Assessing Liquidity Risk Management and Transformation Strategies

The assignment content discusses the importance of training for improving customer service and liquidity risk management. The company is required to undergo training to improve its performance, forecasting, and cash flow position, thereby reducing various forms of risk. However, there is a minor possibility that the determined strategy may not prove effective enough to address the risk in an efficient manner. Furthermore, the company needs to follow a consistent strategy to respond to existing competition in the market and stay updated with market movements.

ENTERPRISE RISK
MANAGEMENT
in

EXECUTIVE SUMMARY
Tesco Plc is the third largest retailing company in the global market and enjoying a
market share of about 28.4% in the UK alone. Some of the major issues which are being faced by
the entity are fall in sales by 1.5%. The risk management process of the entity is undertaken
throughout the hierarchy by maintaining a Group Risk Register. All the separate units of the
business are required to undertake a regular assessment of the risks which have the potential to
affect the operations and other pertinent or local risks which are prevailing in the respective
market. Some of the principal risks identified by the company are Customer Proposition Risk,
Risk/Uncertainty arising from transformation of economic model, Liquidity Risk, Changing
Competitive Landscape Risk and Data Security and privacy Risk. In order to face each of the
risks the company has adopted varied mitigating strategies, which have been evaluated on the
basis of Risk Threshold Probability and likelihood. It has been ascertained that some of the
strategies are unlikely to bring an impact on the operations of the company while there are other
strategies which shall cause significant impact on the operations of the company.

TABLE OF CONTENTS
1. INTRODUCTION.......................................................................................................................1
1.1 Brief Overview......................................................................................................................1
1.2 Risk Audit.............................................................................................................................1
1.3 Situation Analysis and Risk Profiling...................................................................................2
1.4 Critical Evaluation of Internal and External Risk ..............................................................5
2. RECOMMENDATIONS .........................................................................................................6
3. CONCLUSION ...........................................................................................................................7
REFERENCES................................................................................................................................8

1. INTRODUCTION
Risk Management is a process which requires the management of business enterprises to
apply varied policies and practices in a systematic manner. With the assistance of these
procedures the company is enabled to identify, assess, monitor, treat and effectively
communicate the element of risk among different layers of business. The present report is an
attempt to illustrate the risk management process being applied in Tesco Plc. In pursuance to the
same a critical analysis of the existing level of risks shall be undertaken and an effective risk
audit shall be conducted. Lastly, the report shall discuss the risk mitigating strategies and the its
appropriateness in context of both internal and external risks.
1.1 Brief Overview
Tesco Plc is a retail entity engaged in merchandise as well as is operating grocery stores
in more than 12 nations of Asia and Europe. The company is considered as third largest retailing
company in the global market and enjoys a market share of about 28.4% in the UK alone (Tesco
increases grocery market share for first time in five years, 2016). Apart from the mentioned
primary business the enterprise is also involved in other operations. One of the major issues
which are being faced by the entity are that there was a fall of 1.5% in the sales figure after the
famous promotional sale ended in November, 2016 (Tesco – About Us, 2017). This trend
continued for significant portion of year, which also led to decline in the share prices by 28.3%.
another potential crisis situation which corporate was about to face in relation to over-statement
of profits in the first half of the year (Tesco reveals it overstated first-half results by £250m,
2014). The reason behind this is being stated as overestimation of the money to be received from
the suppliers. In pursuance to the same the company has suspended around four of its senior
managers. Further it has also been reported that the company has also fallen out with one of the
major suppliers and the effect of which could be seen on the sales figure in future (Arena,
Arnaboldi and Azzone, 2010).
1.2 Risk Audit
The company has undertaken a robust and systematic assessment of the risks which have
the potential to affect the performance of the company in any manner. The risk management
process of the entity is undertaken throughout the hierarchy by maintaining a Group Risk
Register (Principle Risks and uncertainties, 2016.). All the separate units of the business are
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required to undertake a regular assessment of the risks which have the potential to affect the
operations and other pertinent or local risks which are prevailing in the respective market
(Woods, M., 2007). This assures a consistent and holistic approach towards ascertainment of
risks at every level of business. In order to enhance this existing process the management has
introduced a new practice of aligning the principal risks with the priorities. The risks being
assessed includes both internal as well as external risks (Woods, M., 2007).
With the assistance of this risk process the liquidity risk has been considered as one of the
principal risks and is characterized as a separate financial risk (Principle Risks and uncertainties,
2016.). Some of the other principal risks identified by the company are:
1. Customer Proposition Risk
2. Transformation of economic model
3. Liquidity Risk
4. Changing Competitive Landscape Risk
5. Data Security and privacy Risk
1.3 Situation Analysis and Risk Profiling
Situation Analysis is the process of systematic collection and assessment of varied data
from economic, social, political and technological background. The primary aim of this analysis
is ascertainment of forces which have the potential to influence the performance as well as nature
of strategies being formulated (Larson and Gray, 2011.). In addition, it also includes the SWOT
and PEST analysis of the concerned company, so as to understand the precise position in the
overall market (Steenburgh and Avery, 2010).
While risk profiling is another process which primarily aims to determine the investment
risk at an optimal level, in respect to the risk consideration of client, risk tolerance and capacity
(Merna and Al-Thani, 2011).
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Risk Threshold Probability
IMPACT
1 2 3 4 5
PROBABILITY
5
4
3
2
1
Impact Likelihood
1. Insignificant Almost certain
2. Minor Likely
3. Moderate Possible
4. Major Unlikely
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5. Severe Rare
4

