A Risk Management Report

The provided assignment content discusses the importance of considering various risks and factors in evaluating alternatives for investment projects. It highlights that all sorts of risks, whether qualitative or quantitative, must be taken into account when selecting the best project alternative. The report also emphasizes the need to use multiple finance options cautiously to control costs. Furthermore, it recommends using project evaluation methods to select a specific source of finance and make informed decisions.

MANAGEMENT OF FINANCIAL RESOURCES
AND PERFORMANCE

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Identification of the strategic decision and its strategic significance..............................................1
1.1 Impact of decision on organization financial statements and relevance of this impact on
decision........................................................................................................................................1
2.3 Role and limitation budget in managing and contolling expenditure and approaches to
derive value through better budgeting.........................................................................................1
Evaluate the strategic decision using strategic investmentahd financial appraisal..........................2
6.3 Evaluate strategic investment opportunities and financial appraisal strategic proposal........2
Critical evaluation and applicationof the additional five chosen learning outcome........................4
3.1,3.2 and 3.3 Appraising role of activity based approach and strategic management
accounting in analyzing decision.................................................................................................4
4.1Management and allocation of resources and gap between need and availability resulting
from decision...............................................................................................................................5
4.2 Identify and map processes and activities of an organization...............................................6
5.1 Debate the tension between financial and strategic objectives..............................................7
7.1 Identify the financial risk in an international market.............................................................7
7.2 Appraise international investment decisions.........................................................................8
7.3 Evaluating financing options for multinational and overseas subsidiaries............................8
8.1 Identifying types and sources of risk for organization..........................................................8
8.2 Techniques to manage and evaluate risk...............................................................................9
8.3 Prepare and utilize risk management reports.......................................................................10
CONCLUSION AND RECOMMENDATION............................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
In today era, business operations are becoming complex day by day and there are varied
domains that help firm a lot in operating its business. It can be observed that management
accounting help a lot to the business firm in evaluating its operations and making business
decisions. In current report, value chain costing varied techniques are discussed in detail that
help firm in managing its operations in proper manner. Apart from this, project evaluation is also
done to measure its viability and quantitative aspects are analyzed. At end of the report, multiple
taks are performed that help firm in operating its business effeciently. In this way, entire research
work is carried out.
Identification of the strategic decision and its strategic significance
1.1 Impact of decision on organization financial statements and relevance of this impact on
decision
Weired retail is operating in retail sector which is highly competitive in nature and it can
be observed that in order to remain at competitive position in the market it is very important to
make technology update. Decision to make investment in new technology will definitely affect
firm financial statements (Zimmerman and Yahya-Zadeh, 2011). This is because when any
capital investment is made in the business same is recorded in the company books of accounts
and due to capital investment on one side assets increased but liability also enhanced as majority
part of asset is financed by using bank loan that is taken from financial institution. This lead to
increase in finance cost of the business and debt equity mix become unbalanced to some extent.
On other hand, profitability of the firm also declined to some extent. There is relevance of impact
on decision because while taking any decision in respect to selection of alternative. This is
because whatever option firm want to choose may have negative impact on the business. Due to
this reason it is very important to identify that if specific decision is taken then to what extent it
will positively or negatively will affect business.
2.3 Role and limitation budget in managing and contolling expenditure and approaches to derive
value through better budgeting
Budget help a lot to management in managing expenditures in its business. This is
because it determine the limit within which expenses need to be controlled in the business
(Garrison and et.al., 2010). Hence, in this way budet help firm in managing and controlling
expenditure in its business. On other hand, there are some of limitations of budget also and one
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of them is that it is possible that managers of the organization determine objectives in wrong
manner. In case this happened then performance will be measured in wrong manner and in
wrong direction all steps will be taken by the Wired retail. Hence, it can be said that budget have
advantages but if it will not be used in right way it have disadvantages also. There are number of
approaches that can be used to derive value from bduegting and one of them is variance analysis.
By using mentioned method it can be identified that in which area and to what extent
performance is good or bad and by taking step on time weak areas can be converted in to strong
points.
