Risk Management Customers and the Industries

Question: Describe about the Risk Management for Customers and the Industries. Answer: Introduction Dales Inc. is an international solar company that manufactures and sells specialist solar panels and components to the customers and to the industries in the UK. The company uses the Dales Inc.s Intelligent software to determine the purchases made by the customers and thereby recommend other products by email. The software has been beneficial as it allowed the company to achieve a growth in the sales trend (Soin Collier, 2013). However, the company faced a security breach that affected almost 5,000 customers of the company. The study analyses the weakness present in both the control environment as well as the internal controls that supported the loss of the data and information from the software. Based on the weakness of the company, the recommendation is made that helps to gain back the confidence of the customers and further prevent the issues from occurring in future. Weakness in the control environment and the internal controls that cause data loss Dales Inc. suffered a huge security breach that affected the company to a large extent as the company lost a number of important data about the customers. The ineffective security system of the company has been one of the reasons behind the breach. The scenario occurred when a laptop of one of the contractors of the IT department was stolen from the car. The contractor was a data analyst covering the sickness absence and was unaware of the security procedure of the company (Rockafellar Uryasev, 2013). The contractor being too casual about the security system had copied the details of the customers from the secure company server onto a memory and then to the personal laptop. It can be thus implied that the management of the company was not completely aware of the organisational rules, policies and systems and the improper communication gave way to the breach in the company. The organisation faced a lot of downfall as a number of potential customers turned against the company. There was a number of complaints filed against the company by the customers. From studying the complaints, it was observed that the complaints were received mainly from the customers whose files were present on the laptop and the memory card. The major weakness of the in the control environment and the internal controls of the company is that there is an absence of appropriate risk management system present (Bromiley et al., 2015). Recommendation that help the company to restore the confidence of the customers and prevent the issues The loss of the data and the breach that took place in the Dales Inc. caused the company to observe a drastic downfall in the organisational performance. The customers had a number of complaints against the company as they were highly dissatisfied with the irresponsibility of the organisation and the harassment they had to face. In order to deal with the circumstances, the policy of Dales Inc. was to gain clarification from the account holder and suggest them that the order might have been placed by someone else in the family who knew the password of the account and was thus able to operate it (Rampini, Sufi Viswanathan, 2014). Moreover, the customer service department of the company wrote to all the customers who held an account in the company. The customers were asked to cancel any sort of disputed charges on the account. Moreover, to gain the customer loyalty, they asked the customers to review the transactions on their individual credit card statement to identify if there has been any sort of unauthorised payments. There was a number of customers who complained about the company to the major new channels of that area (Kaplan Mikes, 2012). As a result, many potential customers disputed their payments that were made over the past few months. In the opinion of McNeil, Frey Embrechts, (2015), the company will be able to avoid the situation from happening again in the future and also gain back the customer by adopting certain risk management strategies. Determining board risk oversight responsibility is one of the strategies that will help the organisation to manage the risk present in the organisation. It is the managers who are responsible for the risk management and the board of the company is responsible for looking after the management process. This helps the boards to identify, monitor and mitigate the risk present in the organisation. Moreover, enhancing the risk intelligence allows the company to perceive the risk management at all the levels of the organisation and thus allows the company to carry out the business despite the risk. Glendon, Clarke McKenna, (2016) mentioned that it is important to communicate the responsibilities and make the contractor aware of the security management system present in the workpl ace. Thus, aligning the risk management with the strategies will help Dales Inc. to achieve the desired objectives regarding risk management and gaining the customers confidence. Desirability of capital investment in the UK Dales Inc. shows the keen interest in the investment of capital in the UK in order to manufacture industrial solar panels as the financial manager claims to gain the higher profit from the investment. As per the evaluation, the capital expenditure of 10m would be required while an extra 1m will be recovered from the project at the end of five years. The annual revenue from the project as estimated by the finance of Dales Inc. was 2m with an operating cost of 1m. The investment project is considered to be a zero scrap value project. The company desires the capital investment in the UK as the industrial solar industry there has an equity beta of 1.40. The ratio between the average debt and the equity gearing ratio has been 1.4. The debt capital was further found to be virtually free from risk. The current return on the government stock of UK was 9% and the excess market return was 9.17%. Thus, the market of UK was suitable for the capital investment. Dales Inc. would be able to gain the higher profit from the investment. Nevertheless, the company gains certain additional benefits from the capital investment. The corporate tax being 35% in the UK, the managers would be able to pay the tax without delay. In the opinion of Lam, (2014), there would not be any US tax on the project due to the double-taxation agreement. The project is considered to be desirable for Dales Inc. as the managers estimate positive outcome from the investment project. The company is able to recover the invested amount plus an extra amount fr om the investment and hence, the undertaking of the project is recommendable for Dales Inc. Limitations and difficulties of using the Capital Asset Pricing Model The capital asset pricing model (CAPM) is a model that describes the relationship between the systematic risk and the expected return on the assets and the stocks of the organisation. Chance Brooks, (2015) argued on the implementation of the model in the organisation due to the various limitation of the model. The values have to be assigned to risk-free rate of return, a rate of return, equity risk premium (ERP) and the equity beta before using the model. The evaluation of the ERP value is a difficult task. The CAPM does not provide the managers of the company with a clear view about the average stock return. Christoffersen, (2012) further criticised the model by stating that it fails to describe why small shares serve better outcome than the large shares. According to Pritchard PMP, (2014), Capital Assets Pricing Model (CAPM) can be carried out perfectly in time while there is a chance of mispricing the shares. The unqualified alpha can be zero when the alpha is either not conditional, beta fluctuation occurs with time or there is market equity or volatility (Sadgrove, 2016). The CAPM is also unable to illustrate the premium values. Thus, the limitations and the difficulties of the capital asset pricing model suggest that the company needs to be very careful regarding the implementation of the model in the business. Conclusion Dales Inc. experiences the breach in the organisation due to the ineffective control system and the improper risk management system considered by the managers. The breach resulted in the loss of the useful data or the information about the potential customers of the company. This scenario caused the company to lose a number of customers as they lost the confidence on Dales Inc. The company had the various weakness that resulted in the loss of the data. It was thus important for the company to consider policies or strategies that would help to address the situation that Dales Inc. had been facing. The consideration of the recommended risk management strategies supports the process of gaining back the confidence of the customers. This would allow the company to gain back the market position. Moreover, the capital investment seems to be desirable in the UK due to the various positive factors. The company would be able to gain a higher profit by investing into the project. However, the Capital Assets Pricing Model (CAPM) has a number of limitations that needs to be kept under consideration while implementing in the business environment. 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