Systemic Risk Management for Maggi: Analysis and Recommendations

This report provides an analysis of systemic and cascade risks faced by Maggi due to poor risk management strategies. It also provides recommendations for better leadership and risk management strategies to avoid such failures in the future.

Running head: SYSTEMIC RISK MANEGEMENT
SYSTEMIC RISK MANEGEMENT
Name of Student
Nam of University
Author’s Note

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Table of Contents
1. Introduction..............................................................................................................................2
2. Views received from scholarly articles....................................................................................2
3. Chosen project..........................................................................................................................4
4. Leadership and Recommendation............................................................................................6
5. Conclusion................................................................................................................................9
References......................................................................................................................................10

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1. Introduction
Risks are an integral part of our society. Risks are present in all the organizations
irrespective of their nature, type or size. Every organization needs to have a risk management
team. This team assures that the company operates well and there are no risks that the company
would face in the future (Hopkin 2018). In case the company has any chance to face some risks,
the risks management team carries out risk management using various strategies. The risks are
considered as extreme events and sit on the tail of the distribution. This has very less probability
bit a high cost. Risk management can help the company to get rid of the risks by following five
stages that are considered as parts of risk management (Sadgrove 2016). These stages are risk
identification, risk measurement, risk management, risk monitoring and risk reporting.
This paper requires choosing an organization that has faced failure o risk management
and analyzing the risks that the company suffered from. The paper discusses the systemic risks
and cascade risks (McNeil, Frey and Embrechts 2015). System risks discuss the ones that have
occurred due to various loopholes in its systemic structure and cascade risks describe the risks
that are results of the systemic risks.
2. Views received from scholarly articles
According to Lam, (2014) strategic risk can be defined as the uncertainty of the loss of a
particular organization. The loss might be profit as well as non-profit. In other definition by it
has been discussing that strategic risk has no specific definition because the organizations are not
able to define and understand properly. Strategic risks have chances to arise due to political
impediments, regulatory or technological innovation. The risk might occur when an organization

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does not properly concentrate on the risks that might be faced by it due to various loopholes in its
working principles (McNeil, Frey and Embrechts 2015). The company might also face risks due
to the implementation of a new technology or strategies in its working principles. Hence it can be
said that it is not compulsory that a company would face risks because of its mistakes or
ignorance of the risks, it might also cause when the company intends to do something good.
Failure of risks management plans might cause due to numerous reasons which include improper
execution of the stages under risk management, the mistake occurred in a single stage or
improper carrying out of the stages (Haimes 2015). The Basel community has defined that the
operational risk is a risk which is caused due to direct or indirect loss that results from failed or
inadequate internal processes, systems and people or various external events. Operational risks
are a result of loopholes in internal problems like fraud employees, segregation of various duties,
corporate leadership, product flaws and information risk. Risks might occur in numerous
perspectives, it can be said that risk management is not possible to manage separately (Aven
2016). The risk management strategies should be integrated into a particular holistic manner.
These mentioned factors are among the major causes that contribute to emerging enterprise risk
management.
According to Giannakis and Papadopoulos, (2016) every organization faces some or the
other risks. Small enterprises as well as multinational companies face various risks depending on
the situation and their working background. The risks faced by various organizations depend on
numerous factors; these factors are strategic risks, operational risks, technology risk, political
risk, financial risk, reputational risk, human capital risk and legal risk (Kendrick 2015). This
literature mainly concerns mainly four kinds of risks. They are a financial risk, operational risk,
strategic risk and hazard risk. Usually risk occurs due to the failure of planning, leading,

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controlling and organizing. According to Olson and Wu, (2015) the major cause that results in
failure of risk management strategies include “Tone of the organization” and poor governance,
few indicators of the tone of organization and dysfunction in the governance are process
indicators, organizational indicators and behavioral indicators. Some more reasons that lead to
the failure of risk management strategies are reckless risk taking, inability of implement effective
enterprise risk management, nonexistent, inefficient and effective risk assessment, non
integrating risk management with strategy, lack of enterprise risk management expertise in the
organizations, governance gaps over material risks and many more. As per Wolke, (2017) there
are six factors that have been reported for forcing organizations to practice enterprise risk
management. The first factor relates to various complicated risks. Along with facing four major
risks, the organizations also faced other risks like various risks in advanced technology,
globalization, acceleration pace of the business, increase in financial sophistication and
uncertainty of terrorist activity (Liu et al., 2015). Risks usually do not occur by itself, they are a
result of a change in the organization which is difficult for it to cope up or adjusts with or some
mistake that has occurred unintentionally by any member or factor of the organization.
3. Chosen project
A system which is known for suffering failed risk management strategies is Maggi.
Maggi is considered one of the leading brands that manufacture packaged food. This paper
discusses the failure of a gross risk management and the operational risk has the chances of
opening the lid for other industries as well (Syahirah 2017). The failure of risk management
strategies in Maggi has to lead to other enterprises who take risk management very seriously. In
order to access the risk management in Maggi which is a brand sponsored by Nestle the details

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that are available on the website of the brand has been accesses properly. The assessment is
carried out by reading their Annual report, code of conduct, a report of various audits that have
been carried out by the brand and many more. The company faces numerous risks due to poor
risk management strategies. These risks are systemic risks as well as cascading risks. The risks
faced by the company have been discussed below in details.
The systemic risks from which the company suffered are as follows
 The risk management committee of the brand includes three members but none of them
has a risk hat. This means that among all the members belonging to the risk management
team no one was expert in managing risks (Sujata, Thenuan and Subrahmanyam 2016).
The company did not have any plan for managing risks. This has resulted in the company
not being aware of the evolving risks which have resulted in causing more loss to the
company.
 The basic and the first failure of the company was misleading the customers with a
message “No added MSG”, this proved to be a risk because they did not mention if MSG
was coming from various natural ingredients. A single rumor regarding the harmful
ingredient has caused the major problem for the company (Garicano and Rayo 2016). The
company did not notice this risk could occur and hence the risk has slipped between the
loopholes which have to lead to the failure of risk identification.
 The content named “Lead” that was said to be found in Maggi is a result of a failure in
risk monitoring. The company did not test the manufactured samples for carrying out
quality control (Sujata, Thenuan and Subrahmanyam 2016). The products were sent for
the purpose of consumption when they were statistically credible.

