Businesses is the economic system in which goods and
services are exchanged for one another or money, on the basis of their
perceived worth. Every business requires some form of investment and a sufficient
number of customers to whom its output can be sold at profit on a consistent
basis. This business definition establish direct or indirectly a flow of money.
In addition, this flow of money has a temporary component. The balance of the
flow of money determines the excess or deficiency of money, then the surplus or
needs of funds. Failure in the access of funds could represent a serious
problem in the business development. Two timeframes balances are considered,
the short-term and the long-term.
Requirements for the operating expenditures
requiring short-term operating funds:
- Account payable: financial
managers should know in advance the amount of new account payable for the
short-term, and the deadline to pay each account.
- Account receivable: similar
than account payable, financial managers should know in advance the amount
of money due for the buyers in the short-term, and the deadline to receive
the debt.
- Inventories: several managers
(e.g.: sales, financial) need to know the amount of each one of the type
of inventories (raw materials, work-in-progress, and finished goods) that
the company has over the time. In addition, managers set and know the
excess of inventories at the end of each sub-period (e.g.: month, quarter)
that they consider optimum in the operation of the company.
- Working capital: managers need
to set the working capital for the business operation in the short-term.
In addition, they need to know the current assets and liabilities in this
short term for knowing the operative situation of the company.
Risk-management process; speculative and pure risk
description
Risk: Meteorite impact PCC plant.
- Step 1, Identify risks - pure
or speculative: the pure risk looks to be a serious threat for PCC; the
potential losses are the total loss of PCC plant if a meteorite impacts
any PCC plant.
- Step 2, measure impact on PCC:
according to the Near Earth Object Program by the NASA and the AstroGuard project to protect the planet, the combined
total impact probability for all listed object over the next hundred years
is one in 67. If this impact occurs in the PCC plant, the losses in
material and human capital could be tremendous and they could mean the
total destruction of the PCC plant and operations.
- Step 3, evaluate alternatives:
this risk can not be avoided, neither to control it. The retention of the
risk is too high for PCC. As conclusion, risk transfer is the better
alternative.
- Step 4, implement program:
based on the conclusion in the steps 2 and 3, few programs could be
developed. The more active program is to follow the NASA publication about
the evolution of each near earth objects and to be attentive in case that
one of them could strike the PCC plant.
- Step 5, monitor results: this
is an external risk, it does not depend of customers, own personnel, etc.
In addition, one it happens, nobody will be interested in continuing
producing potato chips at PCC (probably the site will be used for research
programs). As conclusion, only an alert program could be developed.
Risk: genetically modified potato produce serious
diseases in people
- Step 1, Identify risks - pure
or speculative: this speculative risk could mean a serious liability for
PCC. PCC is working with genetically modified potato because it has a
quicker growth, lower herbicide requirements, is cheaper, etc. These
characteristics offer to PCC a higher profitability and lower risk
associated with natural resources provision. The risk of accidents in the
production of the genetically modified potato is low, but due to the
relaxation in the regulations, this risk is increasing.
- Step 2, measure impact on PCC:
The consequences for PCC in case of any link between this genetically
modified potato and serious diseases in the population will be very high.
People will avoid buying PCC product for the lack of confidence. It could
represent the bankruptcy for PCC.
- Step 3, evaluate alternatives:
PCC has many option here. Risk avoidance is one of them; PCC could choice
not to work with genetically modified potato. Risk control is not a real
option for these risk due to the timeframe
developing/discovering/investigating the link between the potato and the
diseases. Risk retention is an option, in fact is the option that most of
the companies that deal with this risk are taken. Risk transfer is possible
option too, but it could be very expensive; this will attempt with the
profitability in the use of genetically modified potato.
- Step 4, implement program:
under risk avoidance, the program is to develop the strategies being sure
that all the natural resources used at PCC are not genetically modified.
Under risk retention, the companies engage a very skilled law buffet that
they help to expand and dilate any implication and liability, such as the
some companies are doing right now in poor countries.
- Step 5, monitor results: the
ongoing process in the evaluation of the resources for the first
alternative, potential link between the potato chips and any disease for
the second one, are mandatory.
Risk: Industrial espionage
- Step 1, Identify risks - pure
or speculative: this pure risk could attend with the profitability of PCC.
The market evolves continuously; new products and services should be offer
for the companies to gain over the competitors. If the industrial
espionage affects PCC it could represent a serious risk for PCC
operations.
- Step 2, measure impact on PCC:
this risk could represent for PCC a loss of competitiveness that could
push to PCC to bankruptcy.
- Step 3, evaluate alternatives:
risk avoidance, transfer are not possible alternatives. The better
alternative is a combination between control and retention. This
combination will offer to PCC to be alert and minimize the impact of this
risk.
- Step 4, implement program: PCC
should implement strong programs in those areas that they deal with
sensitive information about PCC operations, development, innovations, etc.
- Step 5, monitor results: an
ongoing process should be developed, with continue changes in strategies.
The repetition of the surveillance process offers a point of to break the
control.
Risk: management expertise and education
- Step 1, Identify risks - pure
or speculative: this speculative risk deal with the decision making
process in the business running.
- Step 2, measure impact on PCC:
the impact of bad decision could have very serious consequences for PCC
operations. It could cost a lot of money, the lost of human capital, share
market, etc.
- Step 3, evaluate alternatives:
risk transfer, retention are not possible for this risk. Risk control and
risk avoidance are the better options dealing with this risk.
- Step 4, implement program:
continue learning process and similar tools could be implemented to offer
more educational background to managers. In addition, it should develop a
periodic evaluation, workshops and meetings where people could synchronize
ideas energy in PCC development.
- Step 5, monitor results: HR
should develop a continue process in the evaluation of the management
performance.