Top 20 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.
Inorder toexpandproductportfolio,AmratColabeveragesexperiencedtoinvestinpurchasinga
machine that produce Juice only. Others investments included infrastructure, HR induction etc.
had beenmade accordingly.Butunfortunately,the productcouldn’tgetaclickinthe marketand
became a failure aftercouple of months.Thiswasa bigfailure &the line wasonly specializedfor
Juice production only, hence, diversification for other categories like carbonated drinks, Water
etc. wasn’t possible to make.
However,at a laterstage,the company decidedto outsource the machine & it was purposedto
mitigate the financial risk.Though,thiswasn’taprofitable proposition,butthismove helpedout
the company to mitigate the investment risk.
2) Active Risk
Coke &Pepsi are inaperfectcompetitionandkeepalmostsimilarpriceinordertohave abalance
demandat marketplace.Last year,CCBPL increasedthe consumerprice of its1.5L 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 marketdemand owing thisstep, 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 packwhichhelpedtoincrease itsoff take.Alsoanincentive forretailerstopushthe packwas
another strategic move to minimize the risk against thisbold 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 & itsdirecteffecttranslate tothe beverage industryinformof inflationof Sugarbags
priceswhichhappensunseenquite often&itsdirectly affectthe purchasingpower of an entity.
Nowthe purchasingmodel of Sugar routingthrougha 3rd party inwhichthe vendoris bound to
supplybagsat a fixedrate tothe company& in case of deflation,the price hasbeensupposedto
re-negotiate.

2. Prepared by:Muhammad Arman Yousaf
4) Default Risk
CCBPL isusedto give the upfrontpaymentstothe retailersagainstexclusiverightsinthe outlets.
The riskof defaultexplicitly existthere &inorderto mitigate,she demandthe retailerstogive a
cross cheque againstthe givenpayment.Thischequeserveasa guarantee alongwithcompletion
legal documentation.The companyiswitnessedtolowestthe defaultriskby doingthis 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 inhand,if it’snotmanagedwell.Whenpayablesare overdue andARshave crossedtimeline
and assets are overshooting & risk of liquidity risk start hanging.
Such situationneedstobe controlledbyre-negotiatingtimelineswiththe vendorsanddue time
to pay to be extended. Alongside, controls at ARs should be strengthened in order for smooth
cash flow. The finance should be efficientenough 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
beeninteractingthis situation since manyyears.This regulatory riskhas beenmanagedthrough
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
vigilanteye atexchange rate fluctuation,since the riskexistwhenforinstance,the bottlerhasto
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 riskstronglyemerge forthe industriesatthat pointof time.Usually,the
foreigninvestments&meanwhile, investmentsinpipelinegetonhold.Sothe organizations can’t
ignore or underestimate this risk at all.
Thoughthese issuescan’tbe directlycontrolled,butthese potential riskscanbe loweredbyRisk
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
organizationsometimesoccureveryoften&andeventuallythe companyincurthe costafterthe
people gone (Training, Expertise cost etc.)
In order to reduce the people turnover,Coke is veryefficientinengagementof itsstaff through
capability development, on job trainings, motivational forums, and international exposures &
cross functional experiences.Thishasreallyreapedinencouragingthe employeestowardstheir
personal & biz development.
10) Human Capital Risk
One of the major sources of finance in everyone’slife is humancapital that is monthly or yearly
earning.Differenttypesof risksmighthamperthisfinancial assetsuchasdeath,illness, recession
or jobterminationetc.This isone of the unfortunate of caseswhere one facesfinancial loss.All
such risks are unavoidable and many a times sudden. A sudden death of a person might cause
financial lossforan entire familyanditisthe same withillness.Recessionleadingtojoblossand
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 veryagile at the market level &have an intelligenteye overthisconcern by keepingits
eye onthe competitoractivities&eventualoutcomeat the companysalesvol.Activitiestoengage
the retailers to sell more Coke are perused in the trade commonly by incentivizing and trade
promotions.
12) Seasonality Risk
While movingfromsummertomid&thenendsummer,the salescurve of Beveragesshowsalazy
sales volume because of consumption pattern. Sometimes the company produces excessive
product (espin case of new product developed) beinghingedbya bull whimeffect& 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 offeringconstantvariableproductpricesinthe market,anorganizationmaysufferequity
damage whichtranslate intofinancial lossasaresult of salesdecline.The Pakistani trade is
more cautiousabout marginal benefitrather&demandhighmargin.
CCBPL isnowpromotingitsBrands equitythroughpersistentapproachatprice point & as a
strategicmeasure,increasedbackendmarginsof retailersinsteadreducingconsumerprice.This
has supporteditsportfoliotoleadprestigiouslyinthe mindof the consumer&givinghidden
benefitstoretailersiscontinuouslyhelpingouttopushsales.
14) HSE Risks
There is alwaysa great hazardouspotential existif an organizationisfullyequippedwithHealth
& safety, thatincludesequipment’s,trainings to personnel’s, skilled staff, HSE rescue staff etc.
CCBPL hasa ful-fledge HSEfunctionrecentlydevelopedandtrainedpersonshave beenhiredand
deployed in different roles for HSE awareness & compliance. Trainings,safety drills, Emergency
squadshave beenalliedinordertocounteranyunforeseenchallenge&tomitigate/eliminatethe
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 knowntoputheavyinvestmentinformof chillingequipment’s atthe
market place in order to complement their products chilled to their customers.
CCBPL has facedlossesinthe pastyearsbecause of chillersloss/misplacedinthe market&there
was no tracking mechanism for watchfulness, so the stakes were always remained high.
Nowthe organizationisfullyequippedwithtrackingmechanism&now,salesforce isresponsible
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
inventorylossesandcarriage cost for inter-stocksmovement.Slacknessmayresultintoblocking
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.
The beverage sectorisveryactive tokeepontrainingtheirpeople toenhancetheirtechnical skills.
This practice reduce many risks which may cover from a business – business or business –
customer.
19) Real Assets risk
Premises,Plants,cars&otherinfrastructure etc.are termedasreal assetsandrisksinvolvedwith
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 assetsinsured&mitigatethe riskbytrainingtothe people.Avoidbuildinginfrastructure inan
earthquake prone areas etc
20) Financial Assets Risk
The organizationmightface lossof hugecashfloworprofitdue tounfortunateinvestments.Some
are due to lackof knowledge andothersare due tosheermisfortune.The risksthatcause lossof
financial assetsare stock market decline,inflationetc.One wrongturn may leadsto 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,CCBPLhas chippedinfinancial experttobe watchful &vigilantwithmarket
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.