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The reason that the company was not aware of the risks that have been mentioned above, it took
time to react in the first instance, this has occurred in the failure of the communication among the
members of the company (Garicano and Rayo 2016). The risks mentioned above have resulted in
numerous cascade risks. These risks are as follows
 Reputation: Reputational risk in any company is considered as the mother of all the other
risks, once the reputation is broken it can never be joined. The failure of previously
mentioned operational risks has to lead to un-repairable risk on the reputation of the
company and decreases its reputation to naught (Sujata, Thenuan and Subrahmanyam
2016). The rumors that have been spread against the company has lead to customers
boycott the products manufactured by Maggi. The customers turned furious and stopped
purchasing their products. As a result, the whole sellers and retailers stopped purchasing
as well because it would be a waste for them.
 Stakeholders: The stakeholders started questioning regarding their position in the
company. They turned against the brand in just a few moments (Garicano and Rayo
2016). Numerous business partners of the company withdrew their partnership from the
company.
 Revenue: The failure of risk management has resulted in a decrease in the annual revenue
of the company. This has occurred due to the spoilt reputation of the company.
4. Leadership and Recommendation
The main risks that are stated in the project management of Maggi business organization
include risks that include improper functioning of the management process of higher authorities.
These include misleading the global audience regarding the content of the product.

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Issue 1
 The main issue that is present in the commencement of the business management of
Maggi is that the constituent elements were not well stated in the packaging. Maggi
falsely claimed the fact that there has been no added MSG in the product. This is one of
the main reason that Maggi has been gaining importance in the global market (Garg
2015). Due to the fact MSG has not added in Maggi the acceptance of the product was
high. Despite the fact that MSG was gathered in natural means Maggi suffered from the
fact that a mistrust among the clients grew in a large extent. This hampered the market
that was established by the business organization (Roy, Tata and Parsad 2018).
Recommendation 1
In case I was the project manager, I would have stated that MSG is added in the product but
the MSG that is added is natural and the amount that is provided is not at all harmful in nature.
Another aspect that I would have taken into consideration is using an alternative of MSG (Sujata,
Thenuan and Subrahmanyam 2016). Sea salt is considered to be an alternative to MSG. in case I
was the project manager I would have used sea salt in place of MSG. This would have kept the
track record much more efficient and no trust issue would have arisen.
Issue 2
 Another issue that is taken into consideration is that the business management of the
product can be performed with the highest efficiency. This is one of the main reasons
that affected the functionality of the brand. No risk management plan was initially made
(Dhanesh and Sriramesh 2018).

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Recommendation 2
In case I was the project manager, I would have conducted the risk assessment and analysis
in the first instance and this would have led to better management of the project (McNeil, Frey
and Embrechts 2015). In case the risk management plan was made, the main prosecution that
would have been taken into consideration is that the risks that might approach can be easily
estimated and well mitigated. This results in better management of the product.
Issue 3
 The competition provided by the other brands is also treated as one of the major threat
for the business organization as the turn-over of the business organization is completely
dependent on the competition that it faces in the projection of the management (Desai
2016).
Recommendation 3
In case I was the project manager, the main aspect that will be taken into consideration is
bringing in innovation in the product. The main instance that is taken into consideration is that
the management of the project will be performed with the innovation as the main process
requires better management of the project. In case innovation is brought in the project the main
advantage that will be enjoyed is that the global audience will be capable enough to distinguish
the product of Maggi from other brands (Sujata, Thenuan and Subrahmanyam 2016). This is one
of the main reasons that is taken into consideration. With the help of the management of
innovation the taste of the product will definitely be other from the other competitors of the
business organization. This is considered to be one of the main reasons that might give Maggi an
edge over the other brands who have been competing with the brand. Introducing new flavors

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will definitely attract an audience as the taste that will be provided by the brand will be other
than the taste that will be provided by the other competitive brands.
The consequences that will be present will lead to better management of the products and
this is one of the main reasons that will help in better commencing of the project.
5. Conclusion
From the above discussion, it can be concluded that there are several risks in the
commencement of the project of Maggi. These issues must be resolved in order to have a better
commencement of the project. In case this management of the issues has performed the
management of the business organization will be more efficient in nature. Recommendations that
are stated in the report will help in managing the project with higher accuracy. This report has
provided a brief introduction of the topic which helps in the understanding of the scenario that
Maggi is going through. This report also provides a review and summary of the literature that
will help in the better commencement of the research. This report also provides a risk
management system in order to provide better management of the system. This report also
provides a leadership functioning management and helps in better understanding of the
recommendation that must be provided as this would increase the proficiency of the project
management. This report also provides recommendations that must be followed in order to
complete the project in a better manner with higher accuracy.

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