Managing Risk

Class 4
September 2, 2009

a. Class project on group testing of understanding of a Value

Proposition within an overall Business Concept
b. Review of preparation of a Business Plan by the same groups
c. Submission of Assignment 1

RECAP

Design Management
Assignment 1

NIFT: Fashion Communications

For Submission September 2, 2009.

To be submitted by groups appointed in Class 3 August 26, 2009
1. Define the market for your products and services and describe the
different target clients - government, designers, etc.
2. Describe your company - the skill sets, the organisation and the
offerings i.e. products and services
3. Explain in what ways the company will be able to provide products
and services to these target clients
4. Prepare a VALUE PROPOSITION composed to leverage the price - value
pairing. This should be compelling, convincing and brief - max 5
sentences - and demonstrate your understanding of the teachings in all
three classes so far.
To be submitted in writing by all groups on September 2, 2009

The class will form 8 to 10 small groups. Each group will be represented by a leader. The groups will each prepare a Business
Plan on a business of their choice e.g. graphic-design studio, specialised photography studio, multi-design-service practice
(must define each service), product design studio, fashion-design house, apparels boutique - anything that strikes you as
doable. Each week the groups will briefly (max 3 minutes each) present progress on their plan, led by their group leaders.
The final plans will be:
a.presented by all groups in Powerpoint or any other program or your choice on November 11, 2009
b.professionally formatted and printed and submitted as a report, by November 18, 2009.
Appraisal of these presentations and Business Plan reports will comprise marks added to overall individual
appraisals for performance in Design Management.

PROJECT RECAP

Business Plan Work Groups

Select group leaders

Risk management is attempting to identify and then manage threats that

could severely impact or bring down the organization. Generally, this
involves reviewing operations of the organization, identifying potential
threats to the organization and the likelihood of their occurrence, and then
taking appropriate actions to address the most likely threats.
Traditionally, risk management was thought of as mostly a matter of
getting the right insurance to counter uncertainties. However, this
aspect of risk management has changed dramatically. With the recent
increase in rules and regulations, employee-related lawsuits and reliance
on key resources, risk management is becoming a management practice
that is every bit as important as financial or facilities management.
Today, given the intense competitive atmosphere in which businesses
have to survive, risk is no longer an uncertainty IT IS A CERTAINTY

UNDERSTANDING AND
MITIGATING RISK

Entrepreneurial
Uncertainties
There are two forms of uncertainty in entrepreneurial
ventures (Xun [Brian] Wu and Anne Marie Knott)*:
1 uncertainty regarding market demand, and
2 uncertainty regarding one's own entrepreneurial
ability.
Entrepreneurs, by their nature, are risk takers. They
seem to display risk aversion with respect to
demand uncertainty, but exhibit overconfidence or
"risk seeking" with respect to ability. Their* research
shows that entrepreneurs, while risk averse in their
role as risk-bearers, are willing to bear economic risk
when overconfidence compensates for their aversion

Business Objectives

Production objective
Sales objective
Cost objective
Time objective
Quality objective
Survival objective
Growth objective
Dominance objective
Employee objective
Social objective
Client objective

Affected Parties

Designer
Partners
Share-holders/ financers
Consultants and Advisors
Contractors/ sub-Contractors
Client/ Sponsor

Risk
Risk when pre-assessed is called Risk
Management
Risk management can be done
through risk identification
Deviation of actual performance over
the planned route map is the risk

Traditional Definition
Risk management in business was
done by collecting historical data and
analysing past problems
Business risks were defined as
uncertainties that could affect the
business objective.
If good, it was called an opportunity.
If bad it was considered a threat.

Now

Types of Risk

Performance
Market
Financial
Natural disasters
Management
Theft and fraud
Political
Sovereign
Health and Safety
Legal/ litigation

Addressing Risk
Good management key personnel, comprehensively
experienced board of directors well versed with poilicies
Careful strategic planning
Good supervision/ monitoring planned vs actual
performance
Compliance with rules, regulations and contractual
conditions
Fair policies and treatment of employees and volunteers
Well conceived and designed insurance policies
Sound legal counsel
Market testing/ surveys
Good communication within and outside the company

Having studied, analysed and identified most risks your

company will confront you should try mitigating them by
assigning who will assume each risk factor

SO WHAT WILL YOU DO?

Performance Risk
Company has to assume this risk itself
Critically appraise qualifications, abilities
and aptitude vis--vis task challenges
Strengthen project team with qualified,
proven skills
Establish internal infrastructure and link to
external support
Assess external factors that impact
performance e.g. supply-chains, finance

Market Risk
This risk too is normally assumed by
the company
Institute professional market
research
Dont put all your eggs in one basket
establish a safety net of alternative
projects

Financial Risk
This is usually assumed by your
financers, share-holders and clients
(you if project is self-financed)
Mitigation usually consists of good
planning and tight management/
financial controls

Natural Disasters
Normally assumed by insurance
company under a force-majeure
clause
Ensure a carefully designed
insurance package
Try to survey and install as many
safety measures as possible

Management Risk
Management risk refers to the chance
that company managers will put their
own interests ahead of the interest of the
company and shareholders. This includes
theft and fraud. Assumed by company
Mitigated by:
Good team building
Strong company policies that are well
understood, communicated and followed

Political Risk
The risk that an investment's returns could
suffer as a result of political changes or
instability in a country. Can be assumed by
client in a contract. In a retail situation has
to be assumed by company
If client then ensure this risk and its
assumption is clearly defined in the contract
In retail situations the business needs to get
diversified again, dont put all eggs in one
basket

Sovereign Risk
The risk that a foreign central bank will
alterits foreign-exchange regulations
thereby significantly reducing or completely
nullifying the value of foreign-exchange
contracts
Company has to assume this risk
Limited mitigation is possible by fixing rates
in contracts
Withdraw from commitments, if possible,
when faced with this situation

Health and Safety

Assumed by company
Mitigate through:
good research
appropriate policies
organisational accountability

Legal Risks
Unforeseen litigation can cripple
operations and profitability
Mitigate by:
following rules, systems and procedures
due diligence while drafting contracts
Full compliance with contractual
deliveries wrt time, quality and budgets

There are myriad risks in a business many more than are listed
here. Their impacts can be suitably assigned and mitigated if a
process of risk assessment is consciously adopted by you. Be
creative, do your due diligence, trust in research, be honest and
committed in your dealings and follow rules.

IN CONCLUSION