b
Module
Risk Management RISM01-7
(NQF LEVEL 7)
FORMATIVE ASSESSMENT – ASSIGNMENT
Assignment (RISM01-7/S1 05/2023)
Due Date
4 April 2023
Exam Date
24 May 2023
Marks
60
© Milpark Education Risk Management RISM01-7 Assignment 4 April 2023
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Assignment (RISM01-7/S1 05/2023)
Total: 60 marks
Note: You will be penalised for the copying of theory without explanation/
application to the scenario provided. You should use the theory in support of your
own answer. Non-application will result in a zero mark being awarded.
SECTION A (60 MARKS) – PARAGRAPH QUESTIONS
Question 1 (8 marks)
Read the case study below and answer the questions that follow.
GreenSolar is a producer of renewable energy solutions. Its solutions are
comprised of solar panels, inverters and backup batteries. These solutions have
a designed lifespan of ten years.
Globally, there has been an increased awareness around sustainable living and
green energy solutions. This is even more true in South Africa, where there are
energy shortages, and people have shown a preference for renewable energy, to
be less dependent on coal-powered energy.
The South African Reserve Bank reacted to heightened inflation by increasing
interest rates. Most homeowners who install GreenSolar solutions pay for the
solutions using their home loans, and their mortgages are directly impacted by
this increase.
GreenSolar buys lithium cells in bulk from large manufacturers in China. Although
it occurs infrequently, there have been occasions where ships could not enter the
harbour due to poor weather. Imported lithium cells are assembled into battery
units for use in GreenSolar’s solutions. The local government has imposed import
tariffs on imported goods to protect local manufacturing.
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GreenSolar traditionally relied on workers for the complete assembly and testing
process. However, due to an increase in demand, the company has introduced a
semi-automated assembly line, whereby most work is done by machines and
quality checks by humans.
Consumer protection regulations require that all products with an intended life
span of more than five years are accompanied with a two-year warranty.
Based on the PESTLE technique, identify the following risks in the scenario and
explain how they will impact GreenSolar:
1.1
Political Risk
According to Aswathappa (2008, p. 118), a political risk is any
government action/regulation or politically motivated event that could
adversely affect the long-term profitability or value of Green Solar.
Correspondingly, the political risk encompasses all changes in a political
environment that could negatively affect the business operations of
GreenSolar. The imposition of import tariff by local government on
imported goods to protect local manufacturing is a change in political
environment that negatively affect source of Lithium as a raw material.
This will increase cost of production. Another political risk is the
consumer protection that require a warranty for GreenSolar products.
Offering a warranty means GreenSolar won't always be able to match
the Client's expectations. If the Client's issues are beyond the warranty's
restrictions, it might strain GreenSolar client relationship and cost future
business.
1.2
Economic risk
Economic risk is the likelihood that macroeconomic circumstances may
impact an investment or a company's prospects locally or overseas.
Exchange rate, interest, and inflation fluctuations, government
monetary policy changes, political instability, and economic sanctions are
economic risks. Economic risk are hardest to predict. GreenSolar faces
inflation risk. To keep up with inflation, employees need higher wages.
Labour increases production costs. The risk premium was therefore
implicitly added to market risk to cater for increase in inflation. This
decrease the affordability of GreenSolar products as the purchasing
power of customers’ disposal income has been eroded by inflation.
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1.3
Social
When stakeholders are concerned about a company's business practices
because of real or perceived effects on a broad range of human welfare
issues, such as working conditions, environmental quality, health, or
economic opportunity, social risk develops. Community impoverishment,
which is brought on by economic risk due to inflation, is the social risk
likely to face GreenSolar. Since inflation lowers their buying power, the
poor are immediately impacted. Poverty is a bigger issue when there is
inflation: It may be disastrous for those in lower-income families who
already struggle to make ends meet to pay extra for necessities like
solar energy items. Also, inflation reduces the actual minimum wage,
which affects its purchasing power and the quality of life for people. In
other words, high inflation tends to aggravate inequality or poverty since
it affects lower- and middle-income families' income and savings more
severely than it does higher-income households. Rising inflation may
cause newly out of poverty households to go back into it.
