Essay Help

profiledfaert
risk_assessment_and_financial_impact_model1.xls
Home>Business & Finance homework help>Operations Management homework help>Essay Help

Risk Assessment Scorecard

[Company Name]
Risk Assessment and Financial Impact Model
[Date]
Gray cells are calculated for you. You do not need to enter anything into them.
Risk area Potential risk Number of annual incidents Cost per incident Total annual cost Probability of occurrence Weighted cost Mitigating strategies & controls Annual control cost Cost/benefit Decision summary Owner
Competitive Contoso, Ltd. might introduce a superior offering on June 30 to compete with our #1 product line. 1.00 $1,850,000 $1,850,000 75.0% $1,387,500 Reduce price by 25% on May 31 to keep the volume stable. $1,150,000 $237,500 Monitor competitor progress and implement new strategy if required. Kirk DeGrasse
$0 $0 $0
Economic/political $0 $0 $0
$0 $0 $0
Regulatory/legal Need to meet Sarbanes-Oxley 404 (SOX) compliance requirements by target date. 1.00 $15,000,000 $15,000,000 5.0% $750,000 Establish SOX Compliance Office on January 15 to ensure compliance 30 days before required date. $1,200,000 ($450,000) Despite negative cost/benefit, proceed with SOX compliance because of the company's high visibility. Kim Ralls
$0 $0 $0
$0 $0 $0
Technological Potential exists for hackers to compromise internal network and obtain confidential customer or employee information. 5.00 $4,000,000 $20,000,000 10.0% $2,000,000 Upgrade firewall to latest version; install proxy server in Q2. $750,000 $1,250,000 Continue to monitor technology to ensure that our company's and our clients' information is protected. Intrusion would have an enormous effect. Carol Philips
$0 $0 $0
$0 $0 $0
Operational If a key parts supplier in Eastern Asia suddenly goes out of business, it will risk 25% of production. 1.00 $1,250,000 $1,250,000 75.0% $937,500 Partner with alternate suppliers to reduce reliance on dominant supplier. $937,500 $0 Begin negotiating terms with other key suppliers; take care not to lock into minimum volume agreements. Michiko Osada
$0 $0 $0
$0 $0 $0
Financial $0 $0 $0
$0 $0 $0
$0 $0 $0
$0 $0 $0
$0 $0 $0
$0 $0 $0
$0 $0 $0
TOTALS $22,100,000 $38,100,000 $5,075,000 $4,037,500 $1,037,500

Sample 1—Competitive Risk

Sample—Competitive risk
Scenario: Contoso, Ltd. introduces superior offering in June to compete with our #1 product line.
Units Dollars Annual growth rate
Product X sales—year 1 9 $5,000,000 –
Product X sales—year 2 10 5,500,000 10%
Product X sales—year 3 11 6,000,000 9%
Projected sales—year 4 12 $6,545,455
First half sales weighting 30%
Second half sales weighting 70%
Second half sales at risk $4,581,818
Number of units at risk 8.4
Cost per unit $500,000
Impact with no mitigation
Sales reduction 40% Note: based on market surveys
Reduced number of units sold 5.04
Revised second half product sales $2,749,091
Revenue impact ($1,832,727) Note: round to $1,850,000 for scorecard
Mitigation through price reduction
Unit price reduction required to maintain volume 25% Note: based on market surveys
Number of units at risk 8.40
Revised second half product sales $3,436,364
Revenue impact ($1,145,455) Note: round to $1,150,000 on scorecard
Mitigation of competitive impact with price reduction $687,273

Sample 2—Operational Risk

Sample—Operational risk
Scenario: Key materials supplier in East Asia goes out of business, risking 25% of production for Product X.
Expected Product X revenues—2004 $5,000,000
Cost of goods sold
Labor $1,000,000
Materials 2,000,000
Other direct costs 500,000
Total cost of goods sold $3,500,000
Gross margin $1,500,000
Margin contribution percentage 30%
Impact with no mitigation
Reduction in materials availability 25%
Revised product sales $3,750,000
Revenue impact ($1,250,000)
Mitigation through new supplier
Reduction in materials availability 19%
Revised product sales $4,062,500
Revenue impact ($937,500)
Mitigation of impact with other suppliers $312,500
Materials breakdown
% Contribution Amount
At-risk supplier 25% $500,000
All other suppliers 75% 1,500,000
Total materials costs $2,000,000
Ability to mitigate materials loss through other suppliers 25%