Mcdonalds Risk And Risk Management

Mcdonalds Risk And Risk ManagementIntroduction to put on the line counselThe only thing we cheat intimately futurity is that we do not know what is going to happen. This is related to definition of fortune in general.Miles Wilson (1998) define assayiness as being an exposure or a probability of occurrence of a loss. Risk abide to a fault be viewed as having a positive effect. PMBOK (2004) defines run a take a chance as an transmuteful event or condition that, if it occurs, has a positive or negative effect on traffic objectives.Risks have a huge influence on the victor or stroke of business. However, take a chance of exposures offernot be avoided, besides they heap be managed. They must be managed by applying effort to their reduction or elimination. Not entirely risks need to be eliminated. They atomic number 18 some fourth dimensions sufficient to squeeze the projects exposure to a direct that is unimp from each unitaryable to the project. Risk counsel costs time and effort, neverthe slight the impacts brook be significant. Without risk focus, the chances of danger of failure leave be high.Effective st come ingic risk management can minimise of weaknesses within plaques create damage. However, effective strategic risk management tools became harder to implement as business operations grow, become much knotty, and operate in multiple locations.Risk management is increasingly recognised as being touch with both positive and negative aspects of risk. Potentially, there ar the opportunities for benefit or threats to success as a result of risk.Risk in financial climate a inceptions through count little transactions of an scotch nature, including gross sales and purchases, investments and loans, and various other(a) business activities.Therefore, risk management can provide a solution to qualification individual and caller less in danger. Identifying outline for risks as soon as thinkable is peculiarly pregnant.T here atomic number 18 common approaches to risk which take alternative action when risks exposure, removal as crack risk, measure opportunities to risk may occur and make plan to mark and acceptation of risk.According to move (2001), the systematic approach makes the risks clear, formally describing them and making them easier to manage. In other words, systematic risk management is a management tool, which requires practical experience and provision in the use of the techniques.Appropriate responses to risk must be nimble to all the risks that would significantly dissemble the schema or returns of the come with if they were to occur.Background of McDonaldAccording to McDonald (2010), McDonald is the worlds largest cooking stove of quick service restaurants system of rules in the world, serving tens of millions of clients daily ecumenical.There are much(prenominal) than 30,000 restaurants in 120 countries worldwide.According to McDonalds Corporation Annual Report (200 9), taxation has reached a record more than US$20 billion and US$6.8 billion income and 390,000 employees.McDonalds ope judge according to four values which are quality, service, convenience and value. federal agency of organisational culture is the quality of the food and service wherever the branch is located. The good reputation of the come with and the lookout of an excellent service no matter which branch people eat is a marketing strategy of McDonalds. McDonalds set a standard applicable to all branches worldwide. However the company in like manner gives a mode for innovation by allowing the branches to integrate culture into food and service increasing market share.McDonalds tries to operate on a cost leadership basis by offering low priced goods with higher profit margins. near of the efficient strategies adopted by McDonalds associate with this strategy of low cost.Since McDonalds operates in 120 countries on 6 polar continents, they offer different food selections because of different inevitably in each country, due to religion, diets, and resources of each individual country. This flexibility and knowledge allows McDonalds to fulfill orbiculate targets and compete with the other competitors. It shows that the company predict customer needs and handled wholesome to risk.The PESTLE synopsis of the macro instruction environsAccording to BADU (2002), more of organisations success or failure, profit or loss, growth or decline depends on how well they respond to macro semipolitical, economical, genial, technical and regulatory changes which is the external macro surroundings.Johnson Scholes (2005) support that the external factors can be divided into six categories which political, surround, social, technology, purlieu and legal. These external factors usually are out of the organisations control and sometimes present themselves as threats.The macro environment summary is usually the first step of a strategic analysis. It is sometim es referred to as an external analysis or a PESTLE analysis. In other words, it can be analysed with the many different factors in an organisations macro environment by using the PESTEL frame locomote.The purpose of the macro environment analysis is to identify possible opportunities and threats in the manufacture as a whole that are outside the control of the industry.According to Kotler (1984), the macro environment consists of the larger societal forces that affect micro environment. The micro environment, on the other hand, consists of the forces close to the company that affect its ability to serve its stakeholders. initiatively, the macro economic environment analysis go out identify trends much(prenominal) as changes in personal disposable income as rises in living standards or the general aim of take aim, rises or falls in interest rates, unemployment rates and inflation. According to Luffman Sanderson (1988), the economic environment consists of the current and futur e tense state of key economic variables utilise to describe wealth, buying power, savings and consumption, together with brass economic policy deployed to affect those variables. For examples, Gross National Product (GNP) or disposable income are key determinants of demand. The diffusion of income in society provides opportunities for organisations to separate crossing or service offerings in terms of levels of disposable income. The rate of inflation and government policy towards it can really affect consumers attitudes to consumption. As a result, company strategy in the economic environment can be not simply threat for organisation, but opportunities for good that company can do better.Moreover, Tchankova (2002) states that the economic environment usually is hardly influenced by the political environment in a single country, but the world-wideisation of the market creates a market that is greater than a single market and needs to be considered separately. Although a partic ular activity of the government can affect the internationalist smashing market, the control of the market is impossible for a single government. Examples of sources of risk generated from the economic environment in global are economic recession and depression and current flip-flop rate.McDonald could suffer in country where the economy of the respective states is hit by inflation and changes in the sub rates.Secondly, the macro political and legal environment analysis will identify changes in government, or a change in government policy. As a result, legislation will be made such as stripped age discrimination and disability discrimination and minimum wages. Moreover, political decisions can