JWI 531: Financial Management II - Salesforce Risk Report

This report, prepared for a Financial Management II assignment (JWI 531), undertakes a comprehensive risk assessment of Salesforce.com, examining financial, external, strategic, and operational risks. The executive summary details the risks including financial risks such as market volatility and investment in loss-making companies, external risks like counterparty risk and technological obsolescence, strategic risks related to revenue model and after-sales support, and operational risks concerning customer data handling and service disruptions. The report provides detailed mitigation strategies for each risk category. Financial risk mitigation strategies include employing experienced risk analysts and diversifying the company's portfolio. External risks are addressed by improving the mobile app and creating a dedicated risk management team. Strategic risks are mitigated by evaluating vendor technologies and implementing internal software audits, while operational risks are addressed through internal control management and customer communication about software limitations. The report concludes with recommendations for customer instruction, avoidance of risky third-party software, and adequate reserve provisions to maintain solvency. It analyzes regulatory and legal aspects of Salesforce.com's business.

EXECUTIVE SUMMARY
• Salesforce.com has become the world’s leading cloud computing businesses by
providing quality customer relationship management
• The continuous growth of any business does not guarantee future profits too
because of the presence of different risks
• The company faces different risk such as financial risk, external risk, strategic risk
and operational risk. To continue as a market leader, well diversified planning
must be done to mitigate maximum risk.
• The presentation studies all the risk factors presented in the annual report of the
company in detail to give the best possible solutions.

FINANCIAL RISK
• The risk of loss of capital by temporary impairments - The company has invested in
several portfolios which are subjected to market risk. For example the investment in
shares of loss making companies, the unfavourable condition of banking sector in
providing credit can put the Salesforce.com in distress.
• Risk of acquiring complementary ventures and technologies - The acquisition of any
business is done on the basis of some assumptions. If the undertaken business and
technologies goes against the favourable assumptions, company may incur losses.
• The prices of stock are subjected to market risk – Market is unpredictable and stock
prices may go up and down to a very large extent. It can decrease the value of common
stock of the company in unpredictable situations (Edwards, Magee & Bassetti, 2018).

MITIGATION FOR FINANCIAL RISK
• Employment of personnel who has experience in risk analysis for a
significant number of years.
• Diversification of portfolio of the company may reduce the concentration
risk which company can face by investing in a particular loss making
stock (Sharma, 2017).
• Before acquiring any company, the financial team must consider the
factors like pricing, key employees that the acquiring company want to
retain, assets and liabilities of the proposed company.

EXTERNAL RISKS
• Counterparty risk - It is a risk of solvency related to the financial institutions
who are providing hedge. If these institutions default, the Salesforce has not
secured the risk. The insolvency of these institutions may result in unnecessary
increase in the liability (Biais, Heider & Hoerova, 2016).
• Outcome of new rules and regulation, which can affect the industry adversely
(Marinescu, 2017).
• Risk of obsolescence- the company is operating in a very competitive market
where new technologies are always coming. The upcoming newer technologies
can make the existing ones obsolete.

MITIGATION FOR EXTERNAL RISKS
• Improvement in the sales force mobile app – The Salesforce app used by
mobile phones should be updated with recent developments to increase the user
downloads (Meeker & Wu, 2018) .
• Develop a risk management team – Creating a team which is solely dedicated in
analyzing the financial health of other companies can reduce the counter party
risk.
• Securing the unsecured liabilities by proper assets and rights.

STRATEGIC RISK
• The company plans every decision on making assumptions that how one model
will deliver in the market. if any cloud computing service don’t give the expected
result, the business revenue model can be harmed.
• Draining of resources in supporting customers after sales can make the
implementation of new business plan difficult.

MITIGATION OF STRATEGIC RISK
 Before buying any technology from the vendors, the company should
look into some points such as :
The satisfaction level of existing clients of that vendor.
Considering any other alternative then draw out a comparision.
Make use of the software by the analyst team who can judge the technology
on the basis of its viability.
A separate internal audit of the software must be done so to keep the data
secure.

OPERATIONAL RISK
• Risk related to handling customers data - The cloud computing industries are
engaged in handling proprietary and secured information, which are legally
prohibited to be used illegally or carelessly. Any leakage of such information can
attract legal proceedings (Raguseo, 2018).
• Risk related to disruption in the operational activity - Disruptions may arise in
the services whenever any new third party software are used, this may lead to
customer dissatisfaction and affect their loyalty. They may not renew the services
taken from Salesforce.com

MITIGATION OF OPERATIONAL RISK
• Proper internal control management should be implemented while providing
services to remove sudden disruption.
• Proper audit of the third party software should be made before purchasing the
software.
• The customer should be pre-informed about basic limitations of the software as
well as about the after sale service for any inconvenience, customer may face by
these limitations.

RECOMMEDATION
• Customer should be given complete instructions regarding how to handle different
discrepancy in operating the company’s software.
• Any third party software which can already breach the trust of customers should not
be purchased even it is redesigned to avoid further risk.
• Proper reserves provisions should be provided by the company for the unseen
liabilities to keep the solvency of the company as it is.
• Regulatory and legal issues must be analyzed before providing any new services or
acquiring any new complementary businesses.

REFERENCE
Andersen, T. J., & Sax, J. (2019). Strategic Risk Management: A Research Overview. Routledge.
Biais, B., Heider, F., & Hoerova, M. (2016). Risk‐sharing or risk‐taking? Counterparty risk, incentives, and
margins. The Journal of Finance, 71(4), 1669-1698.
Edwards, R. D., Magee, J., & Bassetti, W. C. (2018). Technical analysis of stock trends. CRC press.
Grable, J. E. (2017). Financial risk tolerance: a psychometric review. CFA Institute Research Foundation.
Marinescu, D. C. (2017). Cloud computing: theory and practice. Morgan Kaufmann.
Meeker, M., & Wu, L. (2018). Internet trends 2018.
Raguseo, E. (2018). Big data technologies: An empirical investigation on their adoption, benefits and risks for
companies. International Journal of Information Management, 38(1), 187-195.
Sharma, P. (2017). Economic value of portfolio diversification: Evidence from international multi-asset
portfolios. Theoretical & Applied Economics, 24(4).