Assessment Brief And Recommendations For Risk Management And Capital Investment (essay).

Welcome to your new module. We hope you enjoy your studies. This document specifies the assessment/s for this module. We want you to be successful at the highest possible levels. You should find the assessment/s to be clear, relevant, accessible, appropriate and challenging.

From September 2017, all assessment briefs have a set structure. So, you will become familiar with the 8 main sections in them. This assessment brief tells you:

1.what the module is about overall

2.what the module Learning Outcomes are

3.what assessment/s you must pass, in order to successfully complete the module

4.what you need to do in the assessment/s

5.how your work will be assessed and marked

6.how to present your work for marking

7.where to access the University of Derby Assessment regulations

8.where to get other assessment-related help and support.

All modules in UK Higher Education have learning outcomes that you will study towards and then demonstrate you have met them. In order to do this, you will draw on many factors such as:

• your prior learning and experience
• the module learning units and task
• your wider reading, reflection (and possibly practice)
• and, also the expertise of your tutors and other students.  

In most modules, it will be clear exactly which of these learning outcomes is assessed in which of the assessments you have to submit and pass.  

On successful completion of this learning, and this module, you will be able to:

1.Demonstrate critical understanding of how risks can be identified and categorised based on the impact they have on different organisations.

2.Demonstrate awareness of the impact of various responses to strategic risks.

3.Demonstrate a critical awareness of the internal control systems and management accounting strategies that an organisation can use to manage risks and examine ways in which risks associated with cash flows and capital investment decisions can be managed

(a) Evaluates the potential risks that might arise from SFL’s appointment of a client manager to deal with PI’s business; and

(b) Critically discusses the impact of these risks on the organisation

(c)  Recommends, stating reasons, the changes that SFL’s board should introduce in order to minimise the risks and threats arising from having an autonomous account manager.

Risk management is considered as the concept through which financial and other business risks are forecasted and evaluated and it also identify the procedures through which the impact of these risks can be avoided and minimized.

This business report is based on the case study of Sonkrag Inc. an international solar component organization, as this organization engaged in selling the solar panels and its components to both industry and consumers. Structure of this report is divided into two divisions that are consumer division and industry division. First two sections answer the issue related to consumer division and last two sections answer the issue related to capital investment. At the end, brief conclusion is stated to conclude the report.

Loss related to computerized systems and confidential data will affect the working of organizations in adverse manner. It further affects the ability to generate profits, produce products, and serve to the customers. Additionally, loss related to sensitive information about the customers will cause reputational damage and loss of profits for the organization. Following are the weakness related to controlling environment and internal control systems in the organization which led to loss of data-

• Third party access- Numbers of organizations are there which gives easy access to the third parties to their confidential data in context of supporting the different functions of business. This is considered as biggest internal control weakness which led to loss or theft of data. Number of times, organization done this intentionally in terms of reducing the cost or increase the availability. The issue behind safeguarding the data from the unauthorized access is very common, and it enhances the possibility of breach. It becomes easy for the hackers to access the codes, retina images, and advanced voiced recorders, and steal the confidential data of the organization (Fadzil, Haron, and Jantan, 2005).
• Another issue related to internal control system is the lack of monitoring tools, as there is no monitoring procedure in the organization which effectively monitors such activities or identify the related risks. Lack of monitoring creates the loop holes in the security system of the organization and cyber criminals take advantage of these gaps.
• Negligence is the another weakness which presents in the internal control system of the organization, as management of the organization is negligent in terms of protecting the data from the cyber criminals (Hermanson, 2005).

This section of the report states the recommendations which can be used by the organization in terms of protecting the consumer data-

Limit the access- There is no need to give the access of consumer data to each and every person in the organization.  Access of third parties on consumer confidential information must be limited by the organization, which means, access is given to only few peoples who genuinely need the access. This automatically reduces the opportunities for hackers to steal the data related to the organization (Li, Lou and Ren, 2010).

Collect only important data- Unnecessary data of the customers must not be collected by the organization, as it not only waste the time and resources of the organization but also increase the opportunities for the hackers to steal the data. In other words, only such data is collected which is important for processing the transaction with the customers, and any confidential information such as credit card details and identity card details of the customers must be protected by recognized security tools.

