Enterprise Risk Management at Tesco

This assignment examines Enterprise Risk Management (ERM) practices at Tesco PLC. It analyzes various risks faced by the company, including financial risks, supply chain disruptions, product safety concerns, and legal issues. Students are required to research and evaluate Tesco's ERM framework, drawing upon academic literature and publicly available information like Tesco's annual reports and online statements. The analysis should highlight key risk management strategies employed by Tesco, their effectiveness in mitigating potential threats, and areas for improvement.

FINANCIAL DECISION MAKING FOR
CREATIVE PROJECTS AND EVENTS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Introduction to company..............................................................................................................3
Aims of organization....................................................................................................................4
Opportunities and threat for the company...................................................................................4
Risk in business............................................................................................................................5
RISK REGISTER........................................................................................................................9
CONCLUSION..............................................................................................................................18
REFERENCES..............................................................................................................................19

INTRODUCTION
Risk management is one of the main domain on which currently firms are focusing in order to manage wide range of risks.
Risk is the factor that always affect business firms to great extent. There are number of factors that internally and externally affect the
company business performance. It is very important to identify rate at which above mentioned factors are affecting the venture in
terms of risk. In the present research study threats and opportunities that are associated with the enterprise will be identified. Apart
from this, control mechanism that is followed by the firm to control the situation will be identified. Calculation of risk will be done
and on that basis risk register will be prepared in the report. On the basis of obtained results mitigation strategy will be developed so
that situation can be controlled is risk is increasing at rapid pace in the business. Tesco is following specific structure through which
risk is managed in the business. Under this, there are few managers that are in the risk management team. These managers consistently
monitor business environment and whenever required, steps are taken to handle specific risk to which firm is exposed. It can be said
that there is strong risk management mechanism in the firm.
Introduction to company
Tesco is the one of the largest retail chain in the UK as it expands its business consistently on yearly basis. From the last few
years it is observed that firm business does not expand at fast rate as it is facing heavy loss in its business. Two small rival firms Lidl
and Aldi are giving tough challenges to the business firm (Almeida and Williams, 2016)
. These firms are offering products at very low price in the market relative to Tesco and due to this reason they are giving tough
competition to the Tesco. It can be said that firm currently facing huge problems in its business . It needs to make changes in its
business in terms of restructuring and using analytic tools to improve business performance. As part of risk management strategy firm
is focusing on shutting down stores that are not profitable for the firm. By doing so, company is reducing cost in its business. It can be
said that by constructing relevant strategy it is improving its business performance. Price reduction consistently in the business is
another factor that lead to decline in earned profit in the business. This is another risk to which firm is currently exposed. Top
management needs to manage relevant risk in business to earn profit.
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Aims of organization
There are following aims of the business firms and some of them are given below.
 To grow market share in the FY 2017 by 10%.
 To cut cost growth rate by 5%.
 To make innovation in business and streamlining business operations for cost optimization and giving better services to the
customers (Hopkin, 2017).
On analysis of aims of Tesco it can be observed that firm is fully committed towards controlling cost of its products and services. In
this regard it is prepared to take number of steps and aims at reducing cost in the business so that profit amount can be increased for
the upcoming year. Main aim of the business firm is to accelerate its growth rate by 10% on yearly basis. There are some areas where
firm is currently focusing for sustainability such as, training and development of employees. Tesco aimed at act as responsibly for
community. In this regard it is taking number of steps so that confidence of customers can be gained back. In past years number of
cases were charged on the firm in respect to performance of unethical acts in business. Horse meat case is one of the example that is
quite popular in respect to business firm. Such kind of cases heavily damage firm image. Due to this reason firm aimed to become
responsible entity towards community.
Opportunities and threat for the company
Opportunities for Tesco
 In the different countries where the company might be under-performing, there they have opportunities for making ventures
with other companies where the local organization will help to do proper marketing research and intelligence to enhance
performance in such areas (Finch, 2014).
 They have very big opportunity to increase online shopping where they can able to serve their good and service on the virtual
basis and able to increase their sales for the company and they can offer home delivery service to that area where home deliver
is difficult which help them to gain competitive advantage.
