Special Risk Management Topic Assignments | Online Homework Help
Chapter 18(Attached) presented special risk management issues with Blue Wood Chocolates, and chapter 19(Attached) presented various financial risks at Kilgore Custom Milling. If Blue Wood Chocolate and Kilgore Custom Milling are to develop a risk management framework, who should lead the process at each company? Should a Chief Risk Officer (CRO) be appointed? If so, to whom should he/she report and have access to? How could smaller companies without the resources for a dedicated CRO deal with ERM? What is the role for the board in such a process?
Original Discussion(What’s need to be done) – As indicated above, if Blue Wood Chocolate and Kilgore Custom Milling are to develop a risk management framework, who should lead the process at each company? Should a Chief Risk Officer (CRO) be appointed? If so, to whom should he/she report and have access to? How could smaller companies without the resources for a dedicated CRO deal with ERM? What is the role for the board in such a process?
ANSWER ALL OF THE QUESTIONS ABOVE IN YOUR assignment
The original discussion should be a minimum of 300 words with at least 3 references in APA style.
After this, there is an attached document called “Discussion needs responses”. In this document, there are three discussions which needs responses. Each response should be a minimum of 150 words.
ITS 835 Chapter 19
Kilgore Custom Milling Enterprise Risk Management
• The management team
• The company
• The new contract
• The financial risk management meeting
- Kilgore Custom Milling
• Small private manufacturer
- Power window assemblies
• Based in southern Ontario, Canada
- Pursued contracts to supply plants in the U.S.
• Successful in negotiating a contract with Japanese manufacturer
- Previous international contracts resulted in loss
- Due to currency volatility
The Management Team
- Owner and CEO
• Steve MacLinden
• Left day-to-day operations for the rest of the team
- Manufacturing and Plant operations
- Rory Sullivan
- Sales and Client relationships
- Casey Dobblestyn
- Treasurer and CFO
- Privately owned
• 100% by Steve MacLinden
• Planning to retire in 5 – 10 years
- Main focus is cash flow management
- Concerns with currency related cash flow issues
- Additional concern about inflation differences
- Between U.S. and Canada
The New Contract
- Dramatically increase sales
- Over 100% for 5 years
- Complex and exacting specifications
- All proceeds in U.S. dollars
• Kilgore must manage financial risk
- Contract could be extended for 3 years
• But at the same price, benefitting the buyer
The Financial Risk Management Meeting
- U.S. and Canadian dollars near par
- Caused concern over U.S. competition
- Multiple options to deal with currency risk
- Long term swap contracts
- Short term forward contract
- Currency options
- Management team lack understanding of the options
- More open questions than answers
• Lots more to do …
ITS 835 Chapter 18
Blue Wood Chocolates Enterprise Risk Management
• Market overview
• Blue Wood financial performance
• U.S. Manufacturer of chocolate products
- Privately owned (family)
- New CFO
- Brought in to stabilize financial performance
- Blue Wood risk management practice in doubt
• Banks wondering if RM gaps are causing unstable finances
- Considering taking action
- Internal politics and conflict
- Growing market
- Major competitive factors
• Large producers
• Brand recognition / reputation
- Cocoa markets overview
- Sugar markets overview
- Milk markets overview
Blue Wood Financial Performance
- Profitability measures worse that competitors
- Lots of internal finger pointing
- Deteriorated cash position
- Currently borrowing against revolving line
- Retained earnings falling
- Substantial investments
• In case cash flow couldn’t cover dividend payments
- Potential $10 million lawsuit
• Risky entrance into currency hedges and futures
- Business underperforming
- Immediate action is necessary to respond to banks
- CFO requires
• Overall view of corporate objectives
- Major risks facing the company
- Must have support from the top
- After initial pass
- Implement ERM
In many small business organizations, the management (owners who don’t have a dedicated CRO) of the organization mostly make key decisions about business expansion and production. This management has a very good knowledge about designing more products and expanding business but have minimal knowledge about risk mitigation techniques such as inflammation differences, cash flow issues, competitive threats, lawsuits and money management. When a CRO appointed in any organization it helps organization to bring an order in management and structure in ownership. The CRO of organization responsibilities are continuously evolving over the years. CRO functions include identifying risks and plan to mitigate the risk, form good communication between organization key decision making team by conducting meetings and updating risk tolerance level periodically (Kenton, W., 2017).