Monitoring tools- There must be effective and efficient monitoring process in the organization, as it necessary for monitoring the practices and other actions of the employee in context of ensuring the data security in the organization.

Destroy data- Data of the consumer which is already used by the organization or the transaction for which such data is collected is already completed, and then organization must destroy that data. It helps the organization in restoring the confidence of consumers in terms of privacy measures and transparency.  

Ensure accountability- Management must held the employees accountable for any breach occurred in the consumer data security system, as it make the employees and related department more accountable in this context. Policies and programs related to data security must be communicated at each level of the organization, and management must ensure that each organization understands it and complied with it. This can be understood with the help of example, employees must be restricted to use the outside computers or laptops, transfer of data from one computer to any outside computer in any way must be banned, etc. (Chen and Zhao, 2012).

Capital asset pricing model is the theoretical model that is used to determine the required rate of return that is appropriate in relation to an asset in the given situation. This model is applied in order to make decisions regarding the addition of assets to some well-diversified portfolio so as to maximise the returns on such portfolio. The CAPM model tells about the relationship of risk and the rewards related to a particular security. The rate that is derived from the use of CAPM model is used to discount the cash-flows under a particular project so as to make effective capital appraisal investments (Womack & Zhang, 2003). However, the said model suffers from certain limitations which are discussed below:

• Risk free rate: The rate that is commonly used as the risk free rate is the yield rate on the government securities that are short term in nature. The major problem with using the said rate is that this rate is extremely volatile as the yield on such securities changes quite frequently (Džaja & Aljinovi?, 2013).
• Return on Market:
• Return on market is the sum total of capital gains realised due to the price appreciation of the securities as well as the dividend income on such securities. Whenever, the market return becomes negative there arises the problem. Also, these returns are backward looking and hence do not represent the future market returns.
• Determination of proxy beta:
• Identification of beta is must for the application of CAPM model. If the proxy beta for the project is not determined correctly, it will affect the reliability of the results of the capital investment appraisal techniques.
• Difficulty in borrowing the funds on risk free rate:
• In the practical world it is generally not possible for the firms to borrow the loan funds on the risk free rate. CAPM works on the principle that loan is borrowed at the risk free rate which is totally unrealistic in nature (Barberis, Greenwood, Jin & Shleifer, 2015).

The assumptions on which CAPM model works are not realistic and thus they are not suitable in real world hence they are not applicable in the real business cases.

Conclusion

After considering the above facts, it can be said that Sonkrag fails to ensure the effective control environment in their organization and this is the biggest reason, because of which confidential data of the organization is lost. There are number of weakness in the internal control system such as easy access and lack of monitoring. There is number of organization which gives easy access to the third parties to their confidential data in context of supporting the different functions of business. Lack of monitoring creates the loop holes in the security system of the organization and cyber criminals take advantage of these gaps.

Another issue is resolved with the help of Capital asset pricing model is the theoretical model that is used to determine the required rate of return that is appropriate in relation to an asset in the given situation. This model is applied in order to make decisions regarding the addition of assets to some well-diversified portfolio so as to maximise the returns on such portfolio. The CAPM model tells about the relationship of risk and the rewards related to a particular security.

References:

Barberis, N., Greenwood, R., Jin, L. and Shleifer, A., 2015. X-CAPM: An extrapolative capital asset pricing model. Journal of financial economics, 115(1), pp.1-24.

Chen, D. and Zhao, H., 2012, March. Data security and privacy protection issues in cloud computing. In Computer Science and Electronics Engineering (ICCSEE), 2012 International Conference on (Vol. 1, pp. 647-651). IEEE.

Džaja, J. and Aljinovi?, Z., 2013. Testing CAPM model on the emerging markets of the Central and Southeastern Europe. Croatian Operational Research Review, 4(1), pp.164-175.

Hanim Fadzil, F., Haron, H. and Jantan, M., 2005. Internal auditing practices and internal control system. Managerial Auditing Journal, 20(8), pp.844-866.

Hermanson, H.M., 2000. An analysis of the demand for reporting on internal control. Accounting Horizons, 14(3), pp.325-341.

Li, M., Lou, W. and Ren, K., 2010. Data security and privacy in wireless body area networks. IEEE Wireless communications, 17(1).

Womack, K. and Zhang, Y., 2003. Understanding risk and return, the CAPM, and the Fama-French three-factor model.