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 There have opportunities for market of private label.
 Rising markets still have large number chance for some retail outlets that the organization already serve which can provide
better right to the western goods which fulfill their needs and wants (Woods, 2017).
 The company have opportunities to make strategical alliances with other organization and loved companies to serve large
number of products which help them to attract large consumers in their target market.
Threat for Tesco
 Different credit crunches and economic recessions and will proceed to reduce the market share, profitability and productivity
in all the places around the world, decrease the size and number of selling to the consumers.
 There are large number of competitor such as Salisbury will provide threats from the global retail giants which may serve
different goods and services at lower prices and greater variety. The competitor may serve more constituted international
supply chain networks to transfer the goods more faster than Tesco because the competitor are more innovative and know how
to do effective use application.
 Food prices are on the growth around the world, which will reduces what consumers buying and how much disposable income
they have available.
 There is large labor threats for increased benefits and wages in all over the globe add to Tesco cost basis, which will puts
impact on its strategies for pricing (Beck, 2017).
 The political landscape and the government regulations and is also putting impact on the company such as high tax rate and
high interest rate. Different laws that company need to follow which increase their expenses.
Risk in business
Tesco is facing lots of risk related to their performance, reputation, economic and political. As seen in the recent months,
Tesco is facing problems related to the flagging sales growth. The organization has three major risk, that are as follows:
Performance risk
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They have three danger to their performance that is risk is at business units, under-performing against the plan and against the
competitor (Almeida and Williams, 2016). All over the Tesco is not able to achieve and implement their strategies. As compare to
their rivals, they are not able to achieve the customer loyalty and satisfaction. Hence, Tesco is at economy downfall so reducing that
risk Tesco need to plan their objective and strategies which should be clear and achievable. They should provide reward to the
employees who are working effectively so that they can able to work in motivate way and able to improve their performance.
Secondly the executive should monitor the performance of the employees on regular basis so that if the employee are not working
properly they can provide suitable training which enhance their skill and then they can able to work in an effective way.
Tesco can able to increase their performance by enhancing the skills and knowledge of the employees. Organization
performance is totally based on the workers and manager performance, if they are working in effective and efficient way then only the
performance of Tesco will enhance. The company need to provide special training and development program to their employee and
manager so that they can able to learn the working environment of organization. Tesco need to adopt different changes so that they
can able to gain competitive advantage. They need to provide change management training to their employee which help them to
adopt the different internal as well as external change and reduce the stress which occur due to change. These all techniques will help
the organization to enhance their performance and will reduce their risk.
Reputation risk
Tesco have reputation risk where their brand is facing low image in the minds of consumer. The company brand is huge which
covers furniture, groceries, financial services and catalog selling but on the other side they are facing large downfalls, they fail to
protect their brand and reputation which leads to loss of confidence and trust (Hopkin, 2017). These all circumstances reduce the
customer base and their ability to retain and recruit good people in the organization. This failure leads to decrease their productivity
and profitability of the company, as the effective people are not in the organization. Tesco need to recruit large qualified and
experience individual so that they can able to produce large good and will able to fulfill customers orders on time. The values of the
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organization are not clear in the minds of the employees, they are not aware about the core principle and ethics which leads bad
practices at every level specifically governance communities guiding and monitoring policies.
Tesco does not have proper communication with its stakeholder so they are not able to engage properly with them. Every
organization need to have knowledge about the stakeholder that what they need and want so that they can able fulfill their need in
order to retain them in the future. Tesco need to train their employee which help then to enhance their skills and knowledge in order to
work properly for the organization's goal (Finch, 2014). Secondly the company need to communicate all the objective to the
employees and that objective must be clear so that all the workers can able to understand them and work on them. Thirdly, Tesco need
to consider the interest of all the stakeholder to identify their need and wants and able to fulfill them. These all activities help them to
retain customer which will enhance the brand image of the company (Woods, 2017).