Evaluate the strategic decision using strategic investmentahd financial
appraisal
6.3 Evaluate strategic investment opportunities and financial appraisal strategic proposal
Payback period
Figure 1 Calculation of payback period
Average accounting income
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Figure 2Calculation of ARR
NPV
Figure 3Calculation of NPV
` Project is viable for the firm because NPV is positive and ARR is high as well as payback
is low. Investment in new technology project will offer numerous opportunity to the Wired
Retailer through digitalization, technological advancement and competitive strengthen, as a
result, company can compete successfully with the rivalry retailers. Thus, the project is
extremely suitable which offer multiple of opportunities to the Wired Retailer to achieve long-
run success. However, it is considered acceptable because it will help to meet stakeholder’s
expectation. As with this, consumer can get sound quality items, shareholders can get increased
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return, lenders also will grant loan considering the financial growth of the company (Zimmerman
and Yahya-Zadeh, 2011).
In despite of this, it is feasible because Wired Retail is a leading company and has a
strong brand reputation. Thus, it have a portfolio of enough fund, competent people and
exceptional managerial team, thus, the resource requirement for the new technological
investment project can be meet out successfully.
Critical evaluation and applicationof the additional five chosen learning
outcome
3.1,3.2 and 3.3 Appraising role of activity based approach and strategic management accounting
in analyzing decision
Activity based costing can support bechmarking and budgeting because in this costing
method cost of each and every activity that is related to production is computed. In case of Wired
retail entire cost of order, shipment and employee cost can be taken in to account and cost of
these activities can be calculated (Baldvinsdottir,Mitchell and Nørreklit, 2010). After this, on
basis of past records for these actitivities budget can be prepared separately. Hence, in this way
budgeting and benchmarking both can be done by using activity based budgeting. In this
approach for each task individually accounting is done and it can be said that it is one of the best
approach that can be used for accounting purpose by the firms.
Lean enterpise refers to the concept under which value is created for end customers with
minimal waste and process. Successful implementation of this concept bring excellence in the
business and in this regard special attention is paid on value chain. It must be noted that as part
of cost management methodology on daily basis cost of each task must be analyzed and if
required then by using process re engeniering process that task must be simplified so that cost
can be reduced in the business. There is huge importance of financial analysis because it help
managers in tracking cost time to time. On basis of analysis steps are taken in perfect direction
like reduction in waste to reduce cost and increasing profit in business.
On value chain analysis it can be said that there is well developed logistics system and
under this varied number of hubs are developed that are near to each other and retail stores
(Ward, 2012). Sufficient HR are available on these hubs which are beenfiting a lot to the
business firm. All these things give competitive advantage to the business firm over its rivals as
firm is able to deliver goods in short duration.
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There are number of tangible and intangible benefits of capital investment as Wired retial
will develop its in house analytics infrastructure. Main merit of this decision is that firm will be
able to make wise decisions and limitation is that if team does not have well qualified experts
then they can make wrong decisions which may prove costly for the firm. There is place of
management accounting in analyzing response to competitors, strategic position and competitive
advantage (Mechler, 2016). This is because in management accounting cost related transations
are recorded and analyzed. On basis of facts firm identify points where it need to control cost in
business and by working on it, same remain ahead of competitors and business excellence is
achieved in venture. Hence, it can be said that cost accounting help in strategic management
accounting.
4.1Management and allocation of resources and gap between need and availability resulting from
decision
Zero based budgeting and capital budgeting methods are used for resource allocation as it
can be observed that in case of former budget it can be seen that according to corporate strategy
firm managers have to allocate resources for their departments and after advise of top managers
final budget is approved. In case of capital budgeting method manager detrmine entire
requirement of project and accordingly allocate resources and it is also considered one of best
method. Appropriate criteria to allocate resource must be needs and requirements of business and
specific significence of partciular business activity (Xu and et.al., 2016). Wired strategic need is
to allocation fund across varied product line in proper manner but same not happened in the
business. Currently, employees at their own discretion allocation funds to purchase wide variety
of products and this practice is not proving suitable for the firm. In order to solve this problem
analytics tools can be used in business. Resources are not allocated in proper manner and due to
this reason and this negatively affect organization performance. By using analytics firm will be
able to identify purchase pattern of people and accoridingly will allocate fund among different
activities.
