Question

Question # 3. Assume that Al-Hassan Engineering Oman is involved in local and export business with subcontinent countries India, Pakistan and Bangladesh. In the tough domestic and international business competition, Al-Hassan Engineering is facing different industrial, international, domestic and firm-specific risks. Required: In view of facing above risks, what prudent strategies should be adopted by the management of Al-Hassan Engineering for its survival and consistent growth? (answer this question in bullets rather in paragraph) (10 Marks)

Risk management strategies

Answer 1

Strategies for Industry Specific Risk:

Project risks should be examined to a level of detail that permits an evaluator to understand the significance of the risk and its causes and to potentially examine the root causes. Surveys of customers, end users, and other stakeholders could be beneficial. Some typical engineering risk categories are:

• Cost – the cost of the project is higher than forecast, or increases during the project (scope creep)
• Schedule – customers or end users are not given the final product within the agreed upon time frame
• Technical – performance objectives are not met
• Feasibility – the product is does not turn out to meet financial and/or business objectives.
• Logistics – components do not arrive in time
• Human Resources – project staff are not available, or lose availability
• Production – concerns over packaging, manufacturing
• Support – maintainability, operability, and trainability
• Engineering – technical requirements for the product are too onerous, or not physically possible
• Business – the financial metrics of the project change (demand slows, market prices change, etc.)

In the Risk Management Plan (within the Project Management Plan) strategies to deal with each risk should be placed into four basic categories:

1. Acceptance: Also known as retention, the project manager or organization is willing live with the risk without further mitigation.

2. Avoidance: The project can avoid the risk by removing whatever requirement caused it to appear. The risk is sidestepped.

3. Control: Also called mitigation, this involves recognizing the risk is there and performing actions to minimize it, developing contingency plans in case the risk comes to pass, or developing fall-back provisions.

4. Transfer: Sharing of the risk with another party, or outright transfer

Within the Risk Management Plan, provisions should be in place to systematically track and evaluate the effectiveness of the risk response actions against established metrics. Some techniques that can be used for monitoring and controlling risk:

• Earned Value: This method compares the value of work completed to date (earned) with the value of work supposed to be performed at that point in the schedule.
• Program Metrics: Formal, periodic performance assessments evaluating whether the risk management plan is achieving its objectives.
• Technical Performance Measurement (TPM): A way to measure the technical performance of a project and compare with the specifications required for project success.

Strategies for International Risk

Credit Risk:

Taking 100 percent of the amount owed, or a fair percentage, before rendering the services at the time of the placement of an order can be used to cut down administrative expenses and finance charges. This eliminates the risk of non-payment. Although this may be difficult for new businesses and exporters, it can be worked out with little negotiations.

Letter of Credit refers to a commitment issued by a financial institution wherein the institution agrees to pay a set amount to the service/product provider in exchange for delivery within a set timeframe. This offers protection to both the seller and the buyer. It includes a detailed description of the shipment as well as the terms of sale.

Foreign Exchange Risk:

This usually concerns the accounts payable and receivable for contracts that are, or soon would be, in force. Foreign exchange rates are in flux constantly. Hence, businesses would be forced to make conversions of the funds generated overseas at rates lower than what is budgeted.

This is the reason why it is crucial for businesses to have an appropriate exchange policy in place. This will help in:

●     Stabilizing profit margins over sales made

●     Mitigating the negative impact of fluctuating rates on sales and procurements

●     Enhancing cash flow control

●     Simplifying domestic and foreign pricing

Businesses need to identify foreign exchange risks to frame an effective policy. It is also essential to recognize the tools available for hedging these risks and carry out a comparative analysis on a regular basis for selecting the best tool available.

Shipping Risk:

Whether you are shipping goods abroad or locally, you may face issues such as contamination, seizure, accident, vandalism, theft, loss, and breakage. Before shipping any goods to the buyers, you need to make sure to have sufficient insurance.

The International Chamber of Commerce has laid down rules for each party involved in international trade and their responsibilities with regard to shipping risk. It is best to go through the rules and take necessary precautionary steps.

Strategies for Domestic Risk:

Ethics Risk:

It is vital to maintain a high ethical standard when offering any product or service in a global market. Companies may face certain questions pertaining to their values at any point while doing international trade.

Social conditions and customs vary from country to country, and hence, it is necessary to be especially vigilant. You need to make sure that your foreign suppliers and partners adhere to your values and rules regardless of where they operate from.

Intellectual Property Risk:

This risk involves third parties making unauthorized use of the strategic information of a business or property that affects the value of services or products offered by a business, either directly or indirectly.

These risks increase tenfold when doing business overseas because of the difficulties that exist in defeating business rights remotely. This can be avoided by registering the corporate names as well as the trademarks before signing an agreement in any country.

It will also be beneficial to constantly modify and improve your services or products to remain ahead of the competition.

If you found this answer useful then kindly give rating to this answer by doing like.

Thank You