Free «Risk Management in Coca-Cola Amatil» Essay Paper

Introduction

Risk management involves classifying, evaluating and prioritizing risks. This is followed by using resources with the aim of minimizing, monitoring, and controlling the likelihood or effects of adverse incidences or using the available opportunities (Bowman 2012). ISO 31000 defines risk management as an impact of uncertainty of an organization’s objectives. The key objective of risk management is guaranteeing that an unforeseen event does not avert the enterprise from the set goals (Knight 2007). There are different causes of risks in organizations. These include legal liabilities, uncertain financial markets, accidents, project failures, premeditated attacks and natural disasters (Bowman 2012). Effective management of risks has been made possible due to the development of various risk management standards. They include the Project Management Institute, ISO standards, and the National Institute of Standards and Technology (Dorfman 2007). The nature of the organization determines the risk management techniques used.

Effective risk management is significant for the enterprise itself, the shareholders, as well as the community at large. To reduce the challenges faced while integrating risk management, those in charge should possess communication and credibility skills, fully understand organizational processes, and work together with the executive and board of directors (Dorfman 2007). The capability of an organization to deal with uncertainties becomes clear when such an organization is faced with a disaster. A successful organization must know how to manage risks when they arise. The current paper explores risk management at Coca-Cola Amatil. To achieve this, the paper provides an overview of the organization, as well as the strategies that have been implemented to manage various risks. In particular, the paper focuses on how natural disaster risk management is handled by the company. 

 

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Company Description

Coca-Cola Amatil (CCA) is an Australian based company and one of the largest companies in the Asian-Pacific region (Maidment 2011). CCA is a bottler of non-alcoholic beverages that is among the five key Coca-Cola bottlers across the globe. The operations of the company are carried out in Australia, Indonesia, Papua New Guinea, New Zealand, Samoa and Fiji (CCA 2011). CCA is engaged in manufacturing, selling and distributing Coca-Cola products including mineral waters, packaged fruit, carbonated drinks, energy drinks, fruit juices, and vegetable snacks among others. The company manufacturers the leading cola brand, bottled water brand and sports beverage in Australia. These are Coca-Cola, Mount Franklin and Powerade Isotonic respectively. It is also a leader in the production of non-sugar beverages including Coca-Cola Zero and Diet Coke. In 2012, the rate of growth of none-sugar drinks was high compared to sugar-sweetened drinks. The company also deals with a wide array of Beam Global first-class spirits such as Jim Beam, The Macallan and Canadian Club. CCA has about 14,900 employees, 700,000 active clients and 270 million customers (Maidment 2011).

Most operations of CCA are associated with major risks such as business interruptions, supply chain risks, production problems, natural disasters and malicious tampering (Bowman 2012). Such problems cause mayhem in terms of all business operations. Operation’s diversity and geographical spread generates business challenges. Such factors are worsened by a changing operating environment that is characterized by terrorism threats and amplified regulations. A combination of these factors creates a challenging and risky environment for CCA. As a result, the company has taken various mitigation measures in order to safeguard its assets while minimizing losses in case of any risk. The company works directly with Aon plc in a range of business areas. Aon is a British conglomerate based in London. The company offers insurance, human resource and risk management services. Aon plays a major role in helping CCA deal with various disasters, encouraging risk management and insurance services (Aon n.d). For instance, during the Christchurch earthquake, Aon worked together with the company, something that prevented further losses while enabling business continuity (Maidment 2011).

Natural Disaster Risk Management

Natural disasters are inevitable, meaning that organizations must be prepared for managing them. Such occurrences encompass earthquakes and flooding among others. It is true that disregarding how well a business manages its risks, natural disasters still happen, causing significant losses. Learning from such lessons and implementing appropriate protocols assists in minimizing losses while ensuring the correct coverage is put in place. CCA has taken mitigation measures to deal with such occurrences. For instance, CCA’s speedy reaction to the Christchurch earthquake proved the significance of risk mitigation strategies used by the company (Knight 2007). The company’s PET production column was completely ruined and pulled out from operation. Redistribution of stock was quickly done in Auckland, leading to reduced sales losses. In addition, the company identified other storage facilities and this was an important factor facilitating stability of the business. In Christchurch, storage facilities were lost as explicated by the chief claims officer of Aon, Mark Ronan (Aon n.d). During this time, the company acted practically using the internally implemented procedures in identifying alternative short-term storage facilities.

CCA has used intranet to put in place guidelines that offer comprehensive information regarding the question of how to deal with natural disasters. The guidelines are explained to the crisis management team and other people in the organization. In case of a disaster, the guidelines provide a checklist that can be used by the teams to send a claim to the insurance company (Knight 2007). Detailed advice, encompassing opening a separate account to record all additional costs due to the disaster, is also given.

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Coca-Cola Amatil Risk Management Policy

CCA has developed a Risk Management Policy whose aim is to communicate the company’s approach in managing risks and make it public. It offers an efficient response in managing risks in all business processes of the company. It exhibits CCA’s conformity with the Principle 7 of the ASX Corporate Governance Council Principles of Good Corporate Governance. This increases from the level of reliability of the organization to the shareholders.

