Risky business

Investors intuitively understand the importance of legal and financial M & A screening. Things, however, are prone to rail rails when carrying out the operations. Most investors simply do not understand the role of operations with due diligence, and the result is that most M & A errors can be traced back to the ineffective operations. Legal and financial due diligence are carried out to determine the legal and financial situation of an undertaking at a given time, typically at the date of closure of the case. In addition to the screening of the operations, it was decided to maintain the business over time. He asks: Are there any operational risks that could cause future business failure? Investors rely on their lawyers and CPA to carry out their legal and financial screening, but often attempt to perform a screening of operations rather than involving someone with risk assessment expertise. A worse, partial risk assessment is carried out by management or sales or strategy, and so on. During his investigation, he did not appreciate the entire company.

The recent bankruptcy of the Solyndra solar energy company has now become the post-church child for unsustainable businesses. Without any possible causes of bankruptcy or failure, it is fair to note that investors in Solyndra, including the US Government, were unable to effectively assess the operational risks that might affect Solyndra's ability to maintain its operation.

Here are just two examples of the operational risks faced by Solyndra. First; former employees have publicly stated that they will throw up faulty solar panels worth up to $ 100,000 a day. If this is true as effective operation, due diligence should have determined the high quality costs that pose a potential risk to business sustainability. Identifying risk would allow investors to provide a contingency plan to reduce or avoid costs. Second; As part of their marketing plans, Solyndra has produced its own product design. As the prices of standard solar panels fell one by one, especially for products manufactured by their Chinese competitors, Solyndra could not reduce the price of its own product per watt, which would allow them to remain competitive. The competitiveness of Solyndra's products can be attributed to the standard panels and the unfair competitiveness practices of the Chinese. The causes of bankruptcy are, however, not important. Effective screening operations could determine operational risks and their potential impact on business sustainability.

We can assume that Solyndra investigators had a sufficient number of lawyers and accountants. Or the quality risks and the competition risks in the examples have become apparent in legal or financial screening and effective screening has never taken place.

Unfortunately, as many investors misinterpret the role of screening operations, many companies have not yet understood the importance of implementing a formal risk management program and do not oppose the resources needed for risk management. Solyndra should have determined its own operational risk and had to draw up mitigation plans to avoid it. Risk management companies improve their sustainability. If it is important for investors to carry out a risk assessment as part of a due diligence, is it not important that business conduct a proactive risk assessment continuously?

By introducing ISO 31000: 2009 (Risk Management Principles and Implementation Guidelines), some companies are serious about introducing risk management programs. Regrettably even in these businesses, risk managers often have difficulty in justifying funds to support their activities as top executives have difficulty in verifying the cost of the program as it is difficult to judge the benefits of better sustainability.

An effective risk assessment, whether carried out by an investor in an M & A process or as a proactive self-assessment of a business, must measure the risk in all operations of the business. It is not enough to say that we are looking at the management or the sales department, etc.

Source by sbobet

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