1.4
Legal
Due to the new legislation on Consumer protection which require that all
products with an intended life span of more than five years are
accompanied with a two-year warranty there is likelihood for dispute to
arise. One of the most common types of legal risk is a dispute. This is a
term that is used to describe when a warranty legal claim is made
against GreenSolar. GreenSolar energy should comply with consumer
protection legislation by offering a 2 year Warranty on its solar products
that have lifespan of at least five years.
Question 2 (6 marks)
Read the case study below and answer the questions that follow.
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Southern Electronics is a South African manufacturer of electronic devices. The
company uses Protiviti’s Risk Model to classify and identify external risks that
could have a detrimental impact on the company.
Final products are assembled in factories in Cape Town using components that
are manufactured in foreign countries. The prices of these components are
heavily dependent on the price of commodities, which have fluctuated
significantly over the last year.
An investigative journalist wrote an article on the poor working conditions at
some of the suppliers that Southern Electronics uses. The article uncovered
instances of unethical labour practices. Members of the public were outraged and
threatened to boycott the company if it does not sever relations with the
offending suppliers.
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Southern Electronics uses a large inventory management system to keep track
of all the components that it purchases and inventory of complete products that
it produces. Cyber criminals infiltrated the company’s network and managed to
gain access to all of its confidential information.
Based on Protiviti’s Risk Model, categorise the three process risks identified by
Southern Electronics’ management. Motivate your answer with examples from
the scenario.
Question 3 (6 marks)
Read the case study below and answer the questions that follow.
Galaxy Computers is a manufacturer of high-end business laptops. The company
has also launched a few gaming laptops. In a recent meeting, risks that the
company is facing were listed on the agenda.
Components are procured from several suppliers. These suppliers test all
components before they are shipped to Galaxy. All completed laptops are
thoroughly tested to ensure that they are working. All laptops are fully
guaranteed against failure for three years. On average, Galaxy needs to repair
two out of every thousand laptops sold under warranty.
The company has three strategically located warehouses around the country.
Severe weather and heavy rainfall caused flooding and damage at one of the
company’s warehouses. All the inventory at the warehouse had to be written off
and most of the equipment had to be replaced.
Galaxy has struggled to gain market share from competitors who specialise in
gaming laptops. Customers trust these brands and tend to be very loyal. The
gaming laptop segment is highly competitive and profit margins are significantly
lower than in the business laptop segment.
For each of the risks outlined in the scenario, propose a suitable risk mitigation
strategy (reduce, transfer, retain or terminate) and recommend how Galaxy
Computers can use the strategy to manage the risk.
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Question 4 (10 marks)
Read the scenario below and answer the question that follows.
Creative Furniture is a manufacturer of high-quality furniture that is highly
respected for its craftmanship and timeless designs. The company prides itself in
top quality products, so it maintains a close relationship with its suppliers and is
able to return items that do not satisfy minimum quality requirements.
Creative Furniture has a dedicated showroom where customers can view the
furniture that they have on offer, and trained consultants assist clients with any
questions that they may have. The company has its own dedicated delivery
vehicles to ensure that furniture is safely transported and delivered to customers.
Furthermore, the company has a repair service, for minor repairs to be done at
customers’ houses.
Carpenters use precision tools to cut individual components from large blocks of
wood. The company receives all orders of source materials at its warehouse that
is located on the same premises as its manufacturing plant. Completed furniture
is carefully inspected for any defects, before two layers of varnish are applied.
The company has a small storage facility, where completed furniture is kept
before being sent to customers.
Creative Furniture has a dedicated social media page, where they post photos of
their latest designs and special offers. To ensure customers enjoy many years of
service, Creative Furniture offers a refurbishment service, whereby clients can
return damaged furniture. Broken parts are replaced, and all paintwork is
restored.
