risk management

Lack of Oversite Causes Huge Losses

Posted on by spr1322tkrolicki


Im sure many of you have heard of the terrible explosion that rocked the small town of West, Texas early this week injuring over 150 and killing at least 14. What many of you probably dont know, are the reasons behind why such a thing could happen. As it turns out the plant, which manufactures ammonium nitrate, a type of fertilize that was used in the Oklahoma City bombings in 1995,  had no firewalls or sprinkler systems. Being as small as it was, the plant did not attract the attention of big government agencies and when it did, penalties where few and far between.

Problems started occurring last summer when the U.S. Pipeline and Hazardous Materials Safety Administration assessed a $10,000 fine against West for improperly labeling storage tanks and preparing to transfer chemicals without a security plan. The company was then only forced to pay $5,250 after reporting it had corrected the problems.The U.S. EPA also cited the plant for not having an up-to-date risk management plan. That problem was also resolved, and the company submitted a new plan in 2011. That plan, however, said the company did not believe it was storing or handling any flammable substances, and didn’t list fire or an explosion as a danger (Herald 1). There are many more situations like this, the plant has also been cited for not having the proper safety equipment in place for transporting flammable chemicals.

This story comes down to two things, lack of regulation, and disregard of management. We always hear in the news how companies are complaining of over regulation by the government. Saying that government is hindering their growth and profitability. It seems to me however that government needs to be more involved. How can a plant, that is built less than a mile from both a school and nursing home, not be required to have any fire safety equipment, especially when it essentially manufactures bomb making chemicals? Also, how can there be violation after violation with a only a $5,000 fine being imposed? I can’t put the full blame on the government though, management also has major blame here. There job is to handle all production aspects and make sure everything is produced both profitable and ethically. I think they chose to maximize profits and not care at all about the well being of their employees. They were to cheap to buy safety equipment and didn’t even want to bother to come up with a risk management plan. Now they have at least 14 deaths and over 150 injured, along with the town and their plant being destroyed.

I think this story shows us that profits aren’t everything and that doing the bare minimum, when it comes to safety standards is not  the right thing to do. This proves that management is a very important part of the company and doesn’t only deal with day to day operations, but also with peoples lives.

Video of Explosion

Sources

“Little Regulation for Small Fertilizer Plants.” The Daily Herald. N.p., n.d. Web. 21 Apr. 2013. <http://www.heraldnet.com/article/20130421/NEWS02/704219901>.

 

 

 

The Importance of Risk Management – The 2008 Financial Crisis

Posted on by spr1311gcacioppo

 

The current economic crisis has a renewed interest in examining the situation that lead up to the Great Depression of the 1930s. Firms like Lehman Brothers and Bear Stearns were formulated in the 19th century or the earlier part of the 20th century and survived the shock of the Great Depression. It is viewed as the largest economic catastrophe in the history of our financial system.  Yet, the 2008 global financial crisis and recession caused both of them to collapse.

We need to take a closer look at why they did fail in relationship to the structure of the company. The question that prevails is whether risk is better controlled under a partnership or a public corporation system?

 

 

Investopedia defines partnership as “a business organization in which two or more individuals manage and operate the business. Both owners are equally and personally liable for the debts from the business.  Partnership doesn’t always mean two people. There are many large partnerships who have thousands of partners.” (LINK #1)  A partnership structure where you are betting your own money is a better one at focusing on risk management.  After researching various investment banks’ “business codes” or “risk management strategies”, I found Goldman Sachs to have the best business plan. (LINK #2)   One of the reasons why Goldman has always been better at risk management and continued to do well throughout the 2008 meltdown is because as a partnership it really mattered to have good risk management.  This is because it was the partners’ money that was at risk.  Having your own money at risk is a very powerful motivator to make sure the risk and reward tradeoff is being made correctly.  This view develops a culture in a company where the risk managers have equal power to the risk takers.

