Financial Risk Management: The Company Synectics - Case Study Example

FINANCIAL RISK MANAGEMENT Contents Introduction to risk management 3 Concept of risk management 3 Types of Risks associated with Synectics 4 Financial risk 4 Market risk 4 Methods of Managing Risk 4 Conclusion 8 References 9 APPENDIX 10 10 Introduction to risk management Risk can be anything that limits & threatens the ability of an organization or the community in the process of achieving its mission. Risk is mainly unexpected events. The management of these unexpected events by identifying the risk is called Risk management. This process is done by the coordination of resources and application of economics. All these things are done for minimizing risk of an organization, monitoring the risk and controlling it. Risk management is also done for maximizing the business opportunities. The concept of risk management is becoming very popular day by day in the modern world. It is becoming a fast moving corporate agenda. This is because recently in some past years many businesses are facing problems for unexpected risks. This type of risk can arise from many sources of the business like crisis of financial market, project failure, risk involved in production process, credit risk etc. All this risks can result in a huge loss of an organization with the decrease of its share value. Risk can also be caused by natural disaster like earthquake, flood etc. Concept of risk management Everyday all people and organization takes risks for its development and growth. Different types of risk are there in respect to different situation and problems. This often leads to experiencing high loss. Evaluation of the risk is done on the basis of two factors. They are the possibility of something going to happen which will create a risk and the outcome of the possibilities which will determine the impact of the risk. Understanding and identifying risk is very important part of a business. Overlooking the possibilities of risk can resulted in dreadful consequences. Sometime the business is forced to shut down for not implementing effective measures to handle its risks. The company Synectics initially did not took any measures in assessing its business risk. It experienced a huge delay in delivering its order to its clients. This failure happened because faced the problem of not getting sufficient raw material for its product due to bad political condition, market disruption in the sector of oil and natural gas and falling of price global energy. The company did not take any measures to handle these types of risks. This affected the situation of the company and the oil and also the oil and natural gas sector (Fabozzi, 2010). Types of Risks associated with Synectics Financial risk It involves losing funds for some uncertain reasons resulting in inadequate cash flow in the organization. The company Synectics has also faced a major financial loss for not having proper risk management ideas to deal with the political, financial and some other factors influencing that risk. They experienced a huge fall in their revenue. As a result the investors for the company were not ready to do any investment in the company (Christoffersen, 2011) Market risk This type of risk is caused by the factors which are not possible to control. It is based on the market diversification. The political factors which influenced the market and production of Synectics come under Market risk. Methods of Managing Risk The ways or methods through which the risk can be managed are: Risk avoidance or elimination of risk: Risk avoidance is required for managing the risk. Although in practical world it is not very easy to practice, as risk is inherent with the business. The company Synectics Plc was also facing a risk of delay in procurement. Risk transfer or insuring against the risk: Risk transfer is related to transferring the financial risk to the third party. It can also be referred to as the risk sharing. Synectics Plc have not adopted the risk transfer method for managing its risk. That it was facing due to its delay in providing the goods to the customers with whom they have already signed the contract. Risk Reduction: Risk Reduction as a technique is used for minimizing the risk or reducing the amount of activity that is risky. Synectics could have adopted the risk reduction method for minimizing the risk, they could have procured the things earlier and as the company was the leader in design, control management and integration, the control as well as the management of the advanced technology. The company was also facing a shortfall due to its lengthening of the procurement required for its bigger projects (Chorafa, 2011). Risk Retention: Risk retention implies to accepting of risk. But the retention of risk is suitable for smaller organizations. Here Synectics Plc is a big company. In order to minimize its risk should not adopt the risk retention method for managing the risk. Methods of Risk Assessment Identifying the hazard: The first method for assessing the risk is to identify the hazard or the cause that have led to the occurrence of the risk. The company Synectics Plc has adopted the risk assessment strategy of identifying the hazard or the peril. The company found that most of the delays were due to the disturbance in the market, the falling of the energy prices globally and the critical political situation (Li, 2005). Taking decision that would be harmed: Deciding that due to the occurrence of peril that might be affected or harmed. The company has decided to plan out the things and forecasting the revenue in the oil and gas sector. The company adopted the risk assessment techniques that due to the various factors the customer are facing problem and delay in receiving the delivery period. Evaluate the risk and decide on precautions: Evaluating refers to the analyzing of