Risk Analysis Approaches - Assignment Example

RISK ANALYSIS Introduction Risk can be defined as the situation in which a firm experiences the uncertainty in the output or the outcome on a given investment. This is whereby a firm has a probability of making profit or a loss. The uncertainty in the end results necessitate the firm to undertake some counter measure so as to reduce or do away with the risk involved. This is necessary so that the firm can optimize its output at the same time smoothen its operations. Risk analysis is thus the process used to identify the risk and workout the best possible outcome for that firm. In the group project that preceded this assignment the groups each can up with a plan in which the shop would optimize the partners’ activities by creating a working plan that configured the store operations and layout. N this assignment I will criticize the projects with the aim of determining the most efficient of the plans. Critical analysis of projects I will be analyzing the approaches used in determining the plans and changes as recommended in the previous projects. Some of the recommendations and outcomes of the analysis leave room for criticism. This areas are; The group findings where that some areas well overcrowded during the peak hours of the day. It recommended that the whole layout of the shop be replaced and reorganized so as to create more space in this areas. This how ever does not mean that it would optimize the usage of the rest of the shop space and thus would be considered as cost ineffective. The group would have the shop stripped and rearranged but not actualize on the objectives as same customers would be within the same area. I think it would be more suitable to reorganize the commodities and leave the shop layout as it is hence reducing the cost of renovation. This would mean that customers of those commodities would be spread out in the shop as the goods would be everywhere hence reduces the congestion and increase mobility inside the shop. The group approach was based on use of emails and virtual meetings. This s problematic as while the completed their task, the level of concentration is questionable. One would be focusing on other matters thus reducing the ability for think analyze the project effectively. The project structure provides an overall manager who has utmost power to control and overlook the project while the rest of the stakeholders are concerned with other activities. This is very efficient. It reduces the time of decision making as well as makes it easier for other members to carry out their technical work and leave the management to the over site of the manager. T is however better to use the matrix structure as it increases efficiency of employees and create a pool of skilled workers. There being no better structure of management than any other, the probability of success and of failure are equal in all the three approaches but upon agreements, the best structure is the one that is agreed upon. Its suitability depends on the scale of project being undertaken. The objectives of the project no doubt will be met. The cost efficiency of the project however needs to be evaluated and compared to other groups. Some statistical analysis of the projects must be carried out first in order to determine the most suitable project. Given the shop budget and the amount it is willing and able to provide for the renovations, a cost minimization equation must be formed and values like mean and variances determined for all groups. This will ensure that cost efficiency is optimized. Calculation errors such as omissions and double counting are common in projects. An independent audit should be put in place to determine the outcomes and the efficiency of the project. This is so that the shareholders can get back feedbacks at every stage and the project manager to be able to tackle recurring errors and avoid the overall question of inefficiency once the project is finished. Changing the layout may bring immediate success and customer satisfaction. The project must also focus on the longterm goals of the shop. Is this layout changeinline with the shop’s goals and will the new layout satisfy any other requirements and wishes of the customers? To determine this, a quick normally distributed survey is necessary. This guarantees that the layout will give the loyal customers a n environment that suits their requirements and thus become an advertising factor. Some other areas are the basis of the project which mainly cover the theories involved and the pont of view of the planning work. It is evident that some changes are necessary in the shop inorder to esae the management and customer accessability to the products and satisfaction. The following are the major basis The planned expenditure is wthin the shop’s budget. This means that the project will not force the shop to allocate more funds in expenditure. In so doing the firm will still stand a chance to make at least their expected normal profits. An addition on the current revenues should be expected because the shop will be in a position to serve more consumers that increase the customer base. The more the customers the more the revenues. In addition to the supernormal profits the shop will ease the burden of management and increase the shareholders involvement. The cost of doing business in the longrun will decrease thus create a bigger profit margin. This can be formulated in mathematical analysis as; P=f(c, l) P+pi =c+l+li Where p is the profit, c is the capital, l s the labour,li is the increased efficiency of shareholders and pi f the increased profits. This is derived from where x is the number of customers. A working probability outcome of the project that guarantees profits will look as follows for the next four months once the project is complete based on the profit maximization matrix The above outcome depends on the activities that were undertaken in the project. The project increased efficiency by having proper work division as shown in the pie chart below Workload share Rationale of methodology The research entails a majority of scrutiny of the previous field work and managerial planning carried out by different groups, all with the aim of determining the best possible way out for the shop. It entailed evaluation of the firm in terms of workforce, the work allotment and its management plans. The previous work assignment left some assets allocated more labor than others while some doing the work with minimal efficiency. While all the plans work increase the shop’s efficiency and thus reduce the cost