ERM 4

ITS 835 Chapter 18

Blue WoodChocolates Enterprise Risk Management

Professor Miguel Buleje

Introduction

• Background

• Market overview

• Blue Wood financial performance

• Conclusion

Background • U.S. Manufacturer of Chocolate Products

• Privately owned (family)

• New CFO hired

• Outsider to Blue Wood Chocolates (BWC)

• Brought in to stabilize financial performance

• BWC Does not have a robust sales performance/ portfolio.

• Sales at BWC are little unpredictable/ go up & down.

• BWC Overall not very stable.

• Blue Wood risk management practice in doubt

• Banks wondering if Risk Management gaps are causing unstable finances

• Considering taking action against Blue Wood

• Internal politics and conflict presented in the case by the Management Team.

Market Overview • Growing market. • Stable and even strong during recession times. • Perceived as a luxury product & does not cost a lot of $$

• Major competitive factors

• Large producers

• Brand recognition / reputation

• Very high profile producers as a result of brand and recognition

• Cocoa markets overview presented in the paper.

• Sugar markets overview presented in the paper.

• Milk markets overview presented in the paper.

• Implications in any of these markets (Cocoa, Sugar and Milk) would impact Blue Wood

Blue Wood Financial Performance

• Profitability measures worse that competitors

• Lots of internal finger pointing • Deteriorated cash position

• Currently borrowing against revolving line of credit • Retained earnings falling over time

• Substantial investments

• In case cash flow couldn't cover dividend payments • Potential $10 million lawsuit presented also in the negative side.

• Few positives many negatives presented in the case by BWC

• Risky entrance into currency hedges and futures

• In summary, many problem & headaches ahead of new CFO

Conclusion • In summary the case presents one unique company and a special market

to show that risk can take many direction and forms. • Commodities / ingredients to make chocolate & implications • Currency issues presented

• 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