There are various types of resources will be needed by Wired Retail for the investment in
new technology such as financial need, human resources, intangible resources, technology and
others. Considering economic scarcity problem, it is essential for the company to allocate all the
resources in an appropriate manner so as to utilize it in an optimum manner. Wired Retail’s
resource allocation strategy must be aligned with the corporate strategy so that targets can be
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achieved easily. There are multiple basis by which company can allocate resources to different
functions. For instance, company must prioritize allocating resources to those which is expected
to derive greater investment return (Schipper, Francis and Weil, 2017). Limited resources must
be assigned first to those functions which are highly profit yielding and affect business functions
to a great extent. In the area of investment appraisal, resources must be allocated first to those
people whose NPV is greater. Besides this, future outlook also needs to be addressed, such
project that return is expected to rise is considered worthy and gains priority in resource
allocation.
There are many gaps that can be seen in resource requirement and its availability. For
instance, it may be possible that company has limited available funds, talented people and other
sources. In this case, for monetary collection, Wired Retail can use outsourcing and also borrow
money from outside to meet their requirement. In order to have skilled workforce, company can
develop skills and competencies through training sessions and others (Ingram, 2017). All the
resources must be allocated, monitored and controlled in a well manner for exceptional results.
4.2 Identify and map processes and activities of an organization
Business process engineering (BPR) is a strategy that is useful for managing workflows
and other regular business activities and processes. This is extremely important for the Wired
Retail in order to improve the way how they carry out regular functions and enhance consumer
service, minimize cost and boost competitive position. Business reengineering is about changing
or redesigning the entire business model, thus, it is about restructuring the existing system.
There are seven principles of BPR that needs to be adequately and properly addressed by
Wired Retail, mentioned below:
1. It is necessary to organize work activities around the outcomes and not to the tasks.
2. Company needs to identify all the business processes and prioritize all of them in
accordance with redesign urgency.
3. In order to invest in new technology, Wired Retail is required to integrate information
processing to the real work which produces important information for the decision-
making objective.
4. This integrates and centralized all the data of Wired retail’s worldwide locations at
different geographical places.
5. It presents clear interlink among parallel activities of the workflow.
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6. As per BPR, place where work is carried out is the decision point where control is
maintained.
7. It capture all the information and keep it in an organized way.
BPR is extremely useful for the Wired Retail as by this they can cut unnecessary or
unproductive activities, boost efficiency and strengthen its data management. It is because,
by the use of it, firm can determine slacking and focus on the same for bringing improvement
(Mikesell and Mullins, 2011). Setting a radical BPR system needs efficient IT system to deal
with the changes. Besides this, being a retailer, company can use BPR to know consumer
desires and likes and meet it appropriately.
5.1 Debate the tension between financial and strategic objectives
Financial objective may be focus on profit maximization whereas wealth maximizing
may be a strategic objective. Both are different because profit focuses on short-term return,
unlike this, wealth is about improving overall business value by discretionary expenses.
According to the agency theory, Wired Retailer works as an agent who make decisions and
strategic plans in the best interest of the stakeholders, known as principal. In the company, CFO,
CEO and other board members make plans and decisions on the behalf of stakeholders.
However, there is a conflicts because, manager always desire to retain return in the business
whereas investor need greater return. More importantly, in the current situation, Wired Retail is
keen to invest in a new technology, thus, in order to meet funding need, manager may decide to
not to distribute return to the shareholders, as a result, conflict may take place. Thus, a right
balance needs to be managed between both these. In addition, employee have desire to earn high
salary, bonus, commission and other monetary and non-monetary benefits (Ingram, 2017).
However, company wish to control cost by paying minimum salary to the workers resultant
tension. Consumer need best quality at affordable ranges, while, in order to gain maximum
profit, firm may be interested to charge high rates.