From what has happened, this didn’t exist in many other public companies.  Even though Goldman changed into a publicly traded company, this culture of “it’s your money” stayed there to a fair extent.  This is reflected by the fact that Goldman’s employees collectively still own a significant portion of the stock. (LINK #3)  The same was true for Lehman Brothers and Bear Sterns employees.  They also owned a significant portion of the company’s stock.  No individual lost more money than Dick Fuld, CEO of Lehman Brothers.  Reports say his total compensation from 2000-2007 totaled anywhere from $310 to $485 million, 85% of which was in the company’s stock. (LINK #4)  Why was that economic incentive still not enough to make them be more careful?  This has to do with the culture of the firms and the focus on making sure that there is a much better balance between risk takers and risk managers.  Another thing Goldman does is it takes people who were traders and puts them on the risk management side. (LINK #5)  Any company that takes the attitude that risk management is a low level function and the traders are the kings is setting themselves up for a problem.  When you have good leadership at the top of your firm you will recognize the value of good risk management and their compensation will reflect that.  An example that combines both culture and leadership is Warren Buffet.  Warren Buffet has put everything that he owns into Berkshire Hathaway.  It is clear that his attitude of “the risk for my shareholders is the same as the risk for me” reflects the overall success of the company. (LINK #6)

In closing I believe that it is the CEO’s job to protect the shareholders by investing in good risk management.  The CEO’s who did not do this during 2008, for whatever reason, failed in their jobs.

 

Link #1-

http://www.investopedia.com/terms/p/partnership.asp

Link #2-

http://www.goldmansachs.com/what-we-do/investment-management/private-wealth-management/intellectual-capital/risk-mgmt-report/risk-mgmt-report.html

Link #3-

http://finance.yahoo.com/q/mh?s=GS+Major+Holders

Link #4-

http://www.businessweek.com/magazine/content/10_19/b4177056214833.htm

Link #5-

http://www.goldmansachs.com/careers/why-goldman-sachs/our-people/sarah-man-profile.html

Link #6-

http://finance.yahoo.com/echarts?s=BRK-A+Interactive#symbol=brk-a;range=my;compare=;indicator=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined;

Tepco Faces Decision to Dump Radioactive Water in Pacific

Posted on by spr1311sabraham

Are ethical dilemmas an issue for operational management? If your answer is no, you are wrong.  There are many ethical dilemmas that companies face each day regarding their operations.  This Bloomberg article regarding an ethical decision needed to be made by Tokyo Electric Power Company (or ‘TEPCO’) , a Japanese electric utility company, is ground shaking with the large implications that will result per their ultimate decision.

TEPCO has discovered leaking in water storage pits within the Fukushima atomic station- The station was destroyed in March 2011 from an earthquake and tsunami simultaneously (link to article —-> http://www.telegraph.co.uk/news/worldnews/asia/japan/8953574/Japan-earthquake-tsunami-and-Fukushima-nuclear-disaster-2011-review.html)

From within the seven pits, leaks were found in the basements from when the disaster teams were called in to cool down the reactors. The company is now under pressure because it may be forced to dump the radioactive water in the Pacific Ocean.

Time is of the essence due to the water busting through basement walls at roughly 400 tons per day.  This water is then becoming contaminated, thus a huge issue.

TEPCO has two operational decisions to make to pass down to its work crew:  reduce radiation levels from the water by pouring it into the Pacific Ocean or continue their production of “above-group storage tanks”.

Why such a tough decision for management?  It is essentially impossible to keep up with the inflow of water that is leaking. Even with production of 450,000 tons of the tanks above ground by September 2013 and 700,000 tons by the middle of 2015 this company clearly is fighting an uphill battle.

What are the effects of their decisions? Well, an important factor in this are human lives.  The United Nations Scientific Committee on the Effects of Atomic Radiation (or ‘UNSCEAR’ link to their website here –> http://www.unscear.org/) has remarked that humans can get cancer, such as leukemia, with moderate to high levels of exposure to the toxins.

Even though TEPCO is working on the removal of many of the radioactive substances, the purification system they have created continues to see operational issues in functioning properly.  The company’s image continues to be at stake, they face legal issues, disrupting the fishing industry, and their company’s attractiveness to investors in the future. Other than the business side, their obligated to think of their own people as in their workers and also those people that this could affect.

