Risk management: Danone

Résumé du document

Risk management is about choices and decision-making. Choices and decision the company makes are totally dependent on its risk profile. Its risk profile can be risk averse, risk neutral or risk seeking, it depends on the company strategy in terms of risk management. Risk management consists in handle risks to manage them. Risk management is used to identify risks in order to develop an accurate risks portfolio to optimize all risks putting in place a strategy focusing on critical risks.

The main aim of the risk management is to avoid haphazard risk quantification monitoring them. Of course, risk management is able to support the business and to optimize outcomes. Four mains steps compose the risk management process: risk identification, risk assessment, risk monitoring and finally risk control.

There are different kinds of risks as business risks, market risk, credit risk or operational risk. In this study, different business risks are analyzed for several reasons explained . The main objective of this study is to define what direction to go and what changes could be implemented in Danone risk management in order to boost its share price.

Extraits

[...] Nowadays, Danone is one of the giant actors in the food industry. The company is entirely focus on its customer (end- customer) and on product innovation. The firm wants to provide the best quality and innovative product ensuring food safety. The company implements a strategy of risk averse in terms of risk management because the firm is not able to have a risk seeking position because of the type of product delivered to the end customer. I think, in the food industry, it is very complicated to take unconditional risks whereas in the finance sector, for example, companies can be more risk seeking. [...]

[...] Consequently, business risk is directly linked to the company share price and might affect it. External and internal factors could determine business risk affecting the firm's profitability. In terms of strategy, Danone maintains an active risk management policy enables to protect and develop its assets and its reputation. Currently, the risk profile of Danone is “risk averse” oriented. Indeed, the company wants to protect the interests of all its stakeholders that is to say, its shareholders, employees, consumers, customers, suppliers[1]. [...]

[...] For example, in of crises and incidents identified were related to product Quality and Food safety. It is urgent for the firm to implement measures and reinforce existed processes to reduce this percentage. In addition the probability that the company faces this risk is high because it is the core of the product delivered. Impact: 3 Likelihood of occurrence: 2 - Economic condition This risk could impact Danone's result because customer's purchasing power decline in time of economic crisis. But this risk depends on the country and its population. [...]

[...] The initial objective in the balanced scorecard was to combine financial and non-financial performance measurements to express a corporate strategy. It is a top-down process. It should provide a comprehensive view of the Critical Success Factors of Danone. The measurements reflect the corporate's vision, and emphasizes operational performance to monitor successful implementation. The balanced scorecard reflects hypothesis about cause-and-effect relationships, and is reflected in the bonus. There are four different sections in the balanced scorecard that are: Financial performance: i.e. Profitability, ROI, ROE Customer performance: i.e. Customer satisfaction / retention, market share Internal business process performance: i.e. [...]

[...] Danone has many reasons to invest in risk management policy because it enables the brand to bring confidence to shareholders. As we previously said, more than of the capital is held by institutional investors who want security and guarantee. Reinforcing the risk management strategy allows the company to bring this security to its stakeholders. Danone's model has to remain risk averse insisting in monitoring and controlling risks. Brand image, quality products, group's reputation and innovation are the Danone basis to compete in food industry. [...]