Business Risks Assessment for McDonald's - Report Example

Topic: Business Risks assessment for McDonalds Name of Student: Name of Institution: Name of Tutor: Date of Submission: TABLE OF CONTENTS 1. Introduction 3 2. Ticklists 4 Table 1. Checklist for risk assessment process 5 3. SWOT and PEST 5 3.1. PEST analysis 6 Table 2. PEST Proforma for McDonalds 9 4. Risk Ranking with F-N Diagram 9 Table 3. Risk ranking methods 9 Table 4. Probability distribution table for ranking risks 10 5. FMEA or HazOp 11 5.1. HazOp 12 Table 6. Hazop Analysis table 13 6. Fault Tree 13 7. Common Cause analysis 14 8. Reliability and Block Diagram 14 Figure 3. Hierachy Diagram in risk assessment 16 9. Event Tree 16 10. Cost Benefit analysis 18 Table 8. Cost/benefits analysis graph for investment in supply of foodstuffs by McDonalds. 18 11. Utility Function 19 Table 10. Marginal Utility Curve 20 12. Pros and Cons of various risk assessment methods 20 13. Allocation of a fixed budget to respond to the risks assessed 21 Table 11. Budgetary allocation for the risk assessment process with consideration of levels of risks 22 14. References 22 1. Introduction McDonalds like any other organization operates in a competitive environment and there are certain risks, strengths and opportunities that the company faces in its operating environment. This determines the level of business operations and development of strategies that creates a match to challenges faced by the company and ensures it gains its business goals and objectives. One of the factors that affect the performance of McDonalds is customer trends which results into changes in preference for what people want to buy and thus there is the need for continuous innovation (Wright, 2002). The other risks involved include how to maintain highs standards in such as huge chain in a case where there is lack of quality service in store (Stamatis, 2003). As a result of these risks, it is necessary to come up with a method of determining these risks so that the right courses of action are taken to ensure these risks do not occur. Consequently, this paper provides a number of methods that can be used to measure risks in this company. 2. Ticklists The risk assessment professionals will be involved in a risk assessment process by recording particular information relating to the company. Some of the information they would ensure they record regarding the company include: Name of the organization Location Date of risk assessment Areas of risk assessment Work activity The people employed in an area The risk assessment team at Mc Donald’s will ensure they achieve the above objectives by recording the name of the business, its location, date of risk assessment and major areas of risks. Their risk assessment will then be done on the areas established in the ticklist. Each area will be identified and the procedures for assessing risks will be recorded. The main activities involved in risk assessment will be done and the right professionals to perform the risk assessment will be identified. The main role of the checklist is to determine if certain actions have been performed during risk assessment process (Lund, Solhaug, & Stølen, 2010). This ensures the company does not omit certain actions that would have contributed to business risk. The checklist below was used to make decision with regards to adequacy of arrangement and the risks in the working environment at McDonalds. Some questions may not be relevant to the practical situation. These areas can be filled with the answer N/A, otherwise, the recommended answers were Yes and No. DESK YES/NO Are there enough documentation for risk assessment process? YES If a document holder is used, is it possible to position properly ad maintain stability NO Is it designed so that any difficulties brought in business management are addressed? YES Are there enough professionals to assist in recommending the changes of the proposals to business operations? YES ENVIRONMENT Is the business operating in a highly competitive environment? YES Is the business operation environment free from noises and communication is not affected? YES Is the company operating in a highly competitive environment? YES Table 1. Checklist for risk assessment process From the above checklist, it was found that McDonalds keeps enough documents for risk assessment process and the risk assessment ensured risks faced by the company are addressed. The checklist also shows that the company operates in a competitive environment and faces the risk of losing customers if it does not compete favorably with its competitors. However, the checklist shows that the company does not experience any risks related to noise in its operating environment. 