This report is specifically prepared for Fama’s French Bakery to offer the required information through an analysis of the risks involved, choices available towards eliminating or reducing these risks, the problems and consequences of the choices that will be made, a recommended choice from the department of Insurance and Risk Management and a detailed explanation for the recommended choice.
Analysis/identification of the risks to which the business is exposed
This entails a detailed analysis of the risks that threaten the bakery and also explanations as to why they are considered as risks.
Subcontract to Scholes Muffins Inc.
Even with all the benefits arising from this subcontract, it is safer to still consider it as a risk especially with meeting the demands of the new contract. The risk involved in this is lack of ability to meet the expectations. With the increased demand and more products needed they have to be sure they can manage to supply that specific number of muffins within the specified time.
The transportation system provided by Sharpe-Lintner Trucking Inc is also being considered a risk because it is the only way that our products get to our customers in time. If anything was to happen during the transportation and caused delays without valid reasons we would be on the losing end as stated on the contract. Therefore Sharpe-Lintner has to be certain of their ability to continuously offer their services effectively.
Expanding the Production Facilities
Though we have enough space in both our current facilities to expand the state is imposing additional tax benefits if we proceed. We could opt not to extend but this could risks the capability to meet the requirements with which the liquidated damages provision still fines us. Then we have the option to extend both our facilities or build another facility in Brownfield Rejuvenation District and incur the cost to state.
Liquidated Damages Provision
The provision exposes us to the risk of paying the penalties involved should we fail to meet the required production output for any reason thereof. This means that we have an obligation to make sure we deliver to their expectations or we will have to pay for the inconveniences.
Partners selling out their ownerships
Some of the partners no longer want to extend their personal time and required resources required by the new contract and want other partners to “buy out” their ownerships. Apart from this risking the capital that the business already has in relation to building the new production facility, it also disorganizes the management. If they do leave the business and they were the ones who used to manage the business, they will leave gaps and filling them with correct capable people who can still do the same job will be time consuming.
Though there are a few and inconsistent accidents in both the facilities and the transportation lines of work, accidents are still risks. Especially during transportation because that entails more of manual labor than in the production facilities where almost all operations are automated.
The risk of uncertainty denies people the ability to know where, when or how an accident will happen and to whom the accident will occur. This leaves every participant at risk because of lack of this knowledge.
Choices available to manage these risks
The following list summarizes the available choices to the perceived risks involving the business.
• Produce our own muffins
It would be advisable to start productions of our own muffins now that there is enough market to support the large numbers of production involved. This minimizes our exposure to risk of Scholes Muffins Inc failing for any reasons. It puts in a better position to manage our productions because this way we are obliged to do our best to meet the requirements placed and we are responsible for our own failures. In that even if it got to the point that we pay for a missed delivery one time we will learn from it and make sure it does not happen without blaming this result on anyone else.
• Increase the number of employees in the transport sector
With the large number of our product output required, we will need to employ more people in the transport sector. With the perceived large numbers of products, there will be transportation slow down if we maintain the same number of employees. Increasing their numbers subsequently increases the work force therefore creating a continuous smoothly running process from production to delivery. As said earlier, in the production facilities almost every process is automated therefore there won’t be much need of employee addition.
• Construct the new production facility
If the idea of constructing the new production facility in Brownfield Rejuvenation District is pushed through, this will mean we have the facility to produce our own muffins and this way we are responsible for the whole business in general without having to involve any other production company. The new facility will also create more space for efficient production because this will decrease the work load in the other production facilities. With every production facility focusing on their own product they are able to maximize their output. This also paves way for better management because every facility will be responsible for its own product. There is also creation of a competitive working environment because neither of the productions facilities will want to be the one causing the business to be charged for not delivering the required product amount. And competition being the best motivation, a high output trend is maintained and the business works towards success.
