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Risk Challenges and Integration
Bryan M. Dempsey
Liberty University
BMAL 714: Risk Management Process and Practice
Dr. Clifton Thacker
May 12, 2023
By submitting this assignment, I attest this submission represents my own work, and not that of
another student, scholar, or internet source. I understand I am responsible for knowing and
correctly utilizing referencing and bibliographical guidelines.
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Abstract
The development of a risk management plan is crucial for any organization that is undertaking a
new project. For Diamond Trailers, this new project is an expansion of their business through
the opening of a new location in a different market. This study identifies some of the risks that
the organization will face as it seeks to complete this expansion. Additionally, risk mitigation
measures are developed and suggested to help lower the risks that the company is facing to
acceptable levels that a prudent manager can handle. Suggestions for future study are also
provided that may help the company develop solutions to some of the problems they face
without encountering significant setbacks in terms of finances and labor hours as they seek to
find the best risk avoidance and mitigation measures possible for their specific situation. A brief
Biblical integration is also provided to help the Christian leader keep the issue at hand within a
proper perspective.
Keywords: risk management plan, identify, analyze, mitigate, manager
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Risk Challenges and Integration
The owners of small businesses often seek opportunities to grow and scale their ventures.
Each local market that a company operates within can only support the growth of a business to a
certain size based on the local population and the level of their need or desire for the product or
service being offered. Diamond Trailers currently finds itself in this predicament. Their sales of
utility trailers have been steady for three years, but they are no longer seeing much growth
despite their efforts to consistently advertise to their local market. Due to this stagnation in sales
growth, executives are considering opening another location 100 miles across the state.
Organizational management has found a market that has a large amount of new
construction activity as well as a large percentage of individuals that own off-road vehicles and
outdoor equipment that are transported on utility trailers. The new market does not have any
utility trailer manufacturers or dealers. Executives would like to take advantage of this high
potential for sales with no local competition. Before they undertake this expansion, however,
they would like to perform a proper analysis to determine if this undertaking would actually be
beneficial for the organization. On the surface, this expansion appears to offer a great deal of
opportunity, but managers want to ensure they are making a well-informed rather than an
emotional decision. While it is impossible to foresee all possible risks, a well-developed risk
management plan should be able to identify and provide mitigation measures for the majority of
the risks that the company will face in its expansion efforts (Nasteckienė, 2021).
Project Description
Diamond Trailers specializes in the manufacturing and sale of utility trailers. They
currently have one location and are considering opening a new location 100 miles from the
current location. A risk management plan must be developed to determine if this expansion
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makes sense. If it does, this plan will be utilized to establish appropriate control measures to
mitigate the risks associated with the expansion. If the plan does not make sense based on a risk
analysis, managers will be left to find other ways to expand the company’s products or services
in its current local market. Once a risk management plan is established, it should be published
and distributed to all engaged in the expansion project. This will help to ensure people are
tracking what is expected of them. It will also help to eliminate fraud with all of the moving
pieces of the project (Carlton & Larimore, 2021).
Plan to Identify, Log, and Assess Potential Risks
A risk management plan is essential to an expansion plan for a business. It is important
to note that problems can and will arise during the expansion process (Schniepp, 2019). In order
to plan for the expansion, managers will meet on a monthly basis for six months to discuss
developments in the risk and planning process before a final decision is made regarding whether
to expand operations into a new location. These meetings will utilize the educational and
experiential backgrounds of all the managers to help identify risks, log them into a planner on the
local business network, and consult professionals external to the organization regarding any
concerns that cannot be adequately addressed internally.
Identification of Risks
The first step in the risk management plan is to identify risks. Once identified, these risks
will be further evaluated to determine the probability of their occurrence along with the level of
impact they would have on the company’s expansion project if they were to occur. When
identifying risks, it is important to recognize that not all risks can be foreseen. Thus, part of a
risk management plan will be to develop mitigation measures for foreseen risks; while another
part of the plan will be to develop a process to react to unforeseen risks (Guliyeva, 2020).
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When management is working to identify risks, it is important that their subordinates
understand the process and are provided the opportunity for input (Vij, 2019). Often lower-level
employees will have different perspectives on potential risks than senior-level executives, and
their input should be welcomed to create a more holistic risk identification picture. Failure to
incorporate their ideas during the planning stage may lead to these issues having to be addressed
at a later time and with a greater expense to the organization.
The first risk in the expansion project is the supply of raw materials to the new location.
Since Diamond Trailers does not just sell but also manufactures trailers, it is important that the
raw materials necessary to produce the trailers can be delivered directly from suppliers to the
new location. If the suppliers of the lumber, metal, and tires required to manufacture the trailers
will not deliver to this new location, then the company must determine the cost of transporting its
own raw materials from its current location to the new location. This would require trucks to
transport the materials, personnel to drive those trucks, and the added expense of fuel and
maintenance for these trucks to operate. Learning from the experiences of other companies in
the industry who have previously dealt with a similar distribution problem could save the
organization a large amount of time and money (Nawaz et al., 2019).