Political and economic risk
Economy has great impact on the purchasing power of the customer, if it is at boom then individual have more money so they
will spend more and the economy is at depression stage at that time people will lave less money hence they spend less money. Thus,
purchasing power of customer is totally dependent on the economy cycle. Political instability is also very big problem for all big
companies like Tesco. Thus, a new rule in Korea states that company's Korean Home-plus stores will not open around the clock and
need to shut their stores for two Sunday in a month. The organization which is operating in different countries need to follow all laws
and regulation. The tax changes, increasing scrutiny by the competition authorities, economic environment and political development
also effect the organization sales (Beck, 2017).
For such circumstance, organization need to have prior planning so that they can able to adopt these changes. In the economy
cycle, when boom stage is there, they should increasing their product price so that can able to earn large profits, in the depression
period, they should decrease the prices so that they can able to sustain in the environment. They must have proper planning for the tax
management, there they can plan how to reduce tax and gain more advantage as well as they follow all ethical rules and regulation.
Tesco have different internal as well as external risk, which are as follows:
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Internal risk
 Product security: Tesco' s goods value and security is of predominant significance to the organization and being absolutely
crucial for sustaining confidence and believe. The organization have implemented the double checking system once is while
production of goods and another is after production of products (Woods, 2017).
 Fraud and compliance: As all the retailer are had their own geographical region so the risk of fraud have increased. All the
retailers are depended on their own area and if once outlet have been closed, the employee who are working their will be
unemployed where they will try to do fraud with the organization.
External risk
 Competition risk: there are many companies which have huge competition with the Tesco such as Sanisbury, Lidl, Aldi etc.
The company need to make their product, price, place and promotion according to their rivals. If they will mopt do so they will
loose their market share and brand image because the customer will buy those products which offer large services with the low
cost. So this is huge risk for the organization.
 Customer risk: All the organization work to satisfy customer need and wants, the company's main motive is to produce goods
according to the taste and preference of the clients. As the clients need change they have to change their production and need
to produce those which is demanded in the market (Finch, 2014). If the consumer switch to other preferences, it is huge risk to
the Tesco because they will not able to sell their goods which will reduce profitability and productivity of the company.
The organization can able to manage the risk by proper risk management process, the process start with identification of risk which
ends with monitor and review of risk, the process is as follows:
 Identification of risk: The process start with finding the risk by which organization is going through, this stage will provide
the base to remove the risk and guide to manage the risk in proper way. Organization need to collect all the information which
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is related to the risk from the internal as well as internal source. They need to analyze the information to find the risk which
they need to manage (Hopkin, 2017).
 Analyze the risk: in the previous stage, the company have find out the risk, they need to have deep knowledge about the risk
that what are the causes of risk and what will be consequence if the risk arises.
 Evaluate the risk: After identification of the risk, organization need to rank them according the causes of risk. After analyzing
the risk, company need to find that risk is acceptable and to which extent it is acceptable or the risk need preventive action.
 Treatment of risk: In the previous stage, the risk is being rank, the risk which have the highest risk will be planned to treat and
modifying that risk to make them acceptable. In this stage organization can able to minimize the probability of the risk or
increase the opportunities (Almeida and Williams, 2016). The step also include preparing different strategies so that they can
able to reduce the risk.
 Monitor or risk: As the strategies are defined in the previous stage, organization need to implement those strategies so that they
can able to remove the risk. After proper implementation, executive need to monitor all risk that they are properly treated or
not (Woods, 2017).
RISK REGISTER
It refers to the risk log which is used by the organization so that manger can organize all the risk in an effective manner. It
includes all the information such as types of risks, it impacts to the organization, risk mitigation etc. These kinds of information are
recorded in a proper documentation so that it provide clear picture of the risk in an organization (Wu and Olson, 2015). There are
various kinds of approaches which are adopted by the different organization in a different way. To analysis the risk and make effective
control Tesco uses scoring methods. It can be achieved through a simple ordinal scale which could be one to five scale. This
approaches considered the likelihood and its impact of the risk in an organization.
Rating Likelihood Magnitude of Impact
1 Very unlikely Negligible
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2 Unlikely Minor
3 Possible Moderate
4 Likely Severe
5 Very Likely Catastrophic
In order to this. Tesco company assess the risk by using this risk matrix. In this matrix, each risk is rated by classifying in
various kinds of magnitude and impact are recorded in a score (O and Musa, 2011).