3. SWOT and PEST SWOT analysis is the process of finding the strengths, weaknesses, opportunities and threats experienced by a company (Murray-Webster & Williams, 2010). In risk assessment of the business, strengths and weaknesses are factors within the business while opportunities and threats are factors outside the business. Some of the strengths that have been observed at McDonalds include being the best food chain in the world and success in burger as a result of its strategy of ‘just in time’. These goals have been achieved at McDonalds both locally and internationally. The company also serves famous brand as well as processed items such as kraft chasse, yoghurt or Heinz ketchup. The main weaknesses of the company are that it has failed to offer pizza due to its inability to compete with pizza food chains. There are also a number of quality issues in some franchises and more money is spent on training as more workers are needed at the company. The other weakness of the company is that it has led to disruption of local and international eating habits as a result for the younger generations. The main opportunities are that McDonalds provides healthy products with nutritious benefits that are printed in all its products to create additional opportunities. It is also an FDA approved service company and provides products with low cholesterol and low calorie ham burgers. The marketing strategy of ‘just in time’ is being used at McDonalds to serve customers in the shortest time possible. The company also offers formic restaurant and intends to improve on its international expansion. It also offers foods free from allergens such as peanut and gluten free products and combines its operations with retailers. 3.1. PEST analysis PEST Analysis refers to the process of studying political, economic, socio-cultural and technological factors and is considered significant in ensuring an industrial activity is beneficial from the new design of this analysis (Henry, 2008). Politically, the governments of particular groups within the United States and Europe are focused on controlling the business to fast food because of health concerns. There are also a number political restrictions brought by governments in various countries of operation. It is necessary to create a good relationship between government taxes and employment in overseas markets. The company also experiences pressures from China as a result of disruption of culture. Economical factors include working in international market where there are a number of rules of business such as tax because each company has its own rules for tax ad for McDonalds it is forced to contribute part of its revenues to the head office in the UK. Regional markets cannot ensure a constant supply of materials and consequently, McDonalds imports beef and potato to attain its demands. Social factors include changing lifestyles of people in developing countries. For instance in Malaysia, the development of the economy creates a condition where people are able to eat fast foods due to financial capabilities. In Middle East region, there is the need for wireless technologies such as wireless internet, credit card payment in addition to other attractions such as music. This area does not create a good environment for operation of McDonalds and can lead to reduction of its profitability. Technological condition is that advertisement has been improved by existing technologies and demand for its products especially in the minds of young generations has been possible to achieve. A new technology has been implemented at McDonalds that provides an increase in demand for its products among young generations. The environmental condition is that in a world’s largest fast food chain, there is a continuous consumption of beef potatoes or chicken and critics have also argued that McDonalds is disrupting cultures especially among Chinese. These environmental conditions prevent penetration of its franchise in these regions. The table below shows the PEST proforma that can be used to assess the economic, political, social and economic conditions that affect the operations of McDonalds. Political Economic The company operates in politically stable environment Government policies are favorable to their businesses Rates of interests in taxes are low Short and long term economy is favorable for business activities The GDP is high enough to provide high demand for goods of the company. Social-Cultural factors Technological Customers ‘attitude to the industry in foreign countries is positive. Population is composed of various generations that create demand for various products. There are technological factors that allow the business to operate efficiently. Travel is enabled by effective roads and air networks. Conclusion The PEST analysis shows that political, economical and social-cultural conditions are favorable for conducting of business in their environments. These conditions can result into maximization of capacity of the organization and give it an edge over its competitors. Table 2. PEST Proforma for McDonalds 4. Risk Ranking with F-N Diagram Risk ranking is the process of using the principle that each hazard on a checklist can be ranked based on the level of significance. This is followed by giving the hazard a score and the overall hazard score is computed. The table below shows how hazards are ranked and scores determined. Ranking Frequency Severity Safeguards Frequency rating 1 Never observed Negligible Not vulnerable Low 2 Rare case Cosmetic Safe medium 3 Statistic evidence Superficial Controlled Large 4 Occasional peripheral Compensative Medium 5 Sporadic Significant Suppressive Medium 6 Probable Structural Moderate Large 7 Periodic serious Strategic Large 8 Regular Permanent effect Minimal Medium 9 Possible Critical Superficial Large 10 Constant Catastrophic Prone Large Table 3. Risk ranking methods The table below shows a table for ranking risks during risk ranking exercise Large 3 6 9 Medium 2 4 6 Small 1 2 3 Small Medium large Table 4. Probability distribution table for ranking risks According to the above table, those ranked 2 are acceptable while those ranked 6 are unacceptable. The first step involved determining the risks that could result into significant harm under operating