Assessing Risks In An Investment Essay.

You are also required to read a fictional case study based on the operations of a rapidly growing investments seminar company that will be provided to you in class and via email.

You must then prepare a risk assessment report on the investments seminar company using the Risk Exposure Calculator and specifically address:

A. Pressure points due to growth
i) pressure for performance
ii) rate of expansion
iii) inexperience of key employees

B. Pressure points due to culture
i) rewards for entrepreneurial risk taking
ii) executive resistance to bad news
iii) level of internal competition

C. Pressure points due to information management
i) transaction complexity and velocity
ii) gaps in diagnostic performance
iii) degree of decentralised decision making
 

During the good times and market economies, there exists an increased chances of the earning more profits and revenues. Companies during the good times focus more on increasing the operation scale, entering into hiring new people, searching for the new opportunities in growth. However, the managers need to be careful about the signs that are related to the market volatility and the other types of the dangers. The dangers can be from both the internal and the external factors existing within and outside the company (Aven 2016). The external factors can be regulators, competitors. From the perspective of a manager it is not easy to always be prepared from the threats that the company is going to face in the near future. It gets expensive when a company is suddenly hit by a risk. Thus, performing a risk assessment helps the companies to build proper defenses against the threats and the risks. The identification of the risks at the same time helps in recovering from the threats and the unwanted incidents and events (Sadgrove 2016). This study is based on assessing the risks of an investments seminar company and framing a risk assessment report. 

A company named property millionaires owned by a real estate developer, George Kirzner. The company specializes in offering the ordinary people with a wide range of the ongoing mentoring services and the real estate investment seminars. A year ago, the seminar sales of the company has increased to a big margin and is expanding faster than the company’s capacity to hire and induct the new employees. George considers this to be a serious problem and he delivered a clear message that the staffs will be held responsible for delivering a strong financial performance. However, the regional managers of the company are not as thrilled as George with the increase in the growth of the company. The surge in need of the consultants has forced the company to lower the employment standards during hiring the new employees. Due to this reason, the new employees are hired that lack any previous experience in sales.

The risk assessment calculator consists of the 3 different types of the pressures that act to provide information management, culture and growth. Considering each of the pressures, it is found that success increases the levels of the risks. Knowingly or unknowingly people subject to the success are found to make mistakes. For this assessment a risk exposure calculator is a mechanism which is used to measure the breakdowns and the errors which threatens the company strategy. The calculator is easy to understand. For each and every key, shows the pressure existing within a specific company. The score can be as high as 5 and as low as 1. While at the end, the total scores interpret the results (Harvard Business Review, 2018).

Risk Assessment Calculator

i) Pressure for performance (Van Dooren, Bouckaert and Halligan 2015) - When the company was experiencing a growth in operations, George clearly delivered a message that each of the staff will be held responsible for delivering the required amount of strong financial performance. The consultants are provided with aggressive sales targets which are set by the senior management team. The score of this part of growth is 5, which implies thatpeople are experienced at what they do.

ii) Rate of expansion (Kobari, Jaimungal and Lawryshyn 2014) - The company property millionaires is mid-sized company which employs over 100 staff, and the offices are located in the Adelaide, Brisbane, Melbourne, Sydney. A year ago, the seminar sales of the company has increased to a huge extent. Thus, the company is expanding faster and its operations are expanding at a huge rate.  This has led to the company hire new staffs. The score of this part of growth is 5, which implies that the rate of expansion is very fast.

iii) Inexperience of key employees (Picken 2017) - The regional managers are found to lack the sense of the corporate strategy at the top hierarchical level. The information is not passed through the well-defined channels and there is no clear communication between the regional and the senior managers. These regional managers lack the idea of consultation because according to them, a complex language used in consultation process. The score of this part of growth is 3, which implies that people are in the middle portion of the scale. 

i) Rewards for entrepreneurial risk taking (Lazonick and Mazzucato 2013) - Seminars are developed by both the senior management team and by George himself. The senior management consists of creative and risk taking people. The individual members of the team do not work together, whereas have a great deal of autonomy that help the individual members to develop the contents independently. The members only return to the team when they are able to create something of substantial value. Although, it has been found that there is an increased frequencies of failure accruing from the new seminar. Thus, it can be concluded that there is improper remuneration for the risk takers. The score of this part of culture is 2, which implies that there is little proportion of employees getting rewards.

ii) Executive resistance to bad news (Jaques, T., 2012) - in this section, it has been found that the senior management team although work as a team. However, when a new seminar is planned, the same is executed by the individual team members. These team members which includes the senior managers as well meet only when they have made some substantial value. Thus, it can be inferred that even if a seminar fails to attract new clients, still it does not bother the senior managers. The score of this part of culture is 1, which implies all the time the senior manages not at all interested to listen to the bad news.

