Special Risk Management Topics

ITS 835 Chapter 18

Blue Wood Chocolates Enterprise Risk Management

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