Review Porter’s Value-Chain Analysis Model, and explain how Creative Furniture
implemented the five primary activities in order to conduct its business efficiently
along the value chain.
https://www.essay48.com/value-chain-analysis/8970-Dfs-Furniture-Plc-ValueChain-Analysis
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Question 5 (10 marks)
Read the scenario below and answer the questions that follow.
Risk management at Deluxe Towels
Deluxe Towels manufactures a range of high-quality towels for the hospitality
industry. The company allows for one to two towels per 100 manufactured to fail
its stringent final quality checks. Towels that do not pass the final quality tests
must be sold as second grade products in the company’s factory shop. During a
review of the company’s performance, the Managing Director noted that there
has been a significant increase in the number of towels that have been sent to
the company’s factory shop between January and March.
The operations team meet on Wednesday mornings to discuss productivity and
production related matters. During one of these meetings in April, the Operations
Manager noted that that they had to sell over 15 000 towels as second grade
products over the last three months. It is estimated that the company lost R1.5
million over the first quarter of the year due to towels that did not pass the
company’s quality checks. The management team was unanimous in their
conclusion that the losses attributable to waste far exceeded the company’s
tolerances.
A team of skilled technicians were tasked with an investigation of the company’s
manufacturing equipment. They were told to replace all worn parts and to
recalibrate all machines. Staff were given additional training to enable them to
identify potential issues early in the manufacturing process.
The quality control team samples several towels every hour and captures the
results of various measurements on an automated reporting tool that produces
quality control charts to track quality.
At a meeting in July, it was determined that the corrective measures that were
introduced led to a noteworthy reduction in the number of the number of towels
that had to be sold as second grade products. It is estimated that only one towel
per 110 manufactured had to be sold in the company’s factory shop as second
grade products.
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Use information from the scenario to explain how Deluxe Towels applied the
following five major steps of the risk management process:
5.1
Risk identification
(2)
5.2
Risk analysis and quantification
(2)
5.3
Risk evaluation
(2)
5.4
Risk treatment and response
(2)
5.5
Risk monitoring and continual review
(2)
Question 6 (10 marks)
Read the scenario below and answer the question that follows.
The governing body of Delta Manufacturing adopted the principles laid out in the
King IV Report a few years ago, and they have tasked management with
implementing an integrated approach to risk management.
Once a quarter, the teams of the various business units meet to identify and rank
the risks pertaining to the business unit. To ensure that all participants are
comfortable, feedback is provided anonymously. Management realises that
several risks originate from people’s attitudes towards certain matters and
therefore regularly sends out opinion polls to gauge people’s attitudes towards
internal and external events that could be a risk for the company.
The Risk Manager and her team meet with the line managers of the different
business units within the first week of every month. All the participants in these
sessions have a clear understanding of the objectives of the sessions and how
they fit into the company’s enterprise risk management (ERM) process. They are
allowed to share their thoughts freely, without fear of negative feedback from
anyone in the organisation.
When it becomes evident that there is an emerging risk that employees need to
become familiar with, the risk management team invites a specialist in that field
to meet with the team and share their knowledge. Often, these meetings will be
complemented with training videos, which are also placed on the company’s
intranet.
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Identify any five techniques that Delta used to identify and manage risks.
Motivate your answer using information from the case study.
Question 7 (10 marks)
Read the scenario below and answer the questions that follow.
An online retailer needs to decide between setting up its own logistics network,
or partnering with a courier company to do deliveries. If it proceeds with setting
up its own logistics network, it needs a large fleet and storage facilities for all the
vehicles. The decision tree, with all the outcomes, is given below:
Setup own logistics infrastructure
Partner with courier company
Economic activity
Low
Normal
High
Low
Normal
High
Probability
0.10
0.70
0.20
0.10
0.70
0.20
Income (R mil)
12
36
60
12
33
57
Expenses (R mil)
30
30
30
9
24
42
7.1
Calculate the expected profit for the two options.
(8)
7.2
Recommend the solution that management should pursue. Provide
reasons for your answer.
(2)
TOTAL: 60 MARKS
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