On coming to Blue Wood Chocolates Company, the CRO should interact with both CEO and CFO, because the company CEO knows everything about business such as past activities and major key decisions which are made previously. Since the CFO is new to organization and he/she is going to be part of future business process CFO should also be in interacted with CRO. The CFO should lead the process at the company while implementing ERM.
In the case of Kilgore Custom Milling, the CRO must be interacted with all the team because in this company even the Steve MacLinden is the CEO, each department has their own heads like manufacturing, customer relationship, sales and treasure. So the CRO should conduct common meetings with team to mitigate risk.
In above both organizations there is clear visibility of communication gap among the management, concerns with cash flow, lack of proper risk mitigation plans indicates the mandatory presence of CRO. Since both the companies are small and cannot afford to have a dedicated CRO, it is best advised they should conduct annual risk review about legal, financial and other competitive factors to mitigate risks (Kirkup, D., 2017).
As per the current financial situation of the organizations it is suggested to appoint a Chief risk officer to develop a risk management framework and it’s like walking into a hornet’s nest in her new position as CFO of Blue Wood Chocolates. The business was underperforming, and urgent action was required to respond to pressure from the banks and provide an action plan to the board of directors. There would be definitely disagreement among senior executives and board members about the strategy and overall objectives the company should pursue, and nobody had a grasp of all major risk factors. There was no oversight of the hedging practices and little effective internal communication among various functions, or even within some of the functions.
Authorized person needed to have an overall view of the corporate objectives before developing and implementing specific operating procedures. He/She needed to get a grasp on the major risks facing the company so that she could develop appropriate responses to these risks. An ERM framework seemed appropriate. However, this would need buy-in from the top, specifically the CEO, chairman, and the board. She needed to develop an overarching proposal incorporating objectives, strategy, and an ERM outline framework for presentation to the board. She would first need to get the CEO on board, not an easy task given his disinterest in what he considers bureaucratic matters that he hires people like CFO to deal with.
Operational procedures, including commodity and currency hedging, would be important but would need to be developed within an overall ERM framework. She also needed to determine how financial performance could be improved. Profitability seemed lackluster, with a high expense base and no real control on major purchasing inputs. Revenues had held up fairly well but could be under competitive threat if margins continued to fall below the industry average.
Every business owner probably has the most critical business risks on his or her radar. Input from insurance and legal advisors will help identify them. But some important risks may have been simply overlooked or may not be fully appreciated. Further, the potential size of the risk may not have been quantified, and steps to mitigate the risk may not have been developed. It is worth carrying out an annual risk review with legal, insurance, and accounting advisors, along with the management team, to clarify the key risks, determine their likelihood of occurrence, and then start to build a risk management plan to alleviate them.
The below are the responsibilities of CRO with respect to board in implementing the risk management framework
- The CRO has representation at the respective board-level committees and the independent audit committee either as a standing member or a regular invitee.
- An independent board level risk committee exists which is attended by the CEO, CFO and CRO.
- An executive risk committee chaired by the CRO and reporting to the board level risk committee.
- The CRO has regular representation in key subcommittees enabling the CRO to input into key strategic and business planning decisions from the outset.
In a situation whereby, Blue Wood Chocolate and Kilgore Custom Milling are to develop a risk management framework, it is the responsibility of the Chief Risk Officer to ensure that the risk management framework is developed in an effective manner. This will play important roles in ensuring that the risks experienced by an organization are reduced for the success of the businesses. The development of the risk management framework enables the companies to address the issues experienced in a way that will bring about success to the entities. (Sampedro, 2019)
The risk management framework to be developed effectively, the companies should appoint Chief Risk Officer. The Chief Risk Officer will play important roles in ensuring that the threats experienced by the businesses are assessed and mitigated effectively. The technological threats experienced by the businesses will therefore be handled in a way that will reduce the losses experienced by the companies. This will help in increasing the profitability of the businesses. (Shad, 2019)
The appointed Chief Risk Officer should be able to report to the top management of the businesses for the purposes of ensuring that the activities carried out by the business are carried out in an effective manner. When the risks experienced by the companies are reported to the top management of the business, it becomes easy for the right measures to put in place so as to ensure that the businesses are run accordingly.
On the other hand, smaller companies without the resources for a dedicated Chief Risk Officer should deal with enterprise risk management by encouraging the employees to report the occurrence of incidents in the businesses. This will help in ensuring that the cases of risks are addressed in the shortest time possible. Again, the board in the businesses will play important roles in ensuring that the operations of the business are assessed. (Yazdani, 2019)