conditions of the work place such as lack of customers for the newly produced products or high competition from similar businesses. The next step in risk assessment involves determining the areas of the business that could be harmed (Bee & Bee, 1998). This includes the list of people who could be harmed and it was determined that those who could be affected by risks involved employees and office staffs. This is because the risks had direct effect on their earnings. Step three of the risk assessment process involved determination of what is needed to control the risks such as meeting production standards set by legal requirements and compliance with industry standards. The final step of risk assessment involves review and revision process that involves setting a date for review of the assessment by checking the precautions that need to be addressed to ensure the hazards are controlled or the actions needed. The main changes that are proposed are then listed in this step of risk assessment. Certain risks were identified and ranked. The following table shows some of the risks that were ranked. Risk Rank Operating in a competitive environment 1 Lack of customers for products of the Company 3 Lack of Innovation and Improvement of Design for products 2 Improper record keeping for activities of the company 2 Table 5. Risk Ranks for McDonalds From the above table, it can be observed that the risk that affected the operations of McDonalds severely was operating in a competitive environment while lack of customers was the least severe risk for the company. 5. FMEA or HazOp Failure Mode Effect Analysis is the process of determining different mode of failure of a component (Applegate & Johnsen, 2007). It is achieved by first describing the systems and processes whose modes of failure are being sought and determining ways in which the systems can fail by the use of experience or past information or brainstorming. This is followed by identifying signs of failure that can be detected and determining the effects of each failure possibility. In a business environment, failures may occur to mechanical systems or electrical systems. Mechanical systems can fail through elastic deformation, plastic deformation, failure due to corrosion, fretting, wear and fatigue, impact effects, scoring and erosion effects. Thermally-induced failure may result from change of properties of materials, deformation and thermal shock. Electrical components can fail through overvoltage, under-voltage, failures due to short-circuit and thermal problems such as changes in material properties, temperature of operation and expansion or thermal runaway. Other modes of failure include premature operation, intermittent operation, and failure to perform an operation at a particular time. 5.1. HazOp HazOp refers to the process of assessing risks by brainstorming method by a team of experts who come up with a set of plans for analyzing risks in part of the system or process by means of keywords and common measurements such as measurement of speed, rates of flow and pressure that have design limits (Wright, 2002). The process begins with dividing the process into nodes each of which is characterized by a few parameters to allow discussion of normal operations and deviations. This involves determining the purpose of a particular node and factors that can cause perturbation from a specific purpose. Qualitative results which are an indication of a list of consequences and methods of safeguard to be use such as alarms or interlocks are then suggested. The main steps that are followed in hazard analysis include defining the system or activity, defining scenarios or problems that are of interest for the purpose of analysis such as concerns with regards to the environment, safety issues and health issues. The next step involves subdividing the system into nodes, deviations and applying key words regarded as appropriate. The next step involves HAZOP reviews that include a discussion of deviation for each mode of the system, identification of safeguards and recommendations and completing the proforma. Generally, it involves assigning responsibility for resolving the recommendations. The following table provides a guide for using HaZOP risk analysis process: Risk/Increasing likelihood of risk 1 2 3 4 Competition A Unreliability of equipment B Lack of expertise in operations A Lack of customers C Table 6. Hazop Analysis table In the above table, the vertical column indicates an increasing level of likelihood of a risk while the horizontal axis represents severity of the risk. According to the above assessment of operating risks at McDonalds, it was found that competition has a higher chance of occurring but it does not result into severe consequences for the business, unreliability of equipment had an average possibility of occurring but it did not result into severe consequences for the business. However, lack of customers was found to be less likely to occur but it had severe consequences for the company. 6. Fault Tree This is the process where a fault is broken down into contributing factors. Fault tree implements ‘backwards logic that follows failures that result into system failure. It is possible to trace fault tree early during design (Stamatis, 2003). The process of constructing a fault tree starts from the top center page and moves downwards as the contributing factors are included. In the process of working as a large team where versions of the tree modifications are needed, leaves that are unchanged will be described as ‘undeveloped’ and will be denoted by circles while a leaf that needs to be developed further is denoted by a diamond and is described as “undeveloped”. Usually, this leaf is the top event of another tree that can be substituted in place. The significance of this method of risk assessment is that it ensures the root causes of a problem are determined so that the problem is solved from the root causes. 