The original cause of the leaks could have potentially been a flaw in the staffs proper inspection of the equipment and additional tests before dumping toxic water into the leaking pits.

This is an operational nightmare for TEPCO.  I feel that this story directly related to what we have already learned within class.  Within the puppet making exercise the workers continued to feel pressured by upper management to just get the job done. Also, within the tower exercise having an effective team leader was crucial along with the planning phase of construction.

I am curious to hear your thoughts on what truly caused these leaks and what you would do in this situation.

Link to article –> http://www.bloomberg.com/news/2013-04-11/tepco-faces-decision-to-dump-radioactive-water-in-pacific-ocean.html

How do you Plan for a Union Strike?

Posted on by w13justin

The U.S. economy is still weak and U.S. port strikes are not helping matters. The LA/Long Beach clerical union strike that lasted 8 days in late November-early December, 2012 shutdown a total of 10 container terminals, and caused a vessel and container backlog that showed its affects 2 weeks after the strike ended. The strike cost companies an estimated $1 billion in lost revenue per day of the strike. At a time when the last of the holiday imports are arriving to the U.S. and as stores are trying to make last minute sales, product/parts delays of any kind limit those U.S. sales.

On December 29, 2012 we may see a U.S. East Coast union strike, costing companies billions more in lost revenue since import/export containers will be delayed at the ports. As stated in the article, “Potential US East and Gulf Coast Port Labor Strike Could Further Destabilize International Trade”, in the maritime-executive, “Those not prepared for such disruption could face adverse operational and economic impacts including increased expenses, decreased revenues, loss of market share, and reputational damage due to their profit-driven strategy of keeping inventory levels low and the sudden and severe backlog and rerouting pressures caused by a work stoppage”. So those companies who were trying to limit carrying costs of inventory and who have moved production overseas, now may see a disadvantage of this strategy as potential port strikes become a reality.

Now many companies are looking at options to build up inventories and keep imports moving into the U.S. Since the issues on the West Coast are cleaned up and the strike has ended, some importers have moved vessels to the West Coast instead of the East Coast, causing extra transportation costs and shipment delays. Some U.S. companies have been building supplies of inventory in their warehouses, at the possibility that a strike could happen. A major factor in limiting supply chain delays will be increased visibility throughout the companies supply chain. Perhaps in the future companies will invest in warehousing at multiple port locations in order to create options in case of strikes or even use this as a reason to either keep factories in the U.S. or this will make a company think twice before outsourcing production overseas.

In the end union strikes are difficult to plan for, especially as there are extra costs in order to manage these possible risks. However, by having proper risk management in place and being ready for this type of situation a prepared company can take market share from those who are not prepared.

 

Sources:

 

An East Coast Port Strike Could Have Devastating Impact

http://investorplace.com/2012/12/an-east-coast-port-strike-could-have-devastating-impact/

California Ports Strike Disrupts Holiday-Shopping Cargos

http://www.businessweek.com/news/2012-11-29/strikers-close-much-of-los-angeles-port-complex-for-a-thi

L.A. Port Workers Reach Agreement to End Eight-Day Strike

http://www.bloomberg.com/news/2012-12-05/california-port-workers-reach-agreement-to-end-eight-day-strike.html

Potential US East and Gulf Coast Port Labor Strike Could Further Destabilize International Trade

http://www.maritime-executive.com/article/potential-us-east-and-gulf-coast-port-labor-strike-could-further-destabilize-international-trade

Worries mount about possible East Coast port strike

http://money.cnn.com/2012/12/14/news/economy/east-coast-port-strike/

Shop Like It’s 1999!

Posted on by f1223jkundrat

In a time when pennies count, retailers are looking for any competitive advantage they can find. One way which is starting to make a comeback is the layaway program. By allowing customers the opportunity to put items on hold for a set number of weeks, it gives the consumer who may not be able to afford a purchase right now the opportunity to lock in their price. These programs have several different structures, some charge upfront fees at the beginning of the layaway period, and additionally some of which accrue interest charges.