CCA acknowledges the adverse effects of risks if proper measures to deal with the same are not taken. The company encourages a risk-responsive corporate culture in order to ensure major decisions are supported. Through incorporated risk analysis, the staff members categorize and manage such risks with the intention of alleviating threats, improving business opportunities, and promoting competitive advantage (Dilley 2005).

Roles in Risk Management

CCA believes that effective management of risks can only be achieved if all employees are involved in the process. In this regard, all members of staff have an important responsibility to take in preventing or mitigating risks which may arise in different business units. Some of the key employees and their roles are explained herein.

Role of the Board of Directors

CCA has a Board of Directors that is dedicated to ensuring that certain business disruption risks are managed in the best way possible. Simulation testing outcomes are handed over to the Audit &Risk Committee of the Board, with a special focus put on the available action to deal with any arising issue (CCA 2011). The Board of Directors is particularly interested in understanding what potential exposure an event could have on the enterprise. The simulation testing provides details on the effects of worst-case situation. CCA believes that engaging the top level executives in risk management is significant for driving behaviors in the organization. It is relevant especially due to the continuity planning when a disaster strikes. Line management is aware of the Board’s engagement in the risk management process guaranteeing the appropriate degree of dedication and involvement in the enterprise continuity agenda.

Aon plc gives specialized recommendations to the Board, necessary for all business processes. Conducting business disruptions assessments have assisted in establishing the appropriate declaration values as well as supplier limits (Knight 2007). Aon plc helps CCA engineer surveys consult on the value of property and compose an executive summary document. The document draws attention to the major concerns from an insurance point of view that must be dealt with and discussed with the top level executives. Such information is useful for CCA as it helps in launching a claim in case a disaster strikes. The company is involved in quarterly risk assessment and insurance engineering conventions. During such meetings, proposals and recommendations are provided and integrated into the Audit and Risk Committee. Overall, the Board supervises the realization of the risk management policy.

Management

Managing directors in different business lines are responsible for ensuring that risks are management effectively in their units (CCA 2011). They are responsible for identifying risks as well as taking appropriate mitigation measures to alleviate such risks. They should achieve this while still endeavoring to attain the objectives set in their business lines. To ensure efficiency in risk management, the managing directors’ work hand in hand with other groups including the internal audit team, insurance, security and fraud, as well as treasury.

 Group Risk Management

The group risk management is responsible for providing the company’s Board, the CEO, and other key groups with appropriate information regarding risk management in the whole organization. It also helps in implementing risk management procedures while generating strategies for risk management.

External Audit

The role of external audit is to express views on the level of precision of the company’s financial report. Through this, CCA is able to evaluate risk management procedures and major control systems necessitated to ensure business continuity.

Internal Audit

The function of internal auditors is to assess the efficacy of internal controls. This is achieved through a yearly, risk founded assurance plan of major enterprise process evaluation and scrutinizing the endorsement of the categorized shortages (CCA 2011). All these groups work together to maintain a work environment that is responsive to risks.

Simulating Worst-Case Scenarios

Effective risk management involves being aware of the effects that severe occurrences can cause to an enterprise (Knechel 2007). According to the Chief Risk Officer of CCA, Andrew Wearne, such an understanding is important for any organization in general and for CCA in particular. Simulations are resource intensive and costly (Mechler 2004). They also necessitate the involvement of many people and dedication of effort and time. As a result, they should be associated with the strategy of the organization, as well as venture risk. This ensures appropriate targeting, although they are not perceived by the organization as conformity exercises. In the years 2010 and 2011, CCA devoted a large part of its resources to performing major simulations concerning enterprise processes and continuity planning. The initial simulation test was conducted in 2010. It explored the impacts of the entire loss that the company experienced during the Christchurch earthquake, when it lost its largest production plant (Knight 2007). In 2011, the second simulation was carried out. It was grounded on malevolent product interference.

CCA believes in conducting effective simulation tests. As a result, the company utilizes other major players, including the press and law enforcement officers. The media helps in running simulated reports. Such reports and information acquired from law enforcers help in identifying any gaps both in processes and coverage. Through this, such gaps can be alleviated to real-life occurrences that may happen in future. CCA has generously invested in alleviating business disruption losses. It has also implemented physical strategies to mitigate this issue. In fact, insurance companies are aware of CCA’s commitment and seriousness in terms of risk mitigation. Simulations provide information to the insurance companies that CCA is dedicated to dealing with and responding to an event, thus reducing losses and minimizing the claim. The company provides a shortened video edition containing the simulations and training performed to its insurers. Such measures show the dedication and discipline put in place by CCA in mitigating risks.

Risk Identification at Coca-Cola Amatil

Coca-Cola Amatil incorporates risk management into its enterprise operations. The act has been viewed as an important document for guaranteeing business continuity when a disaster strikes. CCA works together with other companies, particularly insurers, to enhance its mitigation and management measures. It also helps in streamlining the claims procedures. The company has generated and implemented an Operational Risk Management Framework, which is founded on the AS/NZS 4360 risk management standard (Knight 2007). The framework is focused on important business processes that could be greatly affected in case of a disaster.