Risk Register of Tesco
Likelihood Impact
-1 Positive impact
0 No impact
1 Very Unlikely 1 Negligible impact
2 Unlikely 2 Low impact
3 likely 3 Moderate impact
4 Very likely 4 High impact
5 Almost certain 5 Catastrophic impact
Risk Score Classification Mitigation
X<1 Opportunity No
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1 to 5 Negligible risk No
5 to 10 Low risk No
10 to 15 Moderate risk No
15 to 25 High risk Yes
As per the above risk register it shows the scoring of risk and its impact. As per the rating scale between X<1 it shows the
opportunities buy no mitigation. On the other hand, if risk can be scored in 1 to 5 than it can be classified as negligible risk in which
mitigation can not be require. As same as, in 5 to 10 risk scale, their will be low risk and 10 to 15 classified as moderate risk. In 15 to
20 risk score shows the high risk which require mitigation by the organization to assess their risk (Rejda, 2011).
Risk matrix
5 Very high
4 Significant Rules and regulation
risk
Fluctuation in
market
Product
quality
3 Moderate Currency risk/Product
testing
2 Minor Fabricated metal
1 Low
Relative
Likelihood
Low Medium Low Moderate High
1 2 3 4
In risk matrix different quadrants are prepared and moderate as well as high risk is observed in case of all risks. There is moderate risk
in case of rules and regulations, currency risk, product testing and fabricated metal. On other hand, there is high risk in case of
fluctuation in market and product quality. Hence, it is very important focus on hedging against fluctuation in market and ensuring that
all products that are purchased by firm are quality checked.
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Risk
Risk Description Existing
controls noted
Likelihoo
d (1-5)
Impac
t
Risk
ratin
g
Above
acceptabl
e rating?
Mitigation actions
Numbe
r
1
Fluctuation in
Market:
Fluctuation in
market is major
concern as it can
be observed that
economic
environment is
volatile (Financial
risks, 2017). Due
to this reason
fluctuation in firm
sales is observed.
Company make
various kinds of
efforts so that it
can develop an
effective
strategies so that
market
fluctuation can
be controlled
easily.
3 5 15 Yes
For controlling the risk, make
innovation in their strategies such
as developing new organic and
healthy products.
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2
Product quality:
Tesco is retail
firm and it
purchase products
in bulk. It is
possible that
supplier by
mistake supply
products that are
outdated (Product
integrity
commitment,
2017).
Availability of
such kind of
products may
negatively affect
firm.
4 4 8 Yes
For reducing the risk company
make complete effort to test the
quality of their products while
launching in a market.
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3
Currency risk:
Tesco is operating
in international
marker and small
decline in Pound
lead to making
heavy amount of
payment to
foreign suppliers
which decline firm
profitability.
By managing the
currency in the
market, Tesco
adopt various
kinds of hedging
techniques which
is useful to the
firm. It help to
mange the
currency value
during the
fluctuation in a
market (de
Zwaan, Stewart
and
Subramaniam,
2011).
2 3 6 Yes
By developing the hedging
techniques and making good
industrial relation help Tesco to
eliminating the currency risk in the
market.
4
Fabricated metal:
Tesco make
available metal
items at its stores.
Bad quality of
product with less
strong metal can
be available in
store which may
dissatisfy
customers.
Tesco is using
good quality of
raw material so
that they can
serve valuable
products which
create high
demand in the
market.
3 2 6 No
For managing the risk in quality of
raw material, company make
complete focus on availability of
standard raw material.
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5
Risk Related to
product testing in
terms of quality:
There is separate
product testing
team of Tesco but
products are
purchased in bulk
and due to this
reason it is
possible that
specific item
remain unchecked
(Tesco workers
take company to
court over alleged
discrimination,
2016). This may
negatively affect
firm as customer
may get
dissatisfied.
For making
effective control
on risk, Tesco try
to adopt various
kinds of legal
rules and
regulations which
are propounded
by the
government. It
also ensure that
all the process
are used while
manufacturing
the products will
take complete
care of human's
health and
welfare. All these
elements are
included in the
company's
agenda (Paape
and Speklè,
2012).