The second risk factor that the organization will face is the added expense of operating a
second location. The current operation employs ten people. Because the new location will start
off smaller than the current one, it will employ seven people initially. No fewer than seven
people can run the operations and man the storefront during customer service hours regardless of
the level of new orders that come as a result of the new office. Also, management needs to
ensure that there is a trustworthy manager to oversee this new operation because the current
manager will not be moving to the new site (Mihaylov & Zurbruegg, 2021).
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The addition of seven new personnel greatly increases overhead with no guarantee of an
increase in sales. Additionally, the mortgage and utilities that must be paid for the new operation
are another financial risk factor. The organization needs to have several months of reserve funds
set aside to ensure that the new location does not bankrupt the company if it initially does not
achieve enough sales required to satisfy the additional financial requirements for its operation
(Moshtaghian et al., 2020).
A third risk factor is the lack of a documented handbook of standard operating procedures
for the company. Wright (2017) mentioned that documented standards are an integral part of
ensuring that company programs function as intended. While the current manager is quite
capable of managing the original location, his knowledge and experience will not be fully
transferred to the new location. Since the business is lacking a written guide to the way that
business operations are performed, it will likely struggle to maintain continuity and consistency
in the ways it performs in his absence. In order to mitigate this risk, this manager needs to
properly document all of the processes that go into the manufacturing and sales of trailers as well
as the administrative tasks that are used to support these operations. Once these standards are
documented, this manager will need to train the newly hired manager-in-training to learn these
tasks from him. This will ensure the new manager is prepared to run the new location efficiently
(Mihaylov & Zurbruegg, 2021).
A final risk to be considered is the exit strategy for the business if the new location fails
to be successful. While this is not a positive thought that many may like to ignore, it is important
that a negative financial experience with the new location does not cause the entire business to
become insolvent financially. Thus, managers need to know how long they are willing to accept
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losses at the new store. If they are not profitable within this specified time period, they need to
have a plan to sell the new site and equipment rather than continue until the entire business fails.
Evaluation of Risks
For each risk factor, several concepts must be considered. First, the initial risk factor
must be identified. Then a probability that the risk will occur must be determined. The severity
of the realized risks' impact on operations must also be carefully examined. Each risk's
likelihood of occurrence and level of impact must then be assigned a factor of low, medium, or
high. There are four options for dealing with these risks: mitigation, acceptance, avoidance, or
transfer (Moshtaghian et al., 2020). Mitigation provides options that reduce risk along the
chosen path. Acceptance means that the business will embrace the risk and proceed without any
mitigation. Avoidance means that the organization will find a way to eliminate the root cause of
the risk. Finally, transfer means that the business will find a way to place the risk upon an
outside entity. One good example of transfer is obtaining an insurance policy on a risk. A
second evaluation will then be performed regarding the likelihood and impact of each risk.
Figure 1 below will be used to determine the pre and post-mitigation risks of each of the
identified risk factors. Any areas in red are not acceptable risks. Areas in yellow may be
acceptable depending on managerial discretion, and areas in green are deemed to be acceptable
risks.
Figure 1
Risk Evaluation Table
I
H
M
L
L M H
P
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The first identified risk of the supply of raw materials to the new location will be
evaluated according to this table. No other businesses are currently operating in this industry in
the new location. Thus, initially, the ability to obtain the raw materials for manufacturing is an
unknown risk. The location is near a large city, however, which makes it more likely that the
materials will be available within a short driving distance. Therefore, this risk will be classified
as a moderate chance of occurring. The impact on the manufacturing process caused by the
potential inability to obtain the raw materials needed to produce trailers would be catastrophic, or
the “high” category in this table. Thus the overall, pre-mitigated risk regarding manufacturing
materials is red or unacceptable. Below is the analyzed pre-mitigation risk.
Identified Risk: Availability of raw materials supply to the new location
Pre-Mitigation Risk Likelihood: High
Pre-Mitigation Risk Impact: High
Overall Pre-Mitigation Risk Level: High
In order to mitigate risk for the supply of manufacturing materials, managers will conduct
research to determine if there are distributors of the required raw materials in the area of the
proposed new business location. Additionally, a detailed estimate of the costs to transport
materials from the current site will be developed to formulate a cost comparison between the two
methods. Thus, comparing these two options should provide enough information for managers to
make a well-informed decision as to whether they will able to obtain the necessary supplies for
manufacturing at the new location. This means that while the impact of not having the materials
is still high, the probability of its occurrence is now low. This brings the risk level to moderate,
something that is within a manager’s discretion. A brief overview of the post-mitigation risk is
detailed below.
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Identified Risk: Availability of raw materials supply to new location
Post-Mitigation Risk Likelihood: Low
Post-Mitigation Risk Impact: High
Overall Post-Mitigation Risk Level: Medium
The second risk factor of the financial obligation of operating a new location is broken
down below.