5
Principal Risks Risk Mitigating
Strategies
Likelihood Impact Risk
Rating
Assessment of strategies
Customer
Proposition - It
has been observed
that Tesco is not
able to respond to
the needs of
customers. In
result of the same
it is unable to
retain customers
for a longer time
and build loyalty.
Strategic plan has
been developed to
understand needs of
customer and in
pursuance to the
same customer-
focused products
are being
developed. Further,
to enhance the
experience of
customers in the
stores, the
employees are
being made to
undergo training for
improving customer
service.
4 4 16 The ascertained strategy
can be considered as an
effective one as through
this manner the front -line
employees shall be able
to serve to the specific
needs of customers with
standard quality. This
shall enhance the
satisfaction level of
customers (McNeil, Frey
and Embrechts, 2015).
Liquidity Risk –
Enough cash is
not being
delivered through
the current
performance and
the operations
liquidity
management has
failed.
The key elements of
funding plan in the
form of debt
issuance, cash flow
forecasting,
available credit
facilities have been
placed under direct
supervision of
executives.
Treasury as well as
debt related policies
have also been
installed.
3 3 9 It is believed that these
strategies shall enable the
company to revive its
liquidity position and
reduce the varied forms
of risk (Burke, 2013).
However, the probability
of the same is very less.
Transformation
of economic
model – The new
New organizational
strategies and
design have been
3 2 6 There is a very minor
possibility that the
determined strategy shall

