companies are nowadays adopting Risk Management Standards like National Institute of standards and Technology and the ISO, which helps these organization to identify specific threats, assess unique vulnerabilities so that the risk can be determined, also it will help to identify different ways to reduce those risks which are directly related to the business and thus implement a risk reduction plan as per the organization strategy. The overall process should adopt some target areas or principles like;
- The defined process should add value to the entity;
- In the whole organizational process it should be an part;
- The overall decision making process should take account of the process which has been defined;
- The process should be made on the best available information;
- The process should be like tailored to the project;
- The process should not be rigid;
The Risk Management plans should also have some predictable steps which should be combined to build up the overall risk management process:
- Risk Identification
- Risk Analysis
- Risk Assessment and evaluation
- Risk Mitigation
- Risk Monitoring
- Risk Avoidance
- Risk Reduction
- Risk Sharing
- Risk Retaining
Our project analysis for the one of the largest Hong Kong supermarket i.e. Parknshop has been discussed in terms of risk management plans and audit.
Parknshop, is also known as a one of the largest revenue earned supermarket chain in Democratic Hong Kong. This supermarket has spread the wisdom in more than 300 outlets across the world and the people are getting benefits from the same. This wisdom has been started in the year 1973 but with the vision to serve the population of Hong Kong, it tends to increase its production and services to prosper accordingly.
Agriculture/ Food chain industry itself is a tough to sustain and increase as there are tons of players in the market. Their one of the toughest competitor is Wellcome, who have equal number of outlets across the place. But Parknshop has a different strategy to run the business which makes them available in entire country and also across the world. The population is visiting the shop/supermarket for each grocery items and household goods.
It is one of the multinational company which is running its operation in different parts of the world in the year 1980s the company expanded its operations in other markets of the world. Currently company has expand their services to China, United States and Hong-Kong, and still continuing. The company has gained its popularity by the range of products sold under one roof with type of discounts and loyalty programs which help attract customers.
Every company is exposed to the risk to the business and Parknshop also have a risk to face out so to sustain in the market. So, the company have introduced a committee so called Risk Management which monitor such business risk and whistle the alarm if it cause or going to cause any serious damage to the company.
In terms of the financial improvement the company has able to increase their net margin by 6% from the year 2016 to 2017. During the year company has been able to enter into various new projects in terms of government, joint ventures and opened their new operations in Austria and various other parts of world.
The primary objective of the company is the enhance long-term return of shareholders. So, in the process of achieving those objective the company, the strategy is to harmonize sustainable recurring earnings growth and maintaining the group’s strong financial profile. But the overall business goal is to become one of the largest, trusted and respected retail brands in Hong Kong and China region.
The Risk audit of the company usually identifies the risk related to human factors, technological factor, physical risk interest rates, political risks, economic risk and natural risk. All these risk are been monitored and asses through an audit and assist company to grab more new opportunities, increase the existing return and neutralize the identified risks. In terms of Parkshop management, the company has its own setup to identify the risk related to the business, future forecasts, identifiable claims, contingent liabilities and supernatural incidents. The company has a Risk and Management committee who does all the above sets of work. The committee is been government by 2 directors which are also the members of the board and have tentative elected members from different parts of regions. The report of the above audit from the committee is been submitted to the BOD who takes the necessary action against the same. The BOD usually takes these report data to frame their strategic decision for the growth of the company. The risk which we can elaborate in terms of External and Internal Environment can be reviewed as:
The risk audit for an industry is to be done by going to different empirical studies and research. These research should be specific to the industry like the grocery sector, in which the company have business with, so to identify the factors which will affect the business environment of the company. There are certain metrics which are useful to evaluate the risk in terms of external environment, some of them are:
Changes in the sector of operation- As this sector carries or provide services for the basic household material, many players are trying to enter into the market and due to which the company has to share its market. It will leads to price cuts and introduction of various discount policies in the market.
Changes in the demand faced – The situation of demand has been analysed and found that in past few years, more number of customers are availing the services of retail grocery stores.
Changes in the factors affecting business –There are various other factors which affects the business as an external factors and some of them are social factors, legal factors, political factors, and other economic environment factors. Like, as the political scenario of the company is stable, which is helping the company to grow.
Changes in the compliance procedures– Complain procedure means the company have to work in an ethical manner, so the company should have a compliance officer who help the company to follow all the disciples and compliance lead against the company.
The internal risk audit is been conducted so to identify and analyze those factors which will determine the company’s future performance. Some of such metrics are as follows:
Past performance: In order to forecast the future the past performance of the company should be analyzed and should be compared with the similar sector performance.
Operational Efficiency: To move further the company should identify their operational loop holes and should work on it in order to prosper further. Growth Challenge: Company runs with its motive, vision, mission and value system. So, these are been studied so to identify the goals and objective of the company.
Risks faced by the company
Internal risk- Internal risk of the company is connected with the employees of the company, so if there is any risk in regard to the company it should be associated with the employee, so employees should be well trained and should help in increase the productivity of the company. The recruitment process should be fair and should serve the purpose.
External risks– In terms of external part, the company is been challenged by its competitor i.e. Wellcome, which pulls back the market from the company. So, the company have to prepare itself to defend in terms of competition from the market and its competitors through various strategic actions and decision.
Model for risk management strategies
The group has adopted an Integrated Enterprise Risk Management (ERM) model based on the best practice and to enrol the existing issues of the company. This model is a long term strategy where it incorporated into strategic decisions and key decision-making processes. This model is a tactical way to deal with, such as it has four categories:
So, this model will help to divide the risk in to four types and then links the risk with the external and internal environment. With regard to internal risk, the objective of this model is to manage them through specific prevention and control measures incorporated into company processes, designed to eliminate the risk, minimise its likelihood of occurrence. In regard to the external risks, the ERM model aims to monitor them and mitigate their impact in the event of any occurrence.
Risks mitigation strategy
Internal risk- The risk mitigation strategy should be like, one employee should handle the productivity or the working of the another employee and there should be a continuous improvement, training program so that the efficiency of the employee should be increased.
External risk- As there is a tough competition between welcome and parkshop, so the company have to come up with a big exposure facility so that the customer should believe in the company. Some of the such facility like, introduction of the discounts through secure points on the buying the goods will attract the customer to the company and will lead the company to sell more.
Current health of the company
As discussed in the above report, the company Parknshop is facing some issues in terms of external and internal business environment. As the competitors are been increasing the company is struggling to maintain the customer base and due to which the financials of the company has been decreased during the year. So, it means that if the company does not introduce a control measure then it will be a threat to the future business.
In terms of the current risk of the company, some of them are, loss of employees and a huge level of stiff competition in the market. As the grocery sector is one of the sector which deals in the perfect competition market, so there is always an easy entry and exit in the market. So, in such scenario the company’s growth will be depends on how they can transfer the bulk supply discount to the retail customer and earn the margin on it.
The impacts can been on the results of the company. The direct impact attracting to the company in terms of internal and external risk is the growth of the company. As shown in the above financials the company’s revenue has been came down in compare to last year and also the ratios of the companies are in adverse side. So, these risk should be work so to reduce the impact.
Recommended risk mitigation strategies
The company should hire productive workforce instead of casual manpower to do the work. The effective performance will come up with the motivation and continuous training to the employees. So the company should implement these things so that if any risk attract the company the large workforce will be able to mitigate those risk internally.
One of the risk mitigation strategy which the company should take is to improve their operational effectiveness and should work on cost cutting in terms of direct and indirect expenses. The overall loss of the company doesn’t only come up with the earnings but also by introduction of cost cutting program. The company should introduce a discount scheme but should be profit factor to the company.
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