Top financial risks

1. Prepared by: Muhammad Arman Yousaf
Description of 20 financial risk associated to an organization (Industry specific)
& how we can mitigate them
1) Investment Risk / Market Risk
There is always a risk exist while putting/expanding investment in order to increase the
organizational market size & unfortunate failure may result into big losses.
In order to expand product portfolio, Amrat Cola beverages experienced to invest in purchasing a
machine that produce Juice only. Others investments included infrastructure, HR induction etc.
had been made accordingly. But unfortunately, the product couldn’t get a click in the market and
became a failure after couple of months. This was a big failure & the line was only specialized for
Juice production only, hence, diversification for other categories like carbonated drinks, Water
etc. wasn’t possible to make.
However, at a later stage, the company decided to outsource the machine & it was purposed to
mitigate the financial risk. Though, this wasn’t a profitable proposition, but this move helped out
the company to mitigate the investment risk.
2) Active Risk
Coke & Pepsi are in a perfect competition and keep almost similar price in order tohave a balance
demand at market place. Last year, CCBPL increased the consumer price of its 1.5L pack (flagship
pack) without taking competition in loop. Though it was an explicit Active risk since it was quite
possible to damage its other portfolio market demand owing this step, when PCI was not ready
to take this measure.
But CCBPL stood firm with this action and started aggressively to work at in-store execution of
1.5L pack which helped to increase its off take. Also an incentive for retailers to push the pack was
another strategic move to minimize the risk against this bold step & things went successfully in
favor of the company
3) Inflation Risk
It’s very usual in Sugar prices fluctuation when it comes to low yield against desired Volume of
Sugarcane & its direct effect translate to the beverage industry in form of inflation of Sugar bags
prices which happens unseen quite often & its directly affect the purchasing power of an entity.
Now the purchasing model of Sugar routing through a 3rd party in which the vendor is bound to
supply bags at a fixed rate to the company & in case of deflation, the price has been supposed to
re-negotiate.

2. Prepared by: Muhammad Arman Yousaf
4) Default Risk
CCBPL is used to give the upfront payments to the retailers against exclusive rights in the outlets.
The risk of default explicitly exist there & in order to mitigate, she demand the retailers to give a
cross cheque against the given payment. This cheque serve as a guarantee along with completion
legal documentation. The company is witnessed to lowest the default risk by doing this practice.
5) Liquidity risk
When it’s come to cash flow, a bottler has to face a stinky situation due to scarcity of available
cash in hand, if it’s not managed well. When payables are overdue and ARs have crossed timeline
and assets are overshooting & risk of liquidity risk start hanging.
Such situation needs to be controlled by re-negotiating timelines with the vendors and due time
to pay to be extended. Alongside, controls at ARs should be strengthened in order for smooth
cash flow. The finance should be efficient enough in working capital management in order to
eliminate liquidity risk.
6) Regulatory Risk
Changing in tax regime and uncertain increase in excise duty is quite often now & Bottlers have
been interacting this situation since many years. This regulatory risk has been managed through
some steps:
 By selling more vol than budgeted
 By increasing the products prices in order to offset the challenge
 By Cost cutting where possibilities
7) Exchange – Rate Risk
In case of importing raw material/machinery from other county, it’s very important to have a
vigilant eye at exchange rate fluctuation, since the risk exist when for instance, the bottler has to
pay in dollar & PKR devaluation before payment may result in loss.
To mitigate the risk, the industry is practicing with some vendors to pay the fixed price (no
variation in exchange rate to be regarded).
8) Political Risk
Political instability & Terrorism etc. play an imperative role in disrupting the economic situation
of a county & a political risk strongly emerge for the industries at that point of time. Usually, the
foreign investments & meanwhile, investments in pipeline get on hold. So the organizations can’t
ignore or underestimate this risk at all.
Though these issues can’t be directly controlled, but these potential risks can be lowered by Risk
management costs (through more rational hedging and insurance purchasing).

