Risk Identification and MitigationUsing the annual report from the company that you have selected for your Final Project, discuss the risks the company faces and the actions they take to mitigate those risks. Refer to the Management Discussion and Analysis section of the annual report for this information.As part of your response consider whether you think the risk mitigation techniques are reasonable. Discuss what others concerns or advice you would offer if you had the opportunity.Include in your post a calculation for the probability of one of the risks identified by your company. This information may not be available in the annual report, therefore you will likely need to conduct research and critical thinking to complete this calculation.Tip: For help with reading an annual report access this handy guide from Money Chimp (http://www.moneychimp.com/articles/financials/fundamentals.htm) .Develop a 200 – 300 word explanation supporting your position.Guided Response: Review several of your classmates’ postings. Consider how your classmates’ companies identify and proposes risk mitigation techniques. Compare and contrast the risk mitigation techniques that your chosen company uses to the ones used in your classmates’ posts.———————————-1. Rebekah.Shell: Risks and Mitigation in 2018 As gas prices have continued to rise, Royal Dutch Shell has maintained profits over the years, however, as the gathering of oil and refining process are risky to the workforce, the higher risks to the organization are associated with workforce injury and possible litigation. In 2018, two workers were killed, one in a German refinery and one at an American onshore well (“Shell annual report”, 2018). To mitigate these matters, the CEO Ben van Beurden noted that he is encouraging all workers and contractors to “redouble their focus on safety” (“Shell annual report”, 2018, para 4). While these risks had tragic consequences, thousands of their workforce did not have such dire outcomes. The note to redouble their efforts, doe not seems to be enough. A stakeholder in the company may desire to have further details as to how the organization will be changing the practice to reduce this workforce risk and the associated financial and reputational risk to the organization. In an industry that has such a great deal of workforce safety risk the company will need to implement safety programs, which are likely already in place but as evidenced by the incidents need to be refreshed. Many industries utilize high-reliability techniques to reduce safety issues from occurring. For instance, the mnemonic tool STAR can be used to reduce errors by encouraging staff to stop, think, act, and review actions to ensure that they function is completed correctly (Newman, 2016). Two organizations that I worked for this method were used and it was shown to significantly reduce the human errors that lead to harm. While one many argue that such details on how the organization addressed the deaths may not be appropriate in an annual report, it would show how the company was acting to mitigate instead of a few words about efforts. The risk that the company faced was having new energy sources pull funds from the company due to consumers moving to cleaner forms of energy. To mitigate this risk the origination invested as a 40% owner in liquefied natural gas (LNG) (“Shell annual report”, 2018). LNG was a smart decision for Shell as they then used this to increase in Integrated Gas by earnings 125% from 2017 to 2018 (“Shell annual report”, 2018). By seeing the change in consumer behavior, the company was able to partner and make added revenues, which as risk mitigation is an optimal result to turn a potential loss to a win. Another risk of Shell is the environmental issues that the company faces as more consumers are looking for sustainable resources and companies that have ethical practices in light of the carbon footprint. To address this risk, in December of 2018 the company Publicly noted the short-term focus to lower the Net Carbon Footprint of the products and the success for these goals was tied to the bonuses of the executives (“Shell annual report”, 2018). Having the risk mitigation goals link directly back to the remuneration to the leadership is a bold statement of how important the company sees these efforts and it tells the consumers that they are serious about addressing the environmental issue associated with their products. In my view, this mitigation technique is efficient as it improves the reputation of the company as well as focusing on compliance by their leadership or the individual will see financial impact personally. Addressing a risk by formulating an action plan that is publicly reported adds to the consumer trust and accountability for their executives.Advice The company has had a successful year in 2018 compared to 2017. If one was to advise the company on efforts that they could use to improve, one could advise continuing the same path that they have been on in managing their inventory