7.1 Identify the financial risk in an international market
In an international market, Wired Retail can face financial risk due to high rate of
interest, volatile exchange rate, commodity prices, inflation and others that needs to be managed
in a proper manner. In the worldwide operations, use of financial instruments such as swaps
derivative for the purpose of hedging against high exchange rate and interest is more common in
practical. Hedging is a financial practice that prevent firm against adverse movement in prices
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(Cottrell, 2012). Forward contract can also be made by Wired Retail wherein two parties agrees
with each other to buy or sell assets at a fixed price at a specified future date. In addition to this,
firm can use invoicing to discount invoice and get payment earlier before maturity date so as to
manage financial risk.
7.2 Appraise international investment decisions
International investment project involves multiple of complexities and issues such as
volatile rate of exchange, resource constraints, tax differences and others. Investment in a new
technology of Wired Retail is a capital-intensive project which need huge fund. Therefore,
company must evaluate and assess the viability through tools like pay-back period, net present
value, accounting return and others. Among these, although NPV is a strong method, still, it uses
same discounting factor over project life (Bhowmik and Saha, 2013). Therefore, it is better for
Wired Retail to consult with the finance expert to know the forward rates taking into account
purchasing parity and interest rate. With the help of this, it can get more realistic decisions and
assure return margin. Apart from this, non-quantifiable benefits like competitive position,
worldwide expansion, global reach and others must be taken into account by the company.
7.3 Evaluating financing options for multinational and overseas subsidiaries
For the purpose of overseas subsidiary and multinationals, there are multiple of choices
available to the company for fund gathering classified into two, internal and external. First
includes retained earnings, loan from parent company, sale of disposable business assets and
others whereas in the external sources, hire purchase, borrowing, share issue, debentures, lease
and others are the options (Bhowmik and Saha, 2013). Hire purchase, borrowing, debenture and
lease include interest obligations for the Wire Retail, in contrast, issue of share is just like
transfer of ownership stake which involve dividend payment as return (Macintosh and Quattrone,
2010). Although interest is a fixed burden, still, tax advantages exists whereas it is not available
on dividend, still, it provides flexibility. Therefore, establishment need to choose a correct
combination in all the sources to minimize cost.
Eurocurrency (Eurodollar) market includes deposits accepted and loan granted by
financial institutions who are established outside the home country (Inadim, 2017). It plays an
inevitable role in the area of international financing because third parties who want to raise fund
can take international loans from such banks. Moreover, currency can be exchanged to other
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currency in Eurodollar market. It also helped to develop international trade, debt market and
foreign exchange market as well.
8.1 Identifying types and sources of risk for organization
There are different kind of risk exists in an uncertain world, for instance, financial risk
(lack of funds), managerial issues (lack of competent managers and poor management),
environmental risk (emission and excessive waste harming ecology), product (poor quality) and
market (less demand) are the common risk. Besides this, at the international level, different
economic and political conditions such as interest rate, high tax, inflation, legal formalities and
others also have a huge impact (Ahmed and Manab, 2016). For instance, high interest increase
borrowing cost and deliver less return to the Wired Retail.
Under the risk management practices, firm can use insurance for protecting
infrastructure, technology, machinery, plant and other assets. Besides this agreement with the
government and integration with the local firms are of great use to minimize risk occurrence
(Baum and Crosby, 2014). In despite of this, to prevent the risk of financial issues, Wired Retail
need to maintain some money in contingent reserve to satisfy contingent liabilities.
8.2 Techniques to manage and evaluate risk
Risk management is the process by which Wired Retail can determine associated risk
with the technology investment project and make plans to minimize it. With regards to capital
investment, there are number of risks which needs to be controlled, monitored and managed
appropriately. Some of the tools or methods of risk management that might be used by the
company are listed below:
Risk avoidance: It simply means avoiding such acts which are considered risky (Schipper,
Francis and Weil, 2017).
Risk reduction: This is about optimizing through reducing the risk likelihood for mitigating loss.
Risk sharing: It is about making agreement with another party to involve them in the risk.
Risk can be assessed through making risk matrix which represent both likelihood and
impact.
