Chapter 39: Sources of Risk 2 Flashcards
Site clearance mitigation
- Insurance against pollution risks
- Conduct environmental impact survey
- Research likely costs under different scenarios; subcontract to third party
Construction/ third party risks
- Strikes
- Bad weather
- Safety hazards
- Loss of key personnel
- Problems with suppliers/ contractors
- Criminal action
- Labour/ material costs
- Construction delays
- Shortage of raw materials
Construction/ third party mitigation
• Insurance
o Property
o Employers liability
o Public liability
o Key person (intellectual property)
o Fidelity guarantee (employee dishonesty)
o Pecuniary loss (protect vs credit risk)
o Insurance against environmental conditions
• Research background of all key personnel (crime)
• Profit share with suppliers to incentivise
• Subcontract to third party – agree fixed price in advance/ enter into forward arrangements; consult with experts; penalties for delays
Operational risks
- Dissatisfaction from public/ new residents
- Structural faults
- Difficulties in finding purchasers/tenants = lower revenue than expected
- Higher running costs than expected
- Increase in perceived terrorism may impact demand
- Competitors launch similar project = reduced market share
- Change in demand due to trends etc
- Communication risk (overseas)
- Supply chain risk of failure (esp if rely on sole supplier)
- Legal risk – contracts not worded properly (lack of familiarity with overseas law)
Economic risks
- Change in interest rate affecting cost of borrowing
- Downturns in economy affecting demand for project
- Adverse exchange rate movements (international project)
Economic mitigation
- Derivatives to hedge interest rate/ FX risk
- Speak to analysts and research outlook
- Build contingency margins into projections
Operational Mitigation
- Advertise/ market site/ product well – gain commitment from purchasers in advance (poss at discount/ intro offer)
- Build margins into budgets/ timescales
- Surveys to determine needs/wants of potential customers
- Employ bilingual managers, provide language training for staff
- Diversify suppliers, ensure infrastructure adequate for deliveries
- Use legal firms with expertise domestically and overseas
Other
- Risk – As a new business venture there may be significant unknown hazards not considered in advance of set up.
- Mitigation – Consider use of experts from each region, or targeted hiring of established individuals.
- Risk – Market risk, the stock market may regard the new venture as very risky and put a lower valuation on the whole group.
- Mitigation – Explain to investors the plans for expansion and the strategies that are being put in place to minimise the risk and maximise the return
- Risk – Industrial action if redundancies occur
- Mitigation – offer attractive redundancy packages, provide opps for some workers to be moved to other areas of company operations
Design risks
- Brief not clear
- Lack of key info
- Failure to investigate (site)
- Redesign necessary later
Design mitigation
- Transfer risk to specialist designers, penalties for errors
- Share risk of success with info providers (eg gov), avoid suppression of key info
Project risks
- Poor planning in relation to budgets, timescales and responsibilities
- Objectives not clearly specified
- Critical path issues
- Benefit less than expected/ costs greater than expected
Project mitigation
- Research and time for planning stage; involve project management experts (could subcontract)
- Build safety margins into timescales to reduce risk
- Thorough cost/ben analysis before decision to proceed
Approval/political mitigation
- Research legislative environment
* Meetings with residents/ local businesses/ local gov, foster positive relationships
Approval/political risks
- Opposition to from locals
- Failure to get planning permission
- Legislative changes
- International project- one country pulls out, war/terrorism in a country
Financial mitigation
- Sensitivity test cashflow and profit projections
* Share financing risk by using several sponsors to minimise impact of one pulling out
