Risk Management – a case study on the consequences of poor risk management


Business life is a reality. When these risks are managed successfully, the reward can be significant. If not, your business may be seriously compromised and even crash. Unnecessary (and stupid) to ignore the risks.

For more than a decade, we have advocated and supported businesses in business growth and management. Over time, we noticed that many companies were in trouble because they ignored certain risks. This case study focuses on some companies, each of which ignored an important aspect of risk management and then paid the price. The discussion will take place in the following chapters:

  • Improper Design
  • Bad Connections,
  • No Coverage,
  • Lack of Discipline

Inadequate Design

Risk is drastically reduced by proper preparation and detailed design. Planning includes feasibility studies, business planning, cash flow forecasts and financial planning.

Hypothesis Toys have recently been approached to help them with additional funding. At that stage they were in a terrible position and invested small fortune. The company was created to produce a specific type of game. The management made the following assumptions:

  • Customers would pay a premium (dual price) for their products compared to other existing products, as their products became different and labeled with the logo of professional sports bodies.
  • How All Large Stores
  • How the entire market is made up of all young children in (developing) countries where they work.
  • To get 10% of this market in the first year and 50% for the 3rd year.

This company had no chance from the beginning. The random way they came to their assumptions was amazing. Market penetration data was completely unrealistic. No research has been carried out to obtain genuine facts (except for the number of young children in the country). The scary part of the story is not an isolated case. Many enterprising and even well-resourced companies are exposed to the relentless risk of not conducting market research when they start a new business.

Bad Relationships

Human relationships should never be ignored. This is potentially one of the most dangerous risk factors in a business. Relations with all the dealers, including investors, financiers, suppliers, employees, and customers, need to be nurtured.

While a customer has asked us to handle any mergers and acquisitions in their name. Fuzzy Manufacturers (Fuzzy Manufacturers) have been involved in purchasing their entire business for a few years (doing a lot of business with this company).

Owners of Fuzzy Manufacturers have negotiated the following relationships during the negotiations:

  • They never made any commitments they made with them or with our clients.
  • They were not transparent with stakeholders – including financiers.
  • They have not put their senior leadership in the proposed deal.

The negotiations were finally called for retired financiers. Everyone has lost respect for the owners of fuzzy vendors and some companies are very uncomfortable doing business with them. Finally, some of their senior staff went and joined the competition. It has become the shadow of its business, which was earlier.

No Hedge

Financial risks (such as exchange rate risk and stock market risk) can often be covered with sophisticated products. Operational coverage (to a large extent) can also be achieved by spreading the risk through a number of suppliers, products, distribution channels, customers, back-ups.

Focused Systems specializes in IT networks. They were exceptionally successful, especially after the elimination of a large national interest. Subsequently, serious mistakes were made when they did not cover their operational risks, including:

  • Focused on customers and considered all other customers less important.
  • This client contribution increased to more than 35% of their turnover and was responsible for most profits
  • . more international work.

Great national interest has become a target of an international organization. This group had their own IT specialists and Focused Systems lost the bill. The company is almost gone. Fortunately, owners learn from their mistakes and have expanded their product and service offerings, customer and geographic representation with a concerted effort. Today the company is really scary. None of the customers can keep the ransom because neither is responsible for more than 5% of the company's turnover.

Disciplinary Shortage

There is probably no better way to reduce the risk than properly prepared and well disciplined. This is true of planning, relationships, and hedging, as well as being disciplined with aspects such as hedging expenses, growing on sustainable levels, falling into debt traps, and cash flow management with a fist of fists [19659003] About a decade ago, Expansion Chemicals very well known and respected in the industry in which they operated. Their vision was to be a market leader. Unfortunately they were not very disciplined and the following serious mistakes were made:

  • They sold the products at all costs just to sell them. Their actual gross profit margin was much lower than their intended profit margin and their net profitability was very low
  • Growth was alarming, which was not sustainable through internal financing or debt
  • Owners (who also controlled the company) were pulled up and such as private cars and sports cars.

Unfortunately, this once profitable business is unsuccessful. Owners are currently employees of other companies.


The companies discussed above have basically ignored a particular risk. You can only have an unexpected claim against a company with a big client who has lost or not paid enough money to a large supplier to paralyze the company. When a business plan is diligently working with all of its relationships, hedging its financial transactions and operations as far as possible and working disciplinedly, it greatly reduces risks to a company.

Copyright © 2008 –

Wim Venter

Source by sbobet

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