risk and taking the necessary precautions that the customers or the end users are not affected. Synectics have undergone a high degree of visibility of the generation of revenue and it forecasted its revenue which was previously not justified. Record the findings and Implement them: The next method for assessment of risk is to record the findings or the causes and the reason for occurrence of the peril and then implementing the measures adopted. The company have identified or found out the reason that the shortfall faced by the company was due to the lengthening of the procurement period for carrying out the larger projects. Review of the risk assessment techniques: Follow up or surveillance is required to find out that whether the risk assessment technique have been fruitful in reducing or preventing the risk of the company (Tarantino, 2010). Synetics is considered as one of the nation’s famous staffing firm which includes some of the leading institutions and it is rated among the fortune 100 companies of United States. Synectics provides service to different industries and institutions. Synectics generally provide IT solutions to support the Federal Government programs. Synectics main objectives and mission is to provide facilities to customers and improving the performance through high level support required for taking managerial decisions. The company Synectics Plc was facing a delay in providing delivery to its customers. Synectics realized that it sales for the project was characterized by a long waiting period. The other reason of its delay was due to the disruption in the market. Due to the delay in delivery of services to its customers, the customers imposed opposition and as a result it leads to the increase in the requirement of working capital. Thus the company faced a severe problem and they had to continue their trade within their banking facilities. Then the company assesses the risk and has adopted the risk management measure which leads to the increase in revenue. Due to the increase in revenue Synectics developed confidence for the success of their surveillance system which is software based. The company is expecting to receive more contracts in the gaming sector in 2015. The large and the complex system that was installed by the company in 2013 earned income for the company. This increased the confidence of the company which is planning for its expansion in 2015. Synectics mainly deals with idea connection and also the resources for problem solver, resources for companies, innovation learning, The risk assessment techniques adopted by the company are establishing the risk assessment, collection of information, identifying of hazards, evaluating the risk, implementing controls, measuring the effectiveness plan of action. Synectics have adopted the risk assessment techniques and risk management methods as it is considered as one of the leader in designing the network security systems. The company has faced a lot of problem in delivering the service to its customers. The customers faced a problem of delay in receiving the service from Synectics. The good assessment of the risk is required because a well risk assessment technique will provide in formulating a good strategy of the company. A good and well planned risk management plan helps in formulating a well project plan. The precautionary measures for facing or eliminating the risk can only be adopted if the risk is identified and discovered and new methods are introduced for controlling the risk which might affect the overall plan of the company. The way of adopting risk measures is by using the past experience. Synectics have also adopted this risk assessment technique as it has learned from its past experience. And this strategy of Synectic was even supported by its board member. The Board members believed that the strategy will help towards the growth of the company. After the adoption of the risk assessment technique that using the past experience as learning lead to the generation of revenue and the company is expecting return by the end of 2015. Conclusion The company Synectics which provides varieties of services including statistical and research services, integration of data, services related to business intelligence and support solution to Federal Government programs. The company is the leader in the design, control and integration. The company has faced the problem due to the increase in gestation period and delay in providing services to its customers with whom they have entered into contract. The downfall and risk that was faced by the company was due to unstable political situation and delay in the procurement cycle for larger projects. Even they faced the opposition of the customers due to the delay in the services provided by them. The company then identified the different types of risk that the company has faced by them which included mainly the financial risk, market risk. Then the risk management and risk assessment techniques were adopted. The risk management has helped the company in establishing a unique player with latest technology which helped the company to generate revenue from the markets worldwide. And towards the end of t 2015 the company is expecting a huge revenue generation. References Chorafa, D. N. 2011. Risk Management Technology in Financial Services: Risk Control, Stress Testing, Models, and IT Systems and Structures, Austria: Butterworth-Heinemann. Christoffersen, P., 2011. Elements of Financial Risk Management. Kidlington: Academic Press. Fabozzi, F., 2010. Financial Risk Management. New Jersey: John Wiley and Sons Li.W. 2005. Risk Assessment Of Power Systems: Models, Methods, and Applications, Canada: John Wiley & Sons. Tarantino, A., 2010. Essentials of Risk Management in Finance. New Jersey: John Wiley and Sons. APPENDIX Figure 1: Risk Management Figure 2: Risk Assessment Read More