This philosophy is nothing new in the retail world, but has seen a renaissance over the past few years, with many large retailers such as Sears, Kmart, and Toys ‘R Us pushing the programs. By offering layaway, retailers hope to boost early sales and beat their forecasts for the holiday season. Layaway does, however, have its downsides for companies since many have waived their service fees if consumers do not follow through with their purchase. This leaves merchandisers holding onto the extra inventory. Also with this new push to increase sales, retailers are adding many new items eligible for layaway. This move could prove to be both a positive and a negative. While on one hand it will bring in more shoppers to put things on layaway. If enough consumers do not follow through on their contracts and the stores took precious items off the sales floor, the results could prove costly.

By offering layaway financing through the stores themselves, it gives consumers who do not have, or might not want to use their credit cards. By allowing these consumers who might not have purchased the item otherwise to purchase from your company, it opens your profit potential that much more. Because it entails more planning on behalf of the merchandising crew, and all of the other aspects listed above, the decision on whether the layaway program is beneficial to each individual company is something that is up for debate.

Question: If you had a retail company, do you believe implementing a layaway program would be a good idea? What are some other benefits and consequences in addition to the ones mentioned that might come about due to a layaway program?

http://www.cnbc.com/id/49302750

http://chainstoreage.com/article/sears-kmart-jump-layaway-bandwagon-waiving-fees

 

Drug Dealers Beware!

Posted on by f1213spalreddy

 

How can improved quality control and diminishing quality control both work to save lives?

 

In the world of quality assurance, it is a rare thing to talk about quality within the public sector.  The public assumes that quality exists but nothing is ever thought of in regards to the measures are needed to make sure things are done correctly.  While reading this you will find two sides of the FDA.  One side of the FDA ensures the safety of people through increased quality control measures.  The other side of the FDA is hoping to remove some quality control measures in hopes of saving lives.

 

The FDA has begun rigorous efforts to take counterfeit and harmful drugs off of the internet.  http://www.reuters.com/article/2012/10/04/us-fda-baddrugs-idUSBRE8930SN20121004

 

In a time of rising health care costs and pricey prescriptions, consumers have looked to various other sources to save money.  A great source to purchase prescription medication is online.  However, many of these online retailers are distributing “counterfeit and illegal” medicine.   The FDA has joined forces with international regulatory and law enforcement agencies in an effort to take some of these dangerous drugs off the market.    18,000 online pharmacies have been shut down in the matter of just one week starting September 25th.    This is essentially a form of quality checking within the public sector.  The FDA is hoping to make sure that the medicines available to the public have gone through the testing process.  All of these regulatory agencies are working towards a pharmaceutical industry with high standards of quality.

 

In contrast, the FDA is also working to remove some of the quality processes associated with the drug approval process.  This comes mainly from a Republican push hoping to remove regulations across the board.  These deregulations are not meant to send harmful drugs out on the market prematurely.  This measure is hoping to assist immediately ill individuals that cannot wait through the testing process.  The FDA has been doing this since the 1990’s.  Currently patients within this characterization include aids and cancer patients.  However, the FDA is hoping to include various other threatening diseases/conditions to this “accelerated approval” process.  “Of 35 medicines termed innovative by the FDA and approved during fiscal 2011, 16 have some sort of shortened review or expedited approval” (Burton 2012).  The key is that people with “life threatening” conditions are more willing to try riskier drugs.  These people do not have the luxury of time to wait through the quality assurance process.

 

The point of this shows how quality assurance is paramount in some regards and in other circumstances it serves as handcuffs for progress.  The latter tends to be rare but it does point out that too many regulations have harmful effects.  We can clearly relate this to the upcoming elections as republicans and democrats battle over the topic of increased regulations.  There are clear positives for both sides.  Too many regulations impede progress and at times create a feeling of too much governmental control.  Not enough regulations also have catastrophic results.  Going back to the initial topic, if the FDA did not thoroughly check items that came through their department, people’s lives would be in danger.   People would not be aware of the harmful side effects of the things they are ingesting.  The perfect middle ground is a difficult thing to find and seems to be an ongoing battle within our society.

