risk mangment

ITS 835 Chapter 18

Blue Wood Chocolates Enterprise Risk Management

Professor Michael Solomon

Introduction

• Background • Market overview • Blue Wood financial performance • Conclusion

Background

• U.S. Manufacturer of chocolate products • Privately owned (family)

• New CFO • Outsider

• 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

Market Overview

• 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

Conclusion

• 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