Understanding Key Risks Exposures

CCA employs bottom-up and top-down procedures to comprehending exposure to various risks. Top-down risk approaches for main enterprise line are generated by top level executives including senior management. On the contrary, bottom-up approaches are used by the organizational risk management control panel that offers viewpoints on the manner in which risks are dealt with on a daily basis. Risks that are insurable in nature are measured and simulated. This ascertains suitable insurance coverage is provided while facilitating decision-making regarding self-insurance.

Risk profile is determined on the basis of fundamental risks categorized in the enterprise (Bowman 2012). The degree of risk tolerance as approved by the executive management is also considered. This is followed by risk probabilities and mitigation measures that should be taking into account to find out whether the risk profile is within the framework of risk tolerance measures. In some case, more mitigation measures are put in place, after which the risk is transferred to second parties (insurance companies). Risk transfer is weighed against the risk profile with an intention of determining the best possible degree of risk transfer (Frenkel, Hommel & Rudolf 2005).

Risk Management Steps

The company has identified distinct steps used in risk management endeavors. The first step entails fundamental employment of processes. It includes the identification of major risks, analysis, and devising of strategies for mitigating such risks. It is followed by the creation of a risk register that is sustained for each business line, corporate entity and bottler (Knechel 2007). The company then tracks the position and subsequent treatment plans at the lowest possible level, ensuring that risk management is bottom-up. It means mitigating risks from the lowest to the highest business unit lines.

After risks are identified, the risk management procedure is to be sustained. CCA utilizes a three branched system to carry out the procedure. It entails assessing the risks being managed presently on a quarterly basis (Toma & Alexa 2012). The company also categorizes novel and up- coming risks, and includes them in the already established risk register. The final step entails factoring the main risks that have been identified into the planning process. It covers the annual and strategic business plans. CCA’s risk management procedure is termed as “bow-tie” due to its double-sided nature (Aon n.d). It includes the possible factors which could result in the occurrence of risks, as well as the impacts. This enables the company to implement mitigation measures to mitigate a number of losses in case prevention is not possible (Slack et al. 2009). For instance, it is not possible to put prevention measures in place to prevent a natural disaster from taking place. As a result, CCA has implemented effective strategies to reduce losses and ensure business continuity when a disaster strikes.

Integrating Enterprise Risk Management (ERM) in Coca-Cola Amatil

CCA is categorized as being risk responsive, rather than being compelled by regulatory obligation. The company has integrated a risk management framework in all of its business operations that is intended for ensuring enterprise profitability. This is attained by maintaining sound organizational decisions and aligning the strategies of the enterprise with the wishes of the investors and shareholders (Aon n.d). It guarantees that efficient corporate governance is achieved. Enterprise risk management involves removing the conventional fragmented procedure that is used by most corporations. CCA accomplishes this by driving recognition and control of the risk management procedure. The company comprehends the significance of the basic standards of the ERM procedure. They encompass commitment, a consistent procedure in terms of risk management, a comprehensive framework, an effective communication model among all the organizational stakeholders, and feedback regarding the outcomes. By integrating these factors, CCA has been able to appropriately deal with real-life events that could have otherwise brought about serious damages to its business processes.

Coca-Cola Amatil Commitment to Risk Mitigation

CCA has demonstrated its commitment in managing risks. The company accomplishes this through various ways. To start with, a Group Chief Risk Officer (CRO) is selected and is answerable to the Audit Risk Committee. The responsibilities of CRO cover different areas including fraud and security, audit program and risk management model (Aon n.d).The CRO also ensures that the reporting by the Audit and Risk Committee is done on a quarterly basis as required. The internal audit program of the company is grounded on risks and aligned with the entire risk profile of the CCA. Follow-up by the top executive, action plans and audit plans are conducted effectively with the intention of maximizing coverage and scope.

Learning from Previous Natural Catastrophes

Having experienced natural disasters in the past, CCA is now in a better position to deal with such occurrences when they take place. The company’s experience and handling of the Christchurch earthquake evidenced its readiness for mitigating losses. The company’s event simulations as well as previous insurance coverage assessments offered anticipated exposure to CCA. As a result, what took place was not surprising as it was what had been anticipated. CCA responded speedily by putting into practice its event management crisis measures. Through this, selected personnel were allocated to major responsibilities in the management process. Such roles encompassed addressing insurance claims to the insurance companies.

Following the catastrophe, the company developed a guideline document on insurance claims. The document was then distributed to the managing directors in all enterprise units, CFOs, as well as the company’s event management crisis response group (CCA 2011). The document that is also available on CCA’s intranet acts as a reference and educational material. It helps in preparing for future business disruption events as well as filing claims. The document categorizes on the insurable and non-insurable areas, ensuring that certain maximum documentation is sustained. This is so considering that natural occurrences are inevitable and cannot be prevented. As such, CCA invests to reduce the damages caused by such events in case they occur in future.