7. Common Cause analysis Common cause analysis is the process of detecting risks that contribute to a number of problems faced by an organization (Lund, Solhaug & Stølen, 2010). For instance, in the case of McDonalds Company, the common contributing factors to certain problems can be determined by use of this method. By determining common causes of problems faced by an organization, it is possible to come up with common solutions to these problems so that the organization finds easy time in dealing with risks it faces. For instance, if there is a case where a burglar breaks into a store and an alarm does not ring. The factors that can be a major cause of this situation are power failure and failure of alarm detection system. Failure of alarm system can also be caused by common factors such as failure of microwave alarm system, failure of electro-optic alarm system, failure of seismic football alarm or acoustic alarm failure. Common causes for power failure can be mains failure or backup failure. 8. Reliability and Block Diagram This is the process of determining whether a system is able to withstand certain conditions of use and remain functional (Murray-Webster & Williams, 2010). These include human organs, rooms in an enclosure, and stages of a construction project or people in command systems. This is focused on finding reliability of the system by finding the reliability of the components. These results into possibility of finding risks associated with certain components that are used in an organization. The process of understanding system reliability is determined by first finding the arrangement of the components. Components may be arranged in series or parallel. In series arrangement of components, reliability is found by simple multiplication of individual reliabilities. Electrical circuit theory is an example of an area where reliability is determined. The following equation is used in finding the overall reliability of the entire system under study. In the above equation, R1 and R2 refers to resistances of system 1 and system 2. In the parallel system, failure can only occur if all the systems fail. Failure of one system does not result into failure of another system. Thus, the failure of the entire system is determined by use of the following equation: In the above equation, Fs is the total failure of the system, F1 is the failure of the first system and F2 is the failure of the second system. 8.1. Application of Hierachy Diagram in risk assessment In this method of risk assessment, the main steps undertaken include hazard appraisal such as the use of outsourced materials and proforma. This is followed by risk assessment procedures such as the use of a fault tree. The final step involves reengineering of the risk assessment process such as network and functional analysis. This is illustrated in the figure below. Figure 3. Hierachy Diagram in risk assessment 9. Event Tree The main purpose of event tree is to start from the beginning of a problem to the end and has a strong relationship to reliability (Hiles, 2002). For instance, if the business suspects that there is a possibility of fire occurrence in its premises, the recommended event tree will be structured into possibilities of noticing fire at an early stage. At McDonalds, risks of this kind can be measured to determine readiness of the company to cope with hazards such as fire outbreak. The analysis can also involve the possibility of using sprinklers to control the fire or the role that fire brigade can perform in controlling the fire. The next assessment that can be done involves determining the risks that are related to the fire incident and whether the damage can be disastrous or negligible. Table 7. A simplified event tree for fire incident in a company. Murray-Webster, R., & Williams, G. 2010. Management of risk: guidance for practitioners. Norwich, England, The Stationery Office. The branches show probabilities of events that would follow the previous event. Total probabilities are obtained by multiplying the events in succession from the beginning to the end of the chain. The simplified event tree above was used to determine the possibility of fire incident at McDonald Company properties. It was found that the possibility of fire outbreak was 0.7. In the case of fire outbreak, it was found that the probability of destruction of equipment was 0.8. The total probability was found by getting the product of 0.8 and 0.7 to obtain 0.56 for Total probability 1. 