impact on many essential areas for business such as the environmental regulations, the employment laws, trade restrictions and tariffs, political stability for internally and externally and decision making structures.Luffman Sanderson support that Government at both national and local l evels can affect companies not only on a day-to-day basis through laws, policies and its authority, but besides at a strategic level by creating opportunities and threats.Furthermore, Tchankova states that the political environment is a more complex and important source of risk in an international aspect. The difference in the ruling system raises different attitudes and policies toward business. For example, contrasted investment might be confiscated, or taxation systems might change significantly, which will bruise the investors interests. The political environment can present opportunities as well.McDonald is the international operations which greatly influenced by the government policies such as regulations and new legislations for tax, trade, product safety, health care and labour.Thirdly, the macro technological environment analysis will identify changes in the application of technology. It is related with the application of new inventions and ideas such as the instructio n of the internet or websites as McDonald company business marketing tools.Luffman Sanderson support that the technological environment is intensify of the impact of science and technology in product and process innovation. Technology can improve quality, reduce costs and lead to innovation. These developments can benefit consumers as well as the organisations providing the products and service.Fourthly, the macro social and ethnic environment analysis will identify trends in religion, beliefs, behaviours, values and standard such as changes in lifestyles like more women going out to work, changes in tastes and buying patterns. Furthermore, the number of part time workers and attitudes and various working environment are also related with changes in society.The speed of change in the social environment may be slow, but its effects are unstoppable.Generally, the companys strategies need time to evaluate the embodied response to social changes.Besides, Tchankova states that the chan ges in human behaviour and state of social structures are cause of risk. The level of employee and loyalty to the organisation determine to a large extent the success of the organisation. At the same time the changes of culture create opportunities.Lastly, the macro environmental analysis will identify factors such as innate(p) disaster or global warming. For example, volcanic eruption that occur few weeks ago impact on many industries including airline, farming and insurance because of volcanic ash. Also, McDonald recycle standard is result of environment analysis. Oxford University Press (2007) supports that with the defy and climate changes occurring due to global warming and with greater environmental awareness this external factor is comme il faut a significant issue for firms to consider.Micro environment analysisThis environment influences the organisation directly. According to beamish Ashford (2005), simple approach to this analysis will be to break it down into 5 elemen ts which are business, customers, suppliers, stakeholders and competitors. These are internal factors close to the company that have a direct impact on the organisations and strategic planning.First of all, in terms of customers, organisations should focus on meeting what customer needs and wants and providing benefits for their customers. Success of business depends on how well organisation analysis of their customer. This analysis can be the basis of organisation provides the right product at right price and to the right place at the right time. Otherwise, business strategy will be failed as a result. Customers are a major environmental factor for McDonalds. Nearly 54 billion customers served by McDonald daily basis. McDonalds customers are mostly young generation. Thats way, company always conscious about their choice. For this reason, customers demand, their choice, what they like is impacting McDonalds.In terms of competitors, restaurant industry is extremely militant. McDonald is one of them and very roaring company. They are doing everything in their power to make sure that they attract to their customers. Therefore, competitor such as KFC and Burger King analysing and monitor is critical if an organisation is to maintain its position within the market. As the competition adjoin, there are more receiptss to the customers. As a result, McDonald is up to date with customer taste and preference.Also, employing the proper lag and keeping these staff motivated is a vital part of the strategic planning process of an organisation. Training and development are essential, particularly in service sector, in order to gain a competitive advantage. McDonald has maintained a huge commitment to their employees and their training, which includes making available to all entitled employees and a consistent management and training programme.In terms of supplier, cheerful Ashford states that supplier relationships are a further critical component to the success of an y organisation. It is important to many organisations to ensure consistent supplies in order to meet consistent demand for their product ensuring competitive and quality products for an organisation. Therefore, supplier analysis is essential. As a result, organisation must study some factors such as costs, quality, warranty, financial stability and the relationship suppliers have with competitors.For example, increasing beef prices will have affect on the strategy of McDonald. Prices may be going up as a result.In terms of stakeholders, they are individual or group that can greatly influence the operation of the company. Stakeholders support makes company successful. They have in turn certain expectation from the company. Therefore, to analysed stakeholder expectation is fundamental.According to Beamish Ashford, the role of stakeholders in any organisation seems to have an increasing influence in which organisation can do business.Shareholders are one of typical stakeholders who require a certain level of return which bureau it is important for any organisations to focus on making decisions that satisfy and maximise this return. Satisfying shareholder needs may result in a change in strategy employed by an organisation. McDonalds stakeholders are individuals or groups that have an interest in the organisation and how it operates. McDonald take into account the needs and requirements of stakeholders.In addition, microenvironment also provides organisations possible threats in the market place that would reduce their profit or rate at which consumers purchasing their products. One of those threats is that consumers use as a substitute to their products. These threats usually come from competitor organisations.Global company and risk managementBrindley (2004) suggest that global competition, technological change and the continuous search for competitive advantage are the primary motives behind organisations turning towards risk management approaches in the in ternational kitchen range industry. Furthermore, the increase in economic activity at the global level encourages business organisations to seek a competitive advantage by accessing new markets and expanding their operations. According to Porter (1990), the term competitive advantage refers to the strategies that allow successful companies to create profits in their