Risk matrix
Impact
Likeli Negligible Minor Moderate Significant Severe
Very likely Economic
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h
o
o
d
risk
Likely Change in
social
preferences
Political
risk
Financial
risk
Possibly Environmenta
l issues
Lack of
competent
staff
members
High rate
of inflation
Technology
barrier
Unlikely Managerial
issues
Market
risk
Very unlikely High cost of
borrowing
Volatile
exchange
rate
Thus, according to the designed matrix, financial risk is the key risk that may have
catastrophic impact and likely to occur due to different factors. Therefore, a correct contingency
plan needs to be designed including strong and tight control over fund usage, assure its correct
utilization, minimize deviations and maintain a contingency reserve. Other risk also needs to be
controlled by risk management strategies. It include tight control, monitoring, use of derivatives,
swaps and hedging instruments and others.
8.3 Prepare and utilize risk management reports
It is necessary to prepare risk management reports reporting all the details about risk that
took place and how it has been managed and responded by Wired Retail. The report must clearly
present that how change in different factors like prices, discounting rate and other will affect the
investment results such as net present value and others.
It is necessary to present the formal reports so as to details out the plans and strategies
how to manage business risks. The report is also useful to assess that how well or successfully,
business entity had managed its risk. With the use of the report, more accurate plans can be
constructed for future projects.
CONCLUSION AND RECOMMENDATION
On the basis of discussion it is concluded that while evaluating alternatves all sort of risks
whether they are qualitative or quantitative in nature must be take in to account to evaluate
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project and selecting best one to determine whether project must be selected or not. In this regard
risk matrix can be used and project evaluation method can be used to select best alternative. It is
also concluded that multiple finance options are available to the firms and same must cautiously
select any specfic source of finance in order to fund its project. By doing cost can be keep in
control. It is recommended to the firm that it must use all project evaluation method and on basis
of output must select specific one.
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REFERENCES
Books and Journals
Ahmed, I. and Manab, N.A., 2016. Influence of Enterprise Risk Management Success Factors on
Firm Financial and Non-Financial Performance: A Proposed Model. International
Journal of Economics and Financial Issues. 6(3). pp.18-63.
Baldvinsdottir, G., Mitchell, F. and Nørreklit, H., 2010. Issues in the relationship between theory
and practice in management accounting. Management Accounting Research. 21(2). pp.79-82.
Baum, A.E. and Crosby, N., 2014. Property investment appraisal. John Wiley & Sons.
Bhowmik, S.K. and Saha, D., 2013. Sources of Finance. In Financial Inclusion of the
Marginalised. Springer India. 5(2). pp.61-71.
Cottrell, T., 2012. Three phantom budget cuts and how to avoid them. The Bottom Line. 25(1).
pp.16-20.
Garrison, R.H. and et.al., 2010. Managerial accounting. Issues in Accounting Education. 25(4).
pp.792-793.
Macintosh, N.B. and Quattrone, P., 2010. Management accounting and control systems: An
organizational and sociological approach. John Wiley & Sons.
Mechler, R., 2016. Reviewing estimates of the economic efficiency of disaster risk management:
opportunities and limitations of using risk-based cost–benefit analysis. Natural Hazards.
81(3). pp.2121-2147
Mikesell, J.L. and Mullins, D.R., 2011. Reforms for Improved Efficiency in Public Budgeting
and Finance: Improvements, Disappointments, and Work‐in‐Progress. Public Budgeting
& Finance. 31(4). pp.1-30.
Schipper, K., Francis, J. and Weil, R., 2017. Financial Accounting: Introduction to Concepts,
Methods and Uses. Cengage Learning.
Ward, K., 2012. Strategic management accounting. Routledge.
Xu, X. and et.al., 2016. Current smoking in pregnant women in five geographical areas of China:
a cross-sectional survey. The Lancet. 388. p.S97
Zimmerman, J.L. and Yahya-Zadeh, M., 2011. Accounting for decision making and
control. Issues in Accounting Education. 26(1). pp.258-259.
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Zimmerman, J.L. and Yahya-Zadeh, M., 2011. Accounting for decision making and
control. Issues in Accounting Education. 26(1). pp.258-259.
Online
Inadim, 2017. The Euro and International Financial Markets. [Online]. Available through:
http://www.eubusiness.com/topics/fx/euro/financial-markets
Ingram, D., 2017. The Agency Theory in Financial Management. [Online]. Available through:
http://smallbusiness.chron.com/agency-theory-financial-management-81899.html
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