Question

In the Book Introduction to Managerial Accounting (8th Edition) Solve for Exercise P-6 Enterprise Risk Management: For each industry, provide example of business risk faced by companies that compete within that industry. Then, describe an example of a control that could be used to reduce the business risk that you have identified.

1. Delta Airlines: 2. Pharmaceutical drugs (Merck): 3. United Parcel Services: 4. Bank of America: 5. ExxonMobil: 6. e-Bay: 7. Toyota:

Answer 1

Business Risk – Operational Risk in case of Delta Airline – In case of Delta Airline major risk recently noticed in case of “ Airline Technology Infrastructure “

Pharmaceutical Drugs ( merck) – Business related risk include following factor :

1. Risk of more restrictive regulatory requirement regarding drug pricing and reimbursement – These factor can negatively influence the profitability of companies product also market reference
2. Risk of stricter regulations for the manufacturing , testing and marketing of products – Company must adhere to a multitude of regulatory specification regarding the manufacturing , testing and marketing of many of company product . The use of chemicals in production could be restricted which would make it impossible to continue manufacturing certain products
3. Risk of negative political and macroeconomic developments – Geo Political disturbance , trade barrier , sanctions and change in foreign exchange policy can lead to decline in sales in certain courtiers. The United Kingdom intended from European Union ( Brexit) gives rise to risk for companies exiting business

Major operation risk in case of UPS ( United Parcel Service Company) – They are presently faced risk relates to currency exchange and inflation risk which impact their operation

Tough competition – combining entities are competing aggressively for business at low rate

Too many laws , regulation – companies failed to comply with applicable laws , ordinance could result in substantial fines

Strike, work stoppage , slowdown by employees . These action disturb company to meet customer demand.

Risk factor in case of Bank of America – Banking Sector –

1. Regulation will continue to broaden and deepen- Banks are being required to assist in crackdowns on illegal and unethical financial transaction by detecting sign od money laundering , sanctions busting , fraud and financing of Terrorism
2. Customer expectation are rising in line with Changing Technology –
3. Technology and advanced analytics are evolving –
4. New risk is emerging – Multiple risk are emerging like – Model risk , Cyber security risk , Contagion risk

Risk factor in case of Exxon Mobil –

Supply and Demand – The Oil , gas and petrochemical business are fundamentally commodity business . Exxon Mobil operations may be significantly affected by change in Oil , gas and petrochemical prices and change in margin on products

Economic condition – The occurrence of recession or other periods of low or negative economic growth will typically have a direct adverse impact on our result . So many other factor like sovereign fund downgrade, defaults , inability legal constraint , liquidity crisis also impact on business .

Government and Political factor – This factors can be adversely impacted . Major concern is access limitation , Restriction on doing business and lack of legal certainty

Risk Factor Toyota- Industry and Business Risk

The worldwide automotive market is highly competitive – Competition is likely to further intensify in light of continuing globalization and consolidation in the worldwide automotive industry

The worldwide Automotive Industry highly Volatile – Demand for vehicles depends to a large extent on general , social , political and economic condition in a given market and the introduction of new vehicles and technologies

In general following important measure to reduce risk in case of Business / Operation

Every Business owner , company try to reduce risk in relates to Operation and stay alive .

Maintain strong presence in individual sector .

Technology use and safeguard of asset , Equipment ( managing Equipment failure) – Need to ensue that computer network , programmed and hardware are upto date and protected by the best security

Keep maintain strong Business to Business relationship –

Company need to ensure to minimize risk like miscommunication , accounting errors, delivery failure and vendor dispute etc.

Having Adequate Insurance –

Know the Regulation – This includes health and safety issue , employee wages , taxes

Curtailing complexities in business process – Reducing complexity in different business process radically mitigate operation risk

Reinforce Organization ethics – creating a string ethical compass within the organization is highly effective to mitigate risk

Monitoring and evaluation at regular interval – Key performance indicator are critical for timely detection and mitigation of risk

Periodic risk assessment -