2 3 6 Yes
For eliminating the rating, Tesco
use various kinds of new
innovative techniques so that it can
manage the quality of their
products.
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6
Risk related to the
legal rules and
regulations:
Already there are
number of cases
that are charged
on firm. addtion of
single highloghted
case may heavily
affect firm image.
1 4 4 No
As per the prescribed rules and
regulation of legal authority,
company need to follow the
process of manufacturing the
goods (Hoyt and Liebenberg,
2011).
Opportunities
Opportunities Likelihood Impact Risk Score Action plan
Strong global
market presence
Tesco already
make its presence
in a global market
and deal in 33
countries across
the world. It is an
opportunities of
cited firm to
expand itself by
increasing their
4 5 20 Tesco needs to
conduct market
research in order
to identify
consumer
behavior of
people.
Accoridngly,
product must be
available to
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opportunities. customers in
shops.
Increased
purchasing power
of customers
By improving
their strategies
and selling
techniques such
as providing
quality products,
is the great
opportunities
which can be
received by the
company
(Bromiley,
2015).
4 4 16 Quality teams will
be increased in
warehouse and by
doing so it will be
ensured that only
quality products
are available on
shelf.
Affordable prices Tesco always try
to provide high
quality products
in an affordable
price. Hence, it
can increases the
demand as well as
3 4 12 Tesco like Lidl
will purchase
products from
local suppliers
which are of good
quality. By doing
so it can be
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number of
customers in a
large level.
ensured that at
low price product
is purchased and
good profit is
earned.
Acquire
competitors
It is an
opportunities for
the company to
make complete
acquisition on
their competitors.
4 2 8 Tesco can acquire
firms in nation
like India and
China and by
doing so it can
increase its
presence in these
nations.
CONCLUSION
As per the above detailed information's, it has been concluded that risk management is an important part for every
organization. It helps to identify the risk, collecting the information and choosing the best techniques to resolve all the issues. This
report described Tesco company and its risk minimizing process. By explaining the aim of the company it can be discovered that
firm's main objective is to earn profit by providing quality of products in an affordable price. It also explains the risk which can be
faced by the cited firm. By explaining the different kinds of practices or process Tesco can eliminate the risk. It also described the risk
register which help to categorized the risk as per their nature and impact. By scoring the impact of risk company can earn the
opportunities to make their business expand. Furthermore, by using various scoring methods, cited firm analysis their actual financial
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position and risk which make negative impact in their operational activities. At last, there are some development opportunities for
Tesco in UK market through which they can achieve their goals.
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REFERENCES
Books and journals
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S71.
Almeida, H. and Williams, R., 2016. Risk management with supply contracts. The Review of Financial Studies.
Hopkin, P., 2017. Fundamentals of risk management: understanding, evaluating and implementing effective risk management. Kogan
Page Publishers.
Aebi, V., Sabato, G. and Schmid, M., 2012. Risk management, corporate governance, and bank performance in the financial crisis.
Journal of Banking & Finance. 36(12). pp. 3213-3226.
Bromiley, P. and et.al., 2015. Enterprise risk management: Review, critique, and research directions. Long range planning. 48(4).
pp.265-276.
de Zwaan, L., Stewart, J. and Subramaniam, N., 2011. Internal audit involvement in enterprise risk management. Managerial auditing
journal. 26(7). pp.586-604.13(3). pp.28-38.
Hoyt, R. E. and Liebenberg, A. P., 2011. The value of enterprise risk management. Journal of risk and insurance. 78(4). pp.795-822.
Paape, L. and Speklè, R. F., 2012. The adoption and design of enterprise risk management practices: An empirical study. European
Accounting Review. 21(3). pp.533-564.
Rejda, G. E., 2011. Principles of risk management and insurance. Pearson Education India.Tang, O. and Musa, S. N., 2011.
Identifying risk issues and research advancements in supply chain risk management. International Journal of Production
Economics. 133(1). pp.25-34.
Wu, D. D. and Olson, D. L., 2015. Enterprise Risk Management. In Enterprise Risk Management in Finance. Palgrave Macmillan
UK.
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