The ascertained risks are categorized on the basis of likelihood and impact grid and it has been
ascertained that the strategies developed for managing the risks resulting from transformational
economic model as the approach so adopted is not holistic in nature (Pritchard and PMP, 2014).
However, it has been further observed that the mitigating strategies developed for addressing the
risks resulting from customer proposition is almost certain as the it ought to have a major impact
on the manner the operations of the company are being managed (Haimes, 2015).
1.4 Critical Evaluation of Internal and External Risk
The element of risk is a consequence of uncertainties which a business organization faces
in different aspects. Risk can be either in the form of internal or external in nature. Tesco is
currently facing varied forms of risks from which certain risks can be characterized as principal
in nature and the others as less material (McNeil, Frey and Embrechts, 2015). The two principal
risks which the company is currently facing is in relation to Changing Competitive Landscape
Risk which is external in nature and the other risk which is in relation to Liquidity Risk, which is
an internal risk (Principle Risks and uncertainties, 2016). Changing Competitive Landscape Risk – This is an external risk which is result of
internal weakness of the company. With the assistance of risk management process of the
company it has been determined that the recent fall in sales can be credited to inability of
Tesco to be able to fight the competition in an effective manner (Forbes, Smith, and
Horner, 2010). It is important to note that the company has maintained its position as
third largest retailer in the world and its promotional strategy of offering yearly sale has
proved to be a success (Pritchard and PMP, 2014). However, for the first time it was
recorded that the sale fell from a figure of 1.5% in November, 2016 (Tesco turnaround:
The three big problems Britain's biggest supermarket will face in 2016, 2016). The
management has credited this trend to the ineffectiveness with which the company has
been responding to the changing market conditions as well as the strategies of
competitors. If Tesco is not able to address this risk on an instant basis it is most likely
that it may lose a significant portion of its market share (Strang, 2015). In addition, it has
also been observed that the business enterprise is facing rice pressure from various
sources in the market. This risk can be considered as highly critical, as it may have a
considerable impact on the profitability of the company if not sorted out by the
management (Aven, 2010).
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 Liquidity Risk – This is purely an internal risk and is a direct result of the manner in
which business is performing in the current year (Arena, Arnaboldi and Azzone, 2011). It
has been observed that the present business operations are not able to deliver profits or
cash as the management had expected (Edwards and Bowen, 2013). One of the primary
reasons is that annual accounts of the present year were over estimated by a significant
amount and in result of which the company’s share prices fell (Woods, 2012). Apart from
this the corporate has also failed to manage the operational liquidity and has also lost
access to funding facilities available in the market (Satish, 2011). The company is facing
such a situation for the first time in hundred years, and it is highly crucial for them to find
an appropriate strategy to mitigate this risk. In the event of failure of the same from the
end of management, a direct impact shall be made on the operations of the company
(Rasid and et. al., 2012).
2. RECOMMENDATIONS
Considering the current level of operations and the risks being faced by Tesco, the
following recommendations shall be considered by the management for mitigating the risks and
enhancing their operations to increase the sales (Silvestri and et. al., 2011). Considering the
overall risks which are being faced by Tesco it is recommended that:
 They shall adopt a standardized recruitment policy, in pursuance to which consistent
processes and strategies shall be followed to recruit employees who are highly skilled
(Christoffersen, 2012). Moreover, it shall be assured by the authorities that event the
senior managers are under scrutiny of certain executives so as to assure that the current
issues are not repeated in future (Haimes, 2015).
 The marketing department shall also be made responsible to undertake market scanning
and competitor analysis so as to gain timely insight on the ongoing trends and
movements in the market (Edwards and Bowen, 2013).
 In respect to the finances it shall be assured that the funding plan is directly under the
supervision of the top executives and under goes constant review to be updated with the
changes in the market (Hopkin, 2017).
 Lastly, it is highly recommended that the management shall install an effective
mechanism to gather information in respect to the needs and demands of the customers
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(Chapman, 2011). Hence, with the assistance of this information the products shall be
developed specifically catering to the requirements of the customers.
3. CONCLUSION
It is highly imperative for the business enterprises to install effective risk management
processes in the organization. Tesco in pursuance to the same has promoted maintenance of
group risk register at all levels and in all the business units. Hence, each of these units are under
an obligation to assess the risks on a regular basis and report all the principal risks which they are
facing or existing in the market. This is an ongoing process with which the company has
identified the principal risks which the business is currently facing – Liquidity risk, customer
perception risk, changing competitions in the market and so on. It has been also found that the
management is currently not capable to address these issues and hence have developed certain
strategies in order to mitigate them. It can be stated that though some of the risk management
strategies are highly effective, the others are unlikely to make an impact on the operations of the
business.
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REFERENCES
Books and Journals
Arena, M., Arnaboldi, M. and Azzone, G., 2010. The organizational dynamics of enterprise risk
management. Accounting, Organizations and Society. 35 (7). pp. 659-675.
Arena, M., Arnaboldi, M. and Azzone, G., 2011. Is enterprise risk management real?. Journal of
Risk Research. 14 (7). pp. 779-797.
Aven, T., 2010. Risk management (pp. 121-158). Springer Berlin Heidelberg.
Burke, R., 2013. Project management: planning and control techniques. New Jersey, USA.
Chapman, R. J., 2011. Simple tools and techniques for enterprise risk management. John Wiley
& Sons.
Christoffersen, P. F., 2012. Elements of financial risk management. Academic Press.
Edwards, P. and Bowen, P., 2013. Risk management in project organisations. Routledge.
Forbes, D. R., Smith, S. D. and Horner, R. M. W., 2010. The selection of risk management
techniques using case-based reasoning. Civil Engineering and Environmental Systems. 27
(2), pp. 107-121.
Haimes, Y. Y., 2015. Risk modeling, assessment, and management. John Wiley & Sons.
Hopkin, P., 2017. Fundamentals of risk management: understanding, evaluating and
implementing effective risk management. Kogan Page Publishers.
Larson, E. W. and Gray, C. F., 2011. Project management: The managerial process.
McNeil, A. J., Frey, R. and Embrechts, P., 2015. Quantitative risk management: Concepts,
techniques and tools. Princeton university press.
McNeil, A. J., Frey, R. and Embrechts, P., 2015. Quantitative risk management: Concepts,
techniques and tools. Princeton university press.
Merna, T. and Al-Thani, F. F., 2011. Corporate risk management. John Wiley & Sons.
Pritchard, C. L. and PMP, P. R., 2014. Risk management: concepts and guidance. CRC Press.
Rasid, S. Z. A. and et. al., 2012. Risk Management, performance measurement and
organizational performance: a conceptual framework. In 3rd International Conference on
Business and Economic Research Proceeding (pp. 1702-1715).
Satish, S., Symantec Corporation, 2011. Risk profiling. U.S. Patent 7. p. 895, 448.
Silvestri, A. and et. al., 2011. Enterprise Risk Management from Theory to Practice: The Role of
Dynamic Capabilities Approach–the “Spring” Model. In Quantitative Financial Risk
Management (pp. 281-307). Springer Berlin Heidelberg.
Steenburgh, T.J. and Avery, J., 2010. Marketing Analysis Toolkit: Situation Analysis.
Strang, K. D., 2015. Risk Management Research Design Ideologies, Strategies, Methods, and
Techniques. IR Association, Research Methods: Concepts, Methodologies, Tools, and
Applications: Concepts, Methodologies, Tools, and Applications. p. 362.
Woods, M., 2007. Linking risk management to strategic controls: a case study of Tesco plc.
International Journal of Risk Assessment and Management. 7 (8). pp. 1074-1088.
Woods, M., 2012. Risk management in organizations: an integrated case study approach.
Routledge.
Online
Principle Risks and uncertainties, 2016. [PDF]. Available through:
<https://www.tescoplc.com/media/264191/tescoar16_principalrisksanduncertainties.pdf>/.
[Accessed on 11th March 2017].
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