and cost. In the view of safety for its workforce, the company would need to consider the cost of such injury or death. For instance, Safety Management Group (2019) noted that workforce injuries can be calculated using the cost of the direct cost injury, the indirect cost of which is normally 4 times the direct cost, and then the total cost is multiple by the profit margin of the business. The formula can be simplified as the following Revenue Required = ( Total Cost ) / ( % Profit Margin / 100 ) Or Revenue Required = ( C ) / ( D / 100) (‘Safety Management Group, 2019). In this formula, one could take the cost of the injury as $50,000, which then has an end cost to the organization of $2.5 million. Based on this analysis, the company would be well advised to focus on reducing the workforce injuries as each event can have a significant cost to the organization.Reference:Newman, J. (2016, March 17). Human Performance Tool Spotlight: Self-Checking, Human Performance Tools. Retrieved from http://www.humanperformancetools.com/human-performance-tool-spotlight-self-checking/Safety Management Group (2019). Injury Cost Calculator. Retrieved from https://safetymanagementgroup.com/resources/injury-cost-calculator/Shell Global, (2018). Shell annual report 2018. Retrieved from https://reports.shell.com/annual-report/2018/strategic-report/chief-executive-officers-review.php———————————-2. Kevin.Uber technologies is a startup company that went public in (Merced & Conger, 2019). They have been in business for several years; during those years, they have experienced several issues. To give more background about Uber, they are in the business of personal mobility, meal delivery, and logistics. Their primary competitors are Taxi companies, Lyft, and other ridesharing companies. The primary risk to Uber’s business model are lowering fares due to competition, the classifications of drivers as employees, and negative publicity to name a few (Uber Technologies, 2019). The biggest issues Uber faces are the classification of drivers. According to Uber, this status is being challenged in all courts. Additionally, drivers have already started the process or will start the process of forced Arbitration. According to Uber, this is extremely costly, because they are fighting in multiple jurisdictions. When Uber settles a case they incur additional cost. For these issues, there are no risks mitigating factors that are appropriate. They must fight every battle in court. The best option they have is to settle, however, with thousands of cases pending this will not be a good option in the long run. Uber does not want to convert drivers to employees because the drivers supply the vehicles, time, and effort on their own schedules. Additionally, drivers are able to sign up to work for other platforms (Uber Technologies, 2019). For these reasons, drivers cannot be employees; instead they are contractors. My advice to Uber would be to get into the car rental business. Allow drivers to opt-in to being an employee or remain as contractors. Drivers who opt-in to become employees, will be required to drive the company’s car, will not be allowed to work for other vendors, and must work a set schedule. For each ride, Uber will take an additional cut, for supplying the vehicle, uniform, and other work related material. This model would be similar to McDonalds, where the franchise owner does all the work, while the company owns the structure. For tax purposes, Uber can use the depreciating asset to offset many of its losses due to litigation and other risk factors, which may lead to a lower tax bill and likely profits. In the short term, Uber is not likely to be profitable. They are entangled in too many business ventures. While Uber primary business is ridesharing, they are also engaged in food delivery and motor scooters; of which, they are operating in 63 countries, fighting multiple jurisdictions and users of their platform (Uber Technologies, 2019). To provide an example of profitability, Uber Freight had a total net income of $359 million, in order to expand Uber into the freight business, it requires a $200 million investment (Hawkins, 2019). Freights revenues were $125 million in 2018, assuming the discount rate is 3% as this is their portion of revenue. Based on the numbers after one year, Uber shortfall is $75 million ($200 million – $125,000) and their actual profit is $3,750,000. At this rate, it will take 53 years to reach profitability ($200 million/$3.75 million). Hawkins, A. (2019). Uber will spend $200 million to expand its Uber Freight trucking venture. Retrieved from: https://www.theverge.com/2019/9/9/20856812/uber-freight-200-million-expansion-chicago-headquarters———————Required ResourcesTextByrd, J., Hickman, K., & McPherson, M. (2013). Managerial finance [Electronic version]. Retrieved from https://content.ashford.edu/Chapter 7: Required ReturnsChapter 8: Cost of CapitalMultimediaBusinessQldGov. (2014, April 10). Identifying business risk – Risk management series [Video file].