of doing business, it is of utmost importance to consider the best and forego the rest. This is done by critically analyzing the plans. The project to be carried out is based on three objectives that are on space utilization and layout change. The theories in play are that the more shop space utilized, the more the efficiency in doing business. Working with this theory, a plan to enforce and actualize the plans are necessary. This create the method to be used. In this particular case a working schedule is necessary. Below is a sample of the working schedule Project days Project schedule Tick when task s done Monday Stock taking and filing (all the current products to be moved after stock taking) Tuesday Demolition of current layout (to include managerial set up and shareholders work allotment) Wednesday Renovations of the working space, floor and management Thursday Rearrangement and stock placement Friday Work division among shareholders Saturday Public view collection and road test of the renovated shop Sunday Conclusion of the project Project approach The group chose this approach for the following reason; 1. The approach is more cost efficient since it requires minimal management. The plan only requires one manager while the rest of the shareholders focus on other technical parts of the business. This shortens the chain of command and hence makes t easy to arrive at a decision 2. The shop is a medium level business thus requires to optimize on efficiency. The approach ensures efficiency of every labor asset of the business thus minimizing on time wastages and fulfill the firms output. 3. It is environmentally friendly. The approach ensures reduction of commodity destruction through commotions and controls the rubbish disposal. This covers the business responsibility towards the community and makes the business working area more friendly to both workers and the customers 4. Error reduction. The work will carry out weekly audit to check on the calculation errors and find solutions. This will reduce the overall errors that would otherwise lead to multiple losses. 5. Favorable working conditions. By creating a better working space and accurate work sharing, the shop will be in a position to curd strikes and industrial tensions as the workers will feel appreciated and show the management concern on their welfare. 6. Efficiency. By employing well trained management analysts the firm will be creating a pool of knowledge works who will create efficiency. The working schedule will also help the shop n management and efficiency. 7. Cost efficiency. The firm will be able to reach cost efficiency by working on schedules and utilization of space that was otherwise left idle. 8. Risk management. The firm will have a system of managing risk, either by reducing their errors or determining them in advance and avoiding them through the skilled management. 9. The ability to create a more efficient mode of doing business and the least possible cost of dong business. As compared to the matrix approach this is the best as it reduces the number of work force required and reduces cost of the project. 10. All members were fully involved and understood the undertakings as they took place in every step of the project. Weaknesses of the approach Any plan that is determined and undertaken aims at fulfilling the objects of the client as well as increase efficiency. This is done through a long process of elimination and calculations to come up with the best plan. It is however important to note that every plan depends on the point of view of the analyst and thus creating room for errors and blind spots. In this project approach, there were difficulties experienced and other unforeseen negative outcomes. These weaknesses include the difficulties in convincing the shop owners the need to invest more in the renovations. This being a costly undertaking the shop owners were unwilling to take the bold step. Another one of the problems were the long chain of command that existed. One has to be able to stand a middle ground in which he has to sell the idea to all concerned parties otherwise the opposition is too much to solve. Its more ideal for the shop owners to remain in their current inefficient layout as the customers are mainly old loyal shoppers who are conserved in their ways and thus a change would inconviniency them and thus probability of loss also increased. The approach requires an overall change in the way the shop is run. Some shareholders who normally did less work or were underutilized felt undermined and targeted. This also requires a reduction in workforce as some workers were left without activities to undertake thus layoffs were necessary. This is problematic because it inconveniences them’ The project approach requires only one person to be incharge. While this shortens decision making, it reduces the quality of decisions are decisions by consensus are better and informed. The plan requires minimal face to face meeting this leaves room for mismanagement and under concentration of members thus weakening the plan. Conclusion Having evaluated critically the project for bot the undertaking of the project and its end results, it is my conclusion that the weaknesses are far outweighed by the benefits that come with the renovations. The shop will be more attractive to customers, has work efficiency and will have a gradual increase in profits as well as set pace for other shops. The shop will also favor the environment and create a better working area for the labor force. The project was a success. The experience and the diverse lessons, challenges and solutions created adequate knowledge that will be useful in future undertakings. References 1. The swaps and financial derivative library, Satyajit Das – 2006. 2. Risk management survival tools, Anthony E. Davis, ‎Peter R. Jarvis – 2007. 3. Challenges and opportunities,Michael Frenkel, ‎Ulrich Hommel, ‎Gunter Dufey – 2005. 4. Analytical methods for risk management,Paul R. Garvey - 2008 . 5. Probability for risk management,Matthew J. Hassett, ‎Donald Stewart – 2006. 6. Risk assessment and management,Ronald E. Hester, ‎Roy M. Harrison – 1998. 7. Risk management, Michel Crouhy, ‎Dan Galai, ‎Robert Mark – 2000. 8. Quantitative risk management,Alexander J. McNeil, ‎Rüdiger Frey, ‎Paul Embrechts – 2010. 9. Financial Enterprise Risk Management,Paul Sweeting – 2011. 10. Industrial Safty and Risk Management,Laird Wilson, ‎Doug McCutcheon – 2003. 11. The Failure of Risk Management, Douglas W. Hubbard – 2009. 12. Credit Risk Management,Hong Kong Institute of Bankers – 2012. Read More