• Request for a few exceptions in the Liquidated Damage Provision
As much we do not want to look incompetent, we should also be real because we are operating in a real world situation. Giving no exceptions in the Liquidated Damage Provision increases the risk on our side because nothing is perfect including the environment we work in. So for normality purposes we could ask for some valid exceptions incase of any failure to deliver. For instance, in the case of natural causes like floods among others. In a business like this where there is mutual benefit it would not be our planned purpose not to deliver.
• Convince the partners selling out heir ownerships of the benefits of staying in the business
If the business partners move forward with selling out their ownerships this will mean that they are refunded their capital share and given their share of the profits up until that moment. This leaves us vulnerable to abide to the demands made by the contract especially with the need to aid the building of our new production facility. But all this will take a turnover if we convince them that even with the new contract and a good management team everything will run just as smoothly and with success comes more profits for everyone.
• Employ an efficient and experienced management team
This will further more convince the partners who want to sell out their ownerships to stay because it reduces their participation in the running of all the business errands. The team will also have more experience on how to run the business compared to most of these partners who are running it from natural instinct not from a professionally educated level.
• Insure the business of most probable accidents
Since accidents and injuries in this business do not follow a certain trend, the business should get coverage for the most probable accidents for example fires, floods, road accidents and others of this relation. This reduces the damage that could be incurred if any of them happened and there was no single insurance cover for any of them. This also ensures the security of the employees and once the business shows this kind of concern for its employees then they work to the maximum of their productivity.
Problems and consequences of the choices
After an analysis and compilation of the choices that business has, this is an explanation of the problems that could arise to the various choices and the consequences that tag along.
o More expenses
The aspect of increased expenses shows up on several choices. First, in the proposed production of our own muffins. For this to be achieved we will need to start up a whole production line and get it going which means lots of cash. Increasing the number of employees to cater for the increased numbers of production also means more expenditure. For the moment before the business picks up and starts giving returns this would mean operating under losses. The construction of a new production facility in Brownfield Rejuvenation District will need a lot of money for building and equipping it for the intended purpose. Apart from this there are also the tax benefits that will be added on the business for building there. Employing the proposed management personnel for the new contract will call for more payments and so will the proposition of insuring the business against most probable risks.
By requesting for the exceptions in the Liquidated Damage Provision even out of the best of intentions might as well translate to them as incompetence and fear of the obstructions that might be involved. This might result to the loss or cancellation of the contract due to lack of confidence in our capability.
o Time factor
Clearly for the choices here above to be implemented and start functioning properly, it will take a lot of time. For instance, building the new production facility will consume so much time to bring it up and on the commencement of the contract they will still need the products they asked for to be delivered to them. The employment process too for both the transportation sector employees and the management will take time if the targeted employees are to be the best. This will put us in a situation where we are working to catch up with the time and this might result to mistakes in the process.
From the study above I would recommend a few actions be taken for the better purpose and result of the contract.
The business should build another production facility.
Employ a professional management team.
Increase the number of employees in the transport sector.
Insure the business’ targeted areas.
This part explains more on why the recommended choices should be chosen for implementation.
Even with the risks involved in starting up another production facility, I think it would be for the better of the business. In the mean time they should take on the risk and still have Scholes Muffins Inc provide the muffins required for the contract and make sure they keep up with the production requirements. Later on after the business now has its own production facility, it will cut the cost and there will be realization of increased profits.
Apart from employing the management team for the purpose of running the business, it also gives the partners who wanted to sell out because of the personal involvement a reason to stay in the business. This keeps their money in it and running of errands will be better.
So as not to strain the transport sector a lot with the increased production output, employing more people reduces the stress and this enhances their performance and the terms of the contract in reference to delivery in time are met.
Insuring the specific areas that are most faced with threats reduces the damage caused if the perceived threat happens. For instance if a fire was to happen without a coverage for it, all the incurred losses would go to the business meaning a down fall. But with an insurance coverage, the insurer would incur for the losses and this would bring the business up and running within no time.