2 The risk committee at Southern Continents Company (SCC) met to discuss a report by its risk manager, StephanieField. The report focused on a number of risks that applied to a chemicals factory recently acquired by SCC in anothercountry, Southland. She explained that the new risks related to the security of the factory in Southland in respect ofburglary, to the supply of one of the key raw materials that experienced fluctuations in world supply and also anenvironmental risk. The environmental risk, Stephanie explained, was to do with the possibility of poisonousemissions from the Southland factory.The SCC chief executive, Choo Wang, who chaired the risk committee, said that the Southland factory was importantto him for two reasons. First, he said it was strategically important to the company. Second, it was important becausehis own bonuses depended upon it. He said that because he had personally negotiated the purchase of the Southlandfactory, the remunerations committee had included a performance bonus on his salary based on the success of theSouthland investment. He told Stephanie that a performance-related bonus was payable when and if the factoryachieved a certain level of output that Choo considered to be ambitious. ‘I don’t get any bonus at all until we reacha high level of output from the factory,’ he said. ‘So I don’t care what the risks are, we will have to manage them.’Stephanie explained that one of her main concerns arose because the employees at the factory in Southland were notaware of the importance of risk management to SCC. She said that the former owner of the factory paid less attentionto risk issues and so the staff were not as aware of risk as Stephanie would like them to be. ‘I would like to get riskawareness embedded in the culture at the Southland factory,’ she said.Choo Wang said that he knew from Stephanie’s report what the risks were, but that he wanted somebody to explainto him what strategies SCC could use to manage the risks.Required:(a) Describe four strategies that can be used to manage risk and identify, with reasons, an appropriate strategyfor each of the three risks mentioned in the case. (12 marks)

2 The risk committee at Southern Continents Company (SCC) met to discuss a report by its risk manager, Stephanie

Field. The report focused on a number of risks that applied to a chemicals factory recently acquired by SCC in another

country, Southland. She explained that the new risks related to the security of the factory in Southland in respect of

burglary, to the supply of one of the key raw materials that experienced fluctuations in world supply and also an

environmental risk. The environmental risk, Stephanie explained, was to do with the possibility of poisonous

emissions from the Southland factory.

The SCC chief executive, Choo Wang, who chaired the risk committee, said that the Southland factory was important

to him for two reasons. First, he said it was strategically important to the company. Second, it was important because

his own bonuses depended upon it. He said that because he had personally negotiated the purchase of the Southland

factory, the remunerations committee had included a performance bonus on his salary based on the success of the

Southland investment. He told Stephanie that a performance-related bonus was payable when and if the factory

achieved a certain level of output that Choo considered to be ambitious. ‘I don’t get any bonus at all until we reach

a high level of output from the factory,’ he said. ‘So I don’t care what the risks are, we will have to manage them.’

Stephanie explained that one of her main concerns arose because the employees at the factory in Southland were not

aware of the importance of risk management to SCC. She said that the former owner of the factory paid less attention

to risk issues and so the staff were not as aware of risk as Stephanie would like them to be. ‘I would like to get risk

awareness embedded in the culture at the Southland factory,’ she said.

Choo Wang said that he knew from Stephanie’s report what the risks were, but that he wanted somebody to explain

to him what strategies SCC could use to manage the risks.

Required:

(a) Describe four strategies that can be used to manage risk and identify, with reasons, an appropriate strategy

for each of the three risks mentioned in the case. (12 marks)

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