3. Prepared by: Muhammad Arman Yousaf
9) People risk
The people serving in an organization are the most useful & valued asset. Within a limited
industry/competitors (like Coke, Pepsi), the rotation of employees from one to another
organization sometimes occur every often & and eventually the company incur the cost after the
people gone (Training, Expertise cost etc.)
In order to reduce the people turn over, Coke is very efficient in engagement of its staff through
capability development, on job trainings, motivational forums, and international exposures &
cross functional experiences. This has really reaped in encouraging the employees towards their
personal & biz development.
10) Human Capital Risk
One of the major sources of finance in everyone’s life is human capital that is monthly or yearly
earning. Different types of risks might hamper this financial asset such as death, illness, recession
or job termination etc. This is one of the unfortunate of cases where one faces financial loss. All
such risks are unavoidable and many a times sudden. A sudden death of a person might cause
financial loss for an entire family and it is the same with illness. Recession leading to job loss and
job termination is another risk that a person might face in their life owing to various reasons.
The question is how you manage such risks when the risks are unavoidable. One cannot avoid
death but can definitely maintain savings and insurance to avoid sudden downfall or financial
crisis for families. Medical insurance takes care of financial risk occurred due to illness. On the
other hand, savings and professional contacts help one to control risks caused due to job loss.
11) Sales Risk
Sales risk is affected by demand for the company's product as well as the price per unit of the
product & major impact usually observed when the competitors’ products increase stock depth
into the outlet.
CCBPL is very agile at the market level & have an intelligent eye over this concern by keeping its
eyeon thecompetitor activities & eventual outcomeat thecompany sales vol. Activities toengage
the retailers to sell more Coke are perused in the trade commonly by incentivizing and trade
promotions.
12) Seasonality Risk
While moving from summer tomid & then end summer, the sales curve of Beverages shows a lazy
sales volume because of consumption pattern. Sometimes the company produces excessive
product (esp in case of new product developed) being hinged by a bull whim effect & to sell the
product in the market esp. in off season emerge as a greater challenge.
So in order to liquidate the product & to mitigate the expiry losses, Trade promotions & high
impulsive displays are encouraged to improve sales volumes.

4. Prepared by: Muhammad Arman Yousaf
13) Equity Risk
By offering constant variable product prices in the market, an organization may suffer equity
damage which translate into financial loss as a result of sales decline. The Pakistani trade is
more cautious about marginal benefit rather & demand high margin.
CCBPL is now promoting its Brands equity through persistent approach at price point & as a
strategic measure, increased back end margins of retailers instead reducing consumer price. This
has supported its portfolio to lead prestigiously in the mind of the consumer & giving hidden
benefits to retailers is continuously helping out to push sales.
14) HSE Risks
There is always a great hazardous potential exist if an organization is fully equipped with Health
& safety, that includes equipment’s, trainings to personnel’s, skilled staff, HSE rescue staff etc.
CCBPL has a ful-fledge HSE function recently developed and trained persons have been hired and
deployed in different roles for HSE awareness & compliance. Trainings, safety drills, Emergency
squads have been allied in order to counter any unforeseen challenge & to mitigate/eliminate the
related risks.
15) Technology Risk
Technology advancement & organizational adaptation are now the utmost interconnected in
order for biz growth & to mitigate financial risks related to Technology. Absence/lack of
technology may result into financial losses since the people of organization are not fully
equipped/aware of market trends due to this lankness.
Large & renowned FMCGs know the substantial importance of Data savvy and putting up more
money in order to excel through this.
16) Market Asset Risk
Coke & Pepsi are very well known to put heavy investment in form of chilling equipment’s at the
market place in order to complement their products chilled to their customers.
CCBPL has faced losses in the past years because of chillers loss/misplaced in the market & there
was no tracking mechanism for watchfulness, so the stakes were always remained high.
Now the organization is fully equipped with tracking mechanism & now, sales force is responsible
to physically scan each cooler once a month. This exercise has greatly reduced the potential of
chillers loss in the market.
17) Imbalance inventory Risk
Maintaining a proper inventory level in the warehouses in necessary in order to mitigate high
inventory losses and carriage cost for inter-stocks movement. Slackness may result into blocking
huge inventory/amounts, expiry losses & carriage costs etc.

5. Prepared by: Muhammad Arman Yousaf
CCBPL has been doing very well since last few years & a proper trendy forecast “by location” is
being called from Sales services dept in order to produce/deliver accordingly.
18) Low skilled staff risk
The organizations engaged in manufacturing/operations have some people working in repair &
maintenance of auto vehicles, Assets etc. Low skilled/unskilled staff may result into incurring
more cost when it comes to repair & maintenance.
Thebeveragesector is very activetokeep on training their people toenhance their technical skills.
This practice reduce many risks which may cover from a business – business or business –
customer.
19) Real Assets risk
Premises, Plants, cars & other infrastructure etc. are termed as real assets and risks involved with
it might lead to loss of real assets. The risks here can be owing to natural disaster, accidents,
weather damage and so on. Organizations might face damages & severe financial losses etc.
In order to mitigate such risks, organizations follow the key strategies of risk management. Get
the assets insured & mitigate the risk by training to the people. Avoid building infrastructure in an
earthquake prone areas etc
20) Financial Assets Risk
Theorganization mightfaceloss ofhugecash flow or profit duetounfortunateinvestments. Some
are due to lack of knowledge and others are due to sheer misfortune. The risks that cause loss of
financial assets are stock market decline, inflation etc. One wrong turn may leads to huge losses
like investment in common stocks without seeking trend, launching a product which is misfit to
market. Similarly, inflation too leads to heavy loss of financial assets in everyday life.
To control such risks, CCBPL has chipped in financial expert to be watchful & vigilant with market
status, the rise and low. While investing on a plan, she consult with every stakeholder, make
alignment with trends, consult with other experts before taking a leap.