Risk Management

Risk Management

RISK MANAGEMENT 4

How does Value-at-Risk affect investing for a manufacturing firm?

Value risk is a measurement approach used by most risk assessmentmanagers to control and measure the level of risks undertaken by agiven firm. When share holders want to invest in a manufacturingfirm, the basic question is always what one can lose in theinvestment (Hubbard, 2009). Value-at-risk tries to answer the levelof risk exposure in an investment based on markets volatility. Inmanufacturing firms, investors use value at risk to assess theproduction output and the profitability of services and products. Inthis way, investors are able to calculate the expected loss shouldthe firm face any market or other risks volatility that may influencereturns from products and services. As such, value at riskmeasurements can help investors gauge the amount of investment tomake in a given manufacturing firm.

How a manufacturing business might be affected by credit scoring

Credit scores refer to measurement items that are calculated fromdata-rich credit reports. Credit scores are used by lenders to assessthe credit worthiness of a given firm for mortgage, loan and creditcards. Additionally, credit scores helps in calculating interestrates that are charged to firms. In a manufacturing business, creditscores can affect the firm’s capacity to borrow or engage withsuppliers if the firm has a history of late payments. If the creditscore of a given firm is low based on its capacity to pay debts inadvance, suppliers who supply essential materials in a manufacturingfirm may shy away leading to manufacturing problems as suppliesdiminishes (Hubbard, 2009). Additionally, if the credit scores of afirm indicates late payments commercial lenders such as banks may bereluctant to lend the manufacturing firm with loan needed to boostoperating capital.

What other investment and financial risks are associated withmanufacturing?

Manufacturing business go through various finance and investmentrisks which are directly or indirectly related to finance such asoperations, personnel and natural calamities. Major finance risksthat hits most manufacturing firms include changes in prices ofenergy, fuel and manufacturing materials (Hubbard, 2009). Currencyfluctuations also lead to financial risks, changing interests’rates that affect the amount borrowed by manufacturing firms.Interest changes as the value of US Dollar, credit-relateduncertainties, limitation to financial flexibility and misconduct bymanufacturing personnel.

How the investment and financial risks of your manufacturing firmmight be mitigated

Flexibility is essential in reducing financial risks associated withinvestments in manufacturing firms. Firms should build theirmanufacturing operations on flexibility mode to changing conditionsand also to outperform competitors. Flexibility in volatile economictimes helps firms integrate flexibility in manufacturing (Hubbard,2009). Flexibility takes various forms such as adjusting toproduction volumes up or down, adjusting manufacturing based ondemand and profitability and utilizing the production mix amongdifferent products. Flexibility should also be adopted when timingthe production or adjusting to production models that is superior tothose of the competitors.

Does the firm have an effective plan for managing risks? Explain

The firm has an effective plan for managing financial risks under twotypes of flexibility approaches. The first plan is using the fourwalls of the manufacturing facility to manage risks. This means theplant decides to change production levels based on availability ofsuppliers, costs, and the profitability of the products (Hubbard,2009). There are also measures such as adopting mix changes andnegotiating for flexible labor and supplier agreements. The secondflexibility strategy touches on managing the firm’s network ofplants. This strategy involves integrating information from allnetwork plants in order to make national optimum decisions onfinance, marketing and operation management. However, flexibility ofoperation is maintained in each respective plant based on its regionoperating characteristics (Hubbard, 2009).

References

Hubbard, Douglas (2009). The Failure of : Why It`sBroken and How to Fix It. John Wiley &amp Sons. p.&nbsp46.