Identified Risk: Additional operating expenses’ risk to the company’s budget
Pre-Mitigation Risk Likelihood: High
Pre-Mitigation Risk Impact: High
Overall Pre-Mitigation Risk Level: High
The pre-mitigation risk level for this second factor is not currently at an acceptable level
for management to proceed with establishing the new location. In order to consider moving
forward with this plan, the overall risk level must at least be reduced from high to moderate. In
order to reduce the risk of the financial burden of the new location, six months' worth of
operating expenses will be placed into a reserve account to allow for the new location to become
established before it needs to rely on its own cash flow. Additionally, sales representatives will
be marketing the new area to take pre-orders and deposits on trailers to guarantee business as
soon as they are operational. Thus, while the impact of a failure to make enough sales in the new
location is still high, the probability is now low due to the cash reserves and pre-sales of the
product. This provides an acceptable level of risk for the company to undertake the project in
regard to operating expenses.
Identified Risk: Additional operating expenses’ risk to the company’s budget
Post-Mitigation Risk Likelihood: Low
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Post-Mitigation Risk Impact: High
Overall Post-Mitigation Risk Level: Moderate
The third risk identified is a lack of standard operating procedures. The initial analysis
for this risk factor is provided below.
Identified Risk: Lack of standard operating procedures manual
Pre-Mitigation Risk Likelihood: Moderate
Pre-Mitigation Risk Impact: Moderate
Overall Pre-Mitigation Risk Level: Moderate
The initial overall risk level for this risk factor is moderate. Thus, management could
accept this risk without spending additional time and effort to reduce the risk level. A good way
this risk can be reduced, however, is through the outsourcing of the publication of a standard
operating procedures manual to a professional human resources department. The knowledge of
the current manager could be passed along to human resources professionals who will combine
the processes with applicable regulatory guidelines in order to ensure operations are standardized
between the two locations. This provides the following post-mitigation risk assessment:
Identified Risk: Lack of standard operating procedures manual
Post-Mitigation Risk Likelihood: Low
Post-Mitigation Risk Impact: Moderate
Overall Post-Mitigation Risk Level: Low
After the collaboration with a human resources department, this third risk factor has been
reduced to an acceptable level. No further action is required to mitigate this risk. Operations
should flow smoothly at the new location once this manual has been written and the new
manager has been trained regarding its content.
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Monitoring of Risks
The risk evaluations detailed above are an initial glance at potential issues Diamond
Trailers will face as it expands its operations to a new location. It is by no means a
comprehensive list of the risk factors they will face. Additionally, management must be
prepared to react to unforeseen risks. This includes having a buffer in finances, personnel, and
materials to cover unexpected issues that may arise. As management meets monthly over the
next six months, they must continually re-assess these risk factors to note any changes to them or
the proposed mitigation measures so they can adjust their plans accordingly. The identification
of risks and implementation of mitigation measures is often something that is only accomplished
at the beginning stages of planning a project, but it should be continually monitored as conditions
change throughout a project’s execution (Sârb et al., 2021).
Team Member Assignment to Individual Risks
In order to ensure that each of the identified risk factors is properly addressed in an
ongoing basis, personnel with subject matter expertise should be assigned to each risk factor. A
manufacturing specialist needs to be assigned to determine if the new location can be supplied by
a raw materials distributor. A logistics specialist should determine the expense of shipping raw
materials from the current location to the new site. A finance specialist should determine the
impact on the budget that the new operation will incur. This finance professional should also
help to formulate the exit strategy for the business if the business fails to meet the sales goals
required for financial solvency at the new location.
Organizational Tolerance for Risks
In order to determine if this expansion project should move forward, executives have to
determine the level of risk that they are willing to undertake Moshtaghian et al. (2020). In two of
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the three identified risks, the post-mitigation level of risk was still at a moderate level. This
means that it is up to the discretion of management whether the risk is worthwhile. Only one of
the three risks was able to be reduced to a low risk through mitigation measures. The Bible
mentions several places the importance of analyzing risks and costs before undertaking a project.
Luke 14:28 says “Suppose one of you wants to build a tower. Won’t you first sit down and
estimate the cost to see if you have enough money to complete it” (New International Version,
2011). One benefit Diamond Trailers has as a small organization is the ability to flex its plans to
deal with new risks as they occur. This is something that larger organizations often lack
(Tohãnean et al., 2020).
Conclusion
The complete elimination of risk for Diamond Trailer would also likely result in the
complete elimination of new opportunities for the company. Any new endeavor is going to come
with some level of risk. Through the development of this risk management plan, risks were
identified that the organization may encounter as it seeks to expand its operations into a new
location. Additionally, mitigation measures were suggested for each of these risk factors to
reduce the overall level of risk to moderate or less. A moderate level of risk can be worked
through with competent management personnel. While it would be ideal to reduce the level of
risk associated with each risk factor to a low level, this is not always possible. Further studies
into the risks associated with this expansion should include ways that risk can be eliminated or
transferred to other entities. This would provide management with additional options to consider
to lower risk levels. Also, studying other businesses within the industry that have completed
similar expansions previously could provide valuable insight to executives. This observation of
lessons learned is a simple and inexpensive way of avoiding many potentially unforeseen risks.
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