RAP EMA Template
RAP EMA Template
RAP EMA Template
Instructions: You must enter your answers to each assessment question in the sections
noted below, and must not change any information contained within the black brackets [].
[Task 1]
3ksat
Al Nino
Risk Consultant
16th August 2023
I. Introduction
The purpose of this handout is to provide a summary of the ERM proposal including the
objective, benefits, and outcome of the process to the Board of Directors at Warren Peace
(WP).
WP’s Employees –
o With more streamlined operation process, employees will benefit from
enhanced job security and growth.
o ERM also focuses on effective allocation of resources to address the
identified risks and encourage cross functional collaboration.
o Opportunity of financial gain as the organization continues to grow and
hence financial motivation to stay aligned with the organization’s goals.
o
Wholesale distributors –
o Availability of efficient supply chain by reducing the risks of disruption
in product availability or production process.
o Focus on product availability and quality through ERM would help in
maintaining customer satisfaction and loyalty.
o Strategic planning to support distributors to target long-term growth
aligned with organization’s goals.
o The company and distributors can work together to develop effective risk
mitigation strategies and enhance the resilience of distribution network.
o Share the ERM tools with the distributor to minimize risks to their own
operations.
o Benefit from long term relationship.
Business partners –
o Business partners associated with the companies that value ERM may
gain a competitive edge.
o Partners can differentiate themselves by offering stable and resilient
collaboration.
o ERM encourages transparent communication and exchange of
information. Partners can benefit from each other’s experiences and
knowledges for better informed decisions.
o Supports long term sustainable business relationship.
o Partners would benefit from the financial gains earned from the improved
business performance.
Creditors –
o Reduced probability of loan default resulting from decreased risk
volatility that may otherwise cause failure to meet loan obligations or
credit agreements.
Customers –
o Customers can rely on consistent and high-quality products that meet
their expectations and provide more satisfaction.
o Improved customer support with faster resolution time with the help of
ERM preparedness for potential challenges.
o ERM also addresses cybersecurity and data privacy risks and hence
improved data security to customers.
o Ethical and responsible operational practices to avoid any compliance
issue.
o Customer centric approach as ERM helps in prioritizing consumers’
needs and satisfaction.
ERM Committee –
o It’s a subset of work force and requires representation from each
department such as marketing, production, and distribution.
o Responsible for reviewing and recommending risk tolerance of the
organization.
V. ERM Framework
WP has been suggested to follow the “Company Value (CV)” ERM approach to
monitor the risks.
The baseline CV refers to the present value of distributable cash flows over 10-
years.
Company’s objective is to maximize CV through increasing profit margins and
reduced risk exposure.
Based on the CV, the risk tolerance for WP is defined as target risk & maximum
risk.
VII. Summary
The ERM framework ensures that risks are identified, evaluated, and managed in a way
that aligns with the company’s goals, enhances decision making and promotes
transparency and accountability.
MEMO
Introduction
This memo will provide a comprehensive summary of the identified risks based on ERM
committee’s investigation that have significantly impacted WP’s profits over the past
year, along with the impact from proposed strategies to effectively mitigate the same.
Below sections cover the detailed information for each of the listed risks.
Mitigation Strategies
Sales Contract – Entering into a sales contract with the primary distributor to
ensure the purchased of a fixed amount of wine over the next 10 years at a
discounted price. This plan is targeted to avoid losing the key distributor to
competing wineries.
The approach provides fixed revenue stream and helps mitigate the risk of sudden
drops in sales due to customer fluctuations or market downturns. By securing a
consistent revenue source, WP Winery can more effectively plan its operations.
However, this could include the restriction of sales to other potential customers
and the opportunity to respond to changing market dynamics over the contract
term. Over a prolonged period, market trends and customer preferences might
undergo significant changes, potentially rendering the agreed-upon terms less
favorable or outdated.
However, the other challenges associated with the transportation of the grapes
from the new vineyards to the main location should be considered carefully. The
financial implication must be evaluated to understand the cost-benefit relation
from the proposed change. There are further risks such as accidental or spoilage
of grapes which would impact the production activity. The associated costs and
risks need to be assessed and considered prior of implementing the strategy.
Using a statistical model to allow for various economic situations, expected performance
of the company has been projected for the next 10 years assuming the risk mitigation
strategies to improve the profitability. This analysis has been performed individually for
each risk to understand the impact on company’s profits.
A significant decline in profits has been noted following the adoption of the sales contract
for a fixed 10-year period. This could be investigated further to understand the underlying
cause of such variance. Whereas the impact from the other two strategies is similar to the
current expectation and might be acceptable with minimal intervention.
For each of the standalone risks, an additional parameter has been analyzed to check the
comptability with company’s risk tolerance thresholds. It has been observed that despite
the mitigation strategies, company’s risk tolerance is still exceeding the maximum limit
and will require to closely monitor the performance and focus on further reducing these
risks.
The overall impact on the company’s profitability has also been assessed assuming the
implementation of all three risk strategies together.
This information has been summarized in the table below, presenting the expected
profitability along with the expected measure of volatility. It has been noted that while
the decline in profits aligns with the individual effects, it is evident that the volatility is
projected to decrease after the implementation of the mitigation strategies, ensuring a
more stable flow of profits.
Furthermore, it’s worth highlighting that the average profit is more closely aligned with
the latter column, providing further evidence of a more secure and consistent profit
stream.
Conclusion
This memo has outlined the possible mitigation plans and their respective effect on the
company’s future financial performance. While the projected profits may be lower, the
company can expect reduced profit volatility, providing more opportunities for growth
and expansion in line with company’s objective and risk tolerance.
It is also important to note that risk management is an ongoing process, and the
implementation of these strategies should be accompanied by continuous monitoring and
adjustment. By addressing these strategies, WP Winery is likely to enhance its resilience
against the identified key risks and move towards a more stable and profitable stream of
cash flows but would still require further investigation to lower the exposure to specific
risks.