Pressures for Performance

iii) Level of internal competition (Jansen, Brinkkemper and Finkelstein 2013) - the consultants are provided with the aggressive sales targets. These consultants are solely paid based on the commission. Which means the consultants earn a percentage from each of the clients that sign up for the seminar. Each and every month, the regional managers rank the consultants based on the performance of the sales. The consultant with the highest performance is treated like a royalty. Due to this cut throat competition, the company culture is to a great extent competitive and also ruthless. The score of this part of culture is 4, which implies that there exists a competition. 

i) Transaction complexity and velocity- The main philosophy of the company called property millionaire is that, any person can be a property millionaire provided that people must have the right support, education and the mindset. In another instance, it has been mentioned that the company generates leads through advertisement of free introductory seminars. These seminars explain and emphasize on the on how people invest in the real estate and how the same can be used to achieve an early retirement. Thus, real estate data are changing continuously and the same time the consultants that signs up the new clients need to stay updated according to the newer updates coming with the company. The score of this part of the information management is 4, which implies that very less number of changes is required for the effective running of the business.

Ii) Gaps in diagnostic performance (Sakka, Barki and Côte 2013) - In one instance, it is mentioned the regional managers of the company have limited access to the performance data of the consultants. Regional managers at the same time also lack the sense of the higher corporate strategy. The information channels are not well defined for the sharing of the information between the other regional managers and also with the senior managers. The score of this part of information management is 5, which implies that big gaps exists between the information needed and the information available.

iii) Degree of decentralized decision making (Chung, Lu Wang and Huang 2012) - Within the case study, there exists a senior management team that does the job of organizing the seminars. However, individual members have the autonomy towards the development of seminar contents independently. The regional managers do not have the knowledge regarding the consultation. Thus, these regional managers are only concerned with ranking the consultants and on the other hand, the consultants have the autonomy of bringing as many number of clients they can.  The score of this part of information management is 5, which implies that a high proportion of the people are associated with decision making.  

Rate of Expansion

Thus, after adding the above scores from the 3 different categories of growth, culture and information management resulted in to value of 35. This values exists within the danger zone. This means that the managers must utilize the lever control system like the interactive control systems, diagnostic control system, boundary system, belief system. All these coupled with the traditional internal controls that will work to protect the business from probable disaster. 

Conclusion 

Therefore, from the above discussion it can be concluded that, risks are always associated with the companies that are trying to establish their names. The risks can be both internal and external. The external risks are the financial instability, market volatility, regulators and the competitors. While the internal risks a major role that needs to be assessed first. To assess the risk, managers use the risk exposure calculator that helps to identify the risks. Identification of the risks help the company to be prepared for the risks that may arise in future. The identification process is aided by a calculator that have three different pressures like the information management, cultural growth. 

Reference

Aven, T., 2016. Risk assessment and risk management: Review of recent advances on their foundation. European Journal of Operational Research, 253(1), pp.1-13.

Chung, H.F., Lu Wang, C. and Huang, P.H., 2012. A contingency approach to international marketing strategy and decision-making structure among exporting firms. International Marketing Review, 29(1), pp.54-87.

Harvard Business Review 2018. How Risky Is Your Company?. [online] Harvard Business Review. Available at: https://hbr.org/1999/05/how-risky-is-your-company [Accessed 30 Jan. 2018].

Jansen, S., Brinkkemper, S. and Finkelstein, A., 2013. Business network management as a survival. Software ecosystems: analyzing and managing business networks in the software industry, 29.

Jaques, T., 2012. Crisis leadership: A view from the executive suite. Journal of Public Affairs, 12(4), pp.366-372.

Kobari, L., Jaimungal, S. and Lawryshyn, Y., 2014. A real options model to evaluate the effect of environmental policies on the oil sands rate of expansion. Energy Economics, 45, pp.155-165.

Lazonick, W. and Mazzucato, M., 2013. The risk-reward nexus in the innovation-inequality relationship: who takes the risks? Who gets the rewards?. Industrial and Corporate Change, 22(4), pp.1093-1128.

Picken, J.C., 2017. From startup to scalable enterprise: Laying the foundation. Business Horizons, 60(5), pp.587-595.

Sadgrove, K., 2016. The complete guide to business risk management. Routledge.

Sakka, O., Barki, H. and Côte, L., 2013. Interactive and diagnostic uses of management control systems in IS projects: antecedents and their impact on performance. Information & Management, 50(6), pp.265-274.

Van Dooren, W., Bouckaert, G. and Halligan, J., 2015. Performance management in the public sector. Routledge.