Risk Management - Case Study Example

? Risk Management Risks apply to all businesses. However, some are more exposed than others denoting that some businesses are morelikely than others to benefit from formal risk assessment. Risk management helps a company avoid cost disruption and uncertainties. Risk analysis also aids management to decide which risks are worth pursuing and which should be avoided. However, this is not a one person initiative, it involves the entire organization and this raises the need for proper communication. Besides, its benefits should be explained to all organization employees to guarantee cooperation. Those who are aware of various risks can help prevent them from taking place and can manage them better if they materialize (Sadgrove, 2005). In the current case of WMSD, there are several aspects that present reasonable risk exposure. As briefly mentioned, proper risk management measures should be taken to ensure that the television station does not suffer losses when these risks materialize. In designing a risk management plan, it is important to first establish the risk areas that a business faces. This is important in deciding which measures to take in order to avoid the risk situations. Identifying the risk areas is also critical in determining the amount of resources to commit in averting or shielding from these risks (Sadgrove, 2005). This is because all risks do not pose the same financial risk for a company. Therefore, when a company makes risk management decision, the cost factor is an important consideration. However, it is one which is only informed by the nature of the risk. This is because it is not diligent to commit a huge amount of resources to avert a risk that poses minimal financial risk to the company. In the case of WMSD, there are four main areas that the company needs to consider as they pose significant risks in regards to the company’s financial wellbeing and eventual survival. The first concern area is the company’s president and founder decision to hand shareholding to family members. As the situation stands now, the grandfather who doubles as the company’s chairman and CEO has begun to make gifts of the stock to other family members (Hamilton, 2004). Even though this may be seen as a measure to safeguard the company’s interests and those of the main shareholders, it also poses significant threat as it limits the company’s access to additional capital, the assumption here being that any amounts that the company may have at the time is already committed in improving the business. Another eminent risk is the exposure of the company’s assets; as presented in the case, the company’s total assets are valued at 52.6 million dollars. In case these assets are destroyed by any type of occurrence, it would cost the company about $73.5 million to replace them. This being the cost of hardware, it is definite that such loss would also translate to loss of significant information stored in the equipment. Other costs that the company should consider is through disruption - in any case that there is such an eventuality the company’s operations will definitely be disrupted (Sadgrove, 2005). The entire period of disruption represents significant loss on company revenue. Yet another major point of concern is the company’s revenue. The case indicates that the company’s revenue has been on the rise for the past two years and dipped in the third year by a significant amount - 15 million. A quarter of this revenue is generated by a single employee, which implies that the firm is overly reliant on a single or a few individuals. This implies redundancy as well as inefficiency which are significant risks. The greatest risk in this case is the fact that if this individual leaves the company, then this hugely affects the company’s revenue stream (Hamilton, 2004). This will definitely have a spiral effect as the company operations rely on the revenue generated by its activities. The last significant threat to the company is loss of market share. The case indicates that the firm has had a difficult time closing in on the number one station. Besides this concern, WMSD is concerned that its cash flow is likely to suffer from the increasing popularity of cable television. In the same line, the company also faces significant upturns in its cash flow generation due to its seasonality. WMSD needs to take appropriate measures to ensure that these risks are mitigated. Successful risk mitigation will not only guarantee the company’s survival but also its continuity in the long run. To avert these risks, there are management alternatives which would safeguard the company’s status. The first case where the company president is exposing it to a probable financial risk by issuing shareholding to family members can be avoided by competitively issuing these shares to financially sound institutions given that they will safeguard the company’s mission. This approach may be termed as risk avoidance. This is basically a decision process which averts probable losses by avoiding the risk or exposure area altogether (Hamilton, 2004). The other form of risk is exposure of company assets which, as discussed earlier, can be lost through different eventualities such as fire, floods, amongst other man made and natural catastrophes. The best way to risk manage such eventualities is through insurance which would allow another different entity to bear the cost of restoring the assets in case of loss. In this consideration, the company must plan on premium payments to the insuring company. The other form of identified risk is overreliance on a single employee to generate a significant part of company revenue. To avert this, the company should focus on loss reduction which can be done by getting other employees to learn and implement the strategies of the superior employee (Sadgrove, 2005). This may allow the company to broaden its superior force and departure of one may not significantly affect the company’s revenue. Lastly, the company has to contend with other factors beyond its control such as the growing interest in cable TV and seasonal nature of its cash flow. As regards these risks, the company can do very little as they cannot influence the market or change the consumers’ spending habits. This requires the company to assume risk and instead focus on its internal efficiencies to ensure proper utilization of the seasonal revenues as a means to increase this revenue to cover operation during off peak months. References Hamilton, A. (2004). Handbook of project management procedures. London: Thomas Telford. Sadgrove, K. (2005). The complete guide to business risk management. Aldershot, Hants, England: Ashgate Pub. Read More