Two Exercise

EXERCISE

2

–

INDIVIDUAL

Copyright © SimErgy. All rights reserved.

Categorize the following risks by source.

Event 1:

Admiral

Motor Company, a major U.S. automobile manufacturer

,

just received some bad news

.

The

National Highway

Traffic

Safety

A

dministration

ordered Admiral to recall its best

-

selling line

of

sedans

for violating

fuel efficiency requirements

for all new vehicles sold in the U

nited States

.

An

internal

audit

investigation

at

Admiral

uncovered that

the violation in fuel efficiency was attributable

to

the inferior quality of

the intake valve

s being used

in the vehicles

. The manufacturer of the inta

ke valves

was changed right before the new sedans began to be produced. The new intake valve manufacturer

had promised

Admiral to produce

the same quality

intake valve

as the incumbent

manufacturer

for

half

the price.

Event 2:

Wycombe Welding

reported a

n unexpected loss in its most recent financials.

Wycombe

’

s

management attr

ibutes m

ost

of the

loss to a settlement

of a cla

ss action lawsuit

by former Wycombe

employees alleging

discriminatory

hiring and promotion practices by the company. The lawsuit itself

was not news and had

been disclosed

six months

earlier

.

However, t

he

amount paid by Wycomb

e to

the plaintiffs

w

as

almost four

times what

Wycombe

had previously signaled to

investors.

Event 3:

Wa

nda

vision

Studios

recently

filed for Chapter 11 bankruptcy protection due to lagging sales of

its

high

production

cost

blockbuster theatrical releases.

While most of Wandavision

’

s competitors

e

mbraced the trend towards at

-

ho

me entertainment streamin

g

,

either

partnering

with direct to

consumer

distributors or creating their own such platforms, Wandavision executives continued to

pursue a strategy emphasizing movie theater distribution.

Their rationale was that their CGI heavy

productions

are more impactful on a large theater screen than a home theat

e

r

.

With

movie

theaters

struggling t

o keep customers, this resulted in

m

uch

lower rights fees paid by theaters to Wandavision to

show their

highly

acclaimed

films.

Event 4:

Bakasana

Yoga Studio recently experienced a drop

-

off of

2

5

% in

class

and workshop

attendance

.

An internal investigation conducted by the studio owners discovered that

the

two

main

eastern

spiritual

ity

websites

selected

for advertising Bakasana events were not receiving the

level of

internet traffic

anticipated when Bakasana pivoted to an all

-

online advertising campaign. The two sites

ranked in the bottom quartile in

internet clicks

received

.

Most of Bakasana

’

s new customers are now

through word of mouth from satisfied existing customers.

Event 5:

Endicon Energy

recently

unwou

nd large

long

positions in oil

futures

, incurring

a substantial loss.

An analysis of what occurred

di

d not uncover any major geopoli

ti

c

al

event

, weather anomaly, or

business development that would cause such a

rapid movement in oil prices. Endicon

’

s Corporate ERM

Team concluded that the

sudden

drop in prices

rather re

flected a market correction after a steady

increase

over the

previous three months.

EXERCISE 2 – INDIVIDUAL

Copyright © SimErgy. All rights reserved.

Categorize the following risks by source.

Event 1: Admiral Motor Company, a major U.S. automobile manufacturer, just received some bad news.

The National Highway Traffic Safety Administration ordered Admiral to recall its best-selling line of

sedans for violating fuel efficiency requirements for all new vehicles sold in the United States. An

internal audit investigation at Admiral uncovered that the violation in fuel efficiency was attributable to

the inferior quality of the intake valves being used in the vehicles. The manufacturer of the intake valves

was changed right before the new sedans began to be produced. The new intake valve manufacturer

had promised Admiral to produce the same quality intake valve as the incumbent manufacturer for half

the price.

Event 2: Wycombe Welding reported an unexpected loss in its most recent financials. Wycombe’s

management attributes most of the loss to a settlement of a class action lawsuit by former Wycombe

employees alleging discriminatory hiring and promotion practices by the company. The lawsuit itself

was not news and had been disclosed six months earlier. However, the amount paid by Wycombe to

the plaintiffs was almost four times what Wycombe had previously signaled to investors.

Event 3: Wandavision Studios recently filed for Chapter 11 bankruptcy protection due to lagging sales of

its high production cost blockbuster theatrical releases. While most of Wandavision’s competitors

embraced the trend towards at-home entertainment streaming, either partnering with direct to

consumer distributors or creating their own such platforms, Wandavision executives continued to

pursue a strategy emphasizing movie theater distribution. Their rationale was that their CGI heavy

productions are more impactful on a large theater screen than a home theater. With movie theaters

struggling to keep customers, this resulted in much lower rights fees paid by theaters to Wandavision to

show their highly acclaimed films.

Event 4: Bakasana Yoga Studio recently experienced a drop-off of 25% in class and workshop

attendance. An internal investigation conducted by the studio owners discovered that the two main

eastern spirituality websites selected for advertising Bakasana events were not receiving the level of

internet traffic anticipated when Bakasana pivoted to an all-online advertising campaign. The two sites

ranked in the bottom quartile in internet clicks received. Most of Bakasana’s new customers are now

through word of mouth from satisfied existing customers.

Event 5: Endicon Energy recently unwound large long positions in oil futures, incurring a substantial loss.

An analysis of what occurred did not uncover any major geopolitical event, weather anomaly, or

business development that would cause such a rapid movement in oil prices. Endicon’s Corporate ERM

Team concluded that the sudden drop in prices rather reflected a market correction after a steady

increase over the previous three months.