 

Sources:

http://online.wsj.com/article/SB10000872396390444083304578018790623838634.html

http://www.reuters.com/article/2012/10/04/us-fda-baddrugs-idUSBRE8930SN20121004

Your Project Just Got Hammered by the Media…

Posted on by jacobw599

Most likely, the majority of projects we manage in our careers will be low profile or possibly high profile only internally to our companies.  However, as noted in class, there are high profile projects that are visible to the public and media which adds complications.  

We see in the news how the 2012 London Olympics has been plagued with issues.[1]  Having the public eye on every detail of a project can be a hard issue to deal with.  In my job function, we sometimes have to manage projects that are very public to the communities.  Performing real estate for a large manufacturer has been an interesting experience in that we deal with environment issues, decommissioning of plants, and acquisition of land for new buildings or other projects. 

The public isn’t always going to agree with projects that have public visibility.  In my role specifically, there could be labor disputes based on decisions to move a plant or warehouse.  There could be environmentalists that disagree with how or where a building is built.  Being a publicly traded company, these are real concerns for my company.  While we’re tasked to complete projects within budget and within time constraints, political opposition may change how this is done.

Assessing political risk can also be a guessing game.  It may be difficult to gage how a community is going to respond to different projects.  For instance, my company planned on redeveloping old and vacant manufacturing sites in the community into space used for additional housing, community centers, and tourist attraction.  It turned out that some of the neighboring communities disliked the project because it wasn’t going to accommodate all levels of the society.  While redevelopment of vacant and falling down manufacturing plants in our community seems like a no-brainer to some, not everyone agrees.

Companies that have public projects need to assess the political risk involved and weigh whether or not to continue.  Companies need to consider whether completing the project is worth having issues with the surrounding communities or they should find ways to compromise with those that disagree with the project.  Mass communication is making this topic more and more important as it is now easier for individuals to spread news on Twitter, Facebook, etc.

Does anyone else have any experiences they want to share regarding the management of public projects?  Do you agree that public projects require more risk analysis?  Can you share an example of a poorly managed political issue of a company?


[1] http://news.oneindia.in/2012/07/20/series-of-problems-threaten-london-olympics-1038887.html

MGT 598: Why it’s worth waking up for class on Saturday mornings…

Posted on by annh599

Besides the fact that MGT 598 is one of the last classes that stands between most of us and our diploma, a recent study from consulting firm Project Management Solutions has concluded that companies gain a variety of benefits by investing in instructor-led classroom training on project management.

The survey results report that “project management training initiatives improved eight aspects of business and project performance by an average of 26 percent.” Categories that were cited include: stakeholder satisfaction, scheduling, decrease in project failures, keeping projects on budget, gathering requirements, quality, productivity, and time to market. While the results are somewhat subjective, the percentage is high enough where I think we can all agree the improvement was significant.

The findings indicate the type of training invested in also makes a difference in the results. According to the study, 69% of respondents rated instructor-led classroom training as the most effective method. I guess we’ve come to the right place!

Personally, I know that I have already benefitted from many of the in-class and blog discussions our group has had. One that is top of mind this week relates to the category called out above related to “decrease in project failures.” It seems that one of the best avenues to accomplishing this objective is employing risk management techniques. While risk management seems like an obvious topic to consider, truthfully, I have never worked on a team where this topic was formally discussed in the planning stages of the project. It hasn’t been until something begins to go wrong where this concept has been addressed.

By addressing the topic of risk management in our own class projects, it is already easy to see the benefits of risk management can be significant. Including a risk analysis in the early planning stages of the project can help the team think through potential challenges and proactively try to avoid some of the potential obstacles. It is certainly a practice I will continue to employ as I manage projects in the future.

What has been the most worthwhile learning for you so far in MGT 598?

Reference: http://www.cio.com/article/683225/Project_Management_Training_Improves_Success_Rates?page=1&taxonomyId=3198

DePaul KSBG Charity Project Summer 2012 – Risk Management

Posted on by rembrandte599

– Risk Management –

 

One of DePaul KSBG Weekend Program’s project management class’ major requirements is the management of a charity project. Boiled down, it is the creation and successful implementation of a project in which all proceeds go to a specific charity of a groups choice. In talking about Risk Management, many faced their wall early-on, when their project was considered unacceptable by our school board. Whatever planning took place in the first week was simply washed away, and the teams facing such catastrophic risks had to revise their plans from the ground-up to make the best of it.