10. Cost Benefit analysis This is the process of finding the costs and benefits associated with a particular investment so that the overall rating of the investment can be determined (Henry, 2008). It is a method used to find the most beneficial alternative among a list of alternatives such as in terms of health, comfort of an individual or security of the environment. In the case where McDonald needs to invest in supply of foodstuffs to local retailers, it will need to determine the costs and benefits of the investment. The table below shows costs and benefits that can be expected from the investment. Costs Value in USD Benefits Value in USD Distribution costs 3000 Increased sales 10000 Advertisement 1000 Improved customer base 2000 Employee wages 4000 Raw materials 2000 TOTAL 10000 12000 Table 8. Cost/benefits analysis graph for investment in supply of foodstuffs by McDonalds. http://www.americanessays.com/study-aids/free-essays/management/mcdonalds.php According to the above graph, investment in the supply of foodstuffs to the company will result into a cost of $10000 while the resulting benefits will be $12000. This implies that the benefits will be more than costs and the company will benefit from the investment. Consequently, it will proceed to invest in the business. A graph is the sketched relating to the figures obtained. The graph below shows a sample cost and benefits graph that can be obtained. Table 9. Sample Cost and Benefits analysis graph 11. Utility Function Utility function refers to the condition where amount of demand varies based on the level of introduction of a product into the market and the number of people who own the product. Table 10. Marginal Utility Curve According to the above utility curve, marginal is a function of utility. For instance, in the case where McDonalds intends to know whether investment in a particular product will increase utility, it is discovered that the sale of more of the product results into an increase as more of the product are sold and benefits per additional product decreases as more of the product is sold. When too many of those products are sold, people may stop buying the product and the company will not be able to sell more of the product thus making them drop their prices. 12. Pros and Cons of various risk assessment methods There are advantages and disadvantages associated with various methods of risk analysis. SWOT analysis is one of the methods used to estimate the risks faced by an organization (Broder & Tucker, 2011). The main advantages of SWOT analysis are that it uncovers areas that an organization can focus on in order to compete effectively and determine their unique position in the business environment. It also allows a business know areas where there is need for improvement. However, lack of proper use of SWOT analysis can result into over simplicity of the analysis and subjectiveness. It is also not suitable for understanding an organization at a more detailed, tactical and lack of generalization of analysis. PEST analysis ensures the subject of analysis is aligned towards forces of changes that have effects on the world. PEST analysis also helps in avoiding taking action that is likely to result into failure for reasons that are beyond control of the business owner. Cost-benefit analysis allows examination of worth of a project by creating an accurate look at final effects of a project and enabling a business to make a decision regarding its worth in spending funds. However, problems are likely to occur when problems are collective and it is not difficult to use market value in estimation of monetary costs. 13. Allocation of a fixed budget to respond to the risks assessed The main risks assessed above as well as those indicated in the ticklist can be assessed if enough budgetary allocations are made for the process. The budgetary allocations will be based on the significance of the risks and the period of time taken to conduct the assessment. Areas that take longer time to assess will have greater budgetary allocations compared with areas that take shorter times to asses. The table below shows a proposal of budgetary allocation for assessment of various risks and the duration of each assessment. Risk to be assessed Duration (Days) Level of Risk Budgetary allocation ($) Management risks 20 Moderate 2000 Investment risks 30 Severe 3000 Recruitment risks 10 Negligible 1000 Competition risks 20 Moderate 2000 Total 80 8000 Table 11. Budgetary allocation for the risk assessment process with consideration of levels of risks 14. References Applegate, E., & Johnsen, A. 2007. Cases in advertising and marketing management: real situations for tomorrow's managers. Lanham, Rowman & Littlefield. Bee, F., & Bee, R. 1998. Facilitation skills. London, Institute of Personnel Management. Broder, J. F., & Tucker, G. 2011. Risk Analysis and the Security Survey. Burlington, Elsevier Science. http://public.eblib.com/EBLPublic/PublicView.do?ptiID=829965. Henry, A. 2008. Understanding strategic management. Oxford, Oxford University Press. Hiles, A. 2002. Enterprise risk assessment and business impact analysis: best practices. Brookfield, Conn, Rothstein Associates. Murray-Webster, R., & Williams, G. 2010. Management of risk: guidance for practitioners. Norwich, England, The Stationery Office. Lund, M. S., Solhaug, B., & Stølen, K. 2010. Model-driven risk analysis the CORAS approach. Berlin, Springer. http://site.ebrary.com/id/10425362. http://www.americanessays.com/study-aids/free-essays/management/mcdonalds.php http://www.hse.gov.uk/risk/casestudies/foodprep.htm http://www.studymode.com/essays/Mcdonalds-Inventory-Management-Practice-And-Its-398491.html Macdermott, R. E., Beauregard, M. R., Mcdermott, R. E., & Mikulak, R. J. 2000. The basics of FMEA. Portland, Or, Productivity. Stamatis, D. H. 2003. Failure mode and effect analysis: FMEA from theory to execution. Milwaukee, Wisc, ASQ Quality Press. Wright, J. F. 2002. Using Monte Carlo risk analysis to evaluate new business ventures. New York, AMACOM. Read More