Our team has officially labeled our project “Grace St. Tap going to the Dogs”, in which we hold a social-networking event at Grace St. Tap on July 28, from 3:00PM to 7:00PM- fun and sociable dogs welcome. Despite the initial set-back of our project possibly being cut due to not falling in line with our school’s guidelines, we were able to recieve approval and continue to work forward.

During the course of our project, we were asked to create a risk-management matrix. This is possibly one of the most difficult things aside from the actual implementation, as risks seem to spring up fromeverything. That’s right, that glass of juice you’re drinking? Melts enamel. You think that’s air you’re breathing? … probably is.

The point of this rant is that as any good risk management teacher or text will reiterate, time and again, risks must be identified, assessed, and continually evaluated. We identified several risks and evaluated them as a group- rowdy patrons, rowdy dogs, lack of donations, lack of attendance, etc. We created preventative measures as well as contingency plans for each. All members reviewed and felt the plan had responses to internal and external disturbances.

With another team-member, we went to visit our venue this past Saturday. The website says the venue is open from 11AM to 3AM on Saturdays. However, we met at 3:00PM at the venue… and the place was closed. Not closed for business, just still closed until 4PM.  Definitely NOT expected.

And for those of you who want to get technical, this spawns a whole load of questions- Is this expected to continue? If so, do we need to change our flyer information? If we expect ‘X’ amount of donations per hour that day, how much will that affect our bottom-line(or segment-leading-to-bottom-line), losing that hour?

While in the case presented, the bottom line for us happens to be a grade, such “wrenches in the gears” can be applied to any business out there- and can cost a company much more than a simple letter-grade and a 3-4 figure max monetary amount.

So I ask the other groups in our 2012 cohort and any other readers- what soft of risks have you identified for your project/for your company and what contingencies have you come up with? And if we have any career risk-analyst readers, any horror stories like ours to share? To be honest, we should have seen this coming- it is an obvious sort of risk… but we are just-now learning to think that way, and we’ll have to let you know if it does affect our bottom-line despite our current revisions to our action plan.

 

Even P&G faces unexpected risks

Posted on by daniely599

When working on a project to launch a new product a risk plan is put together as we’ve discussed. It’s known that Mother Nature, the economy and government regulations could be hard to forecast and thus could change your plans dramatically.

You do your best to put appropriate plans together to plan for these scenarios, but what do you do when the unthought of happens?

In April of 2011, P&G announced it was going to introduce an entirely new way to wash clothing — Tide Pods. A concentrated individually packaged detergent which removes stains and cleans better than traditional detergents according to their testing. They were planning to spend $150 million on marketing and launch in September of last year, hoping for first mover advantage. Then they announced a six month delay to launch the product earlier this year. Meanwhile Purex, All and Arm & Hammer have had time to perfect their products and launch at the same time. When P&G finally released the product to retailers, they faced supply issues and could only supply enough products for shelf displays, and not off shelf promotional spaces which increase awareness for new products.

Retailers are upset, and P&G is blaming the complicated new production process. Investors are already frustrated believing that P&G is lacking the innovation they once had (they’re moving their personal care HQ from Cincinnati to Singapore in an attempt to jump start that business).

Then once the product finally hit the shelves, parents are finding their children eating the product thinking it’s candy, causing severe side effects and sending children to the ER. P&G has said they’re now going to put a better locking mechanism on the fishbowl container which houses the bright colored pods.

Chicago was a key market for the launch of these products so you may have seen the advertising including CTA station dominations as shown below.

Have you tried the product? Does it live up to P&G’s hype? What could they have done differently to try to alleviate some of these issues (or foreseen them)? And if this can happen to a CPG leader like P&G, is there hope for the rest of us?

http://adage.com/article/news/p-g-reinvents-laundry-150-million-tide-pods-launch/227208/

http://adage.com/article/news/delays-put-laundry-titan-tide-defensive-300m-pod-war/232116/

http://news.yahoo.com/tide-change-pods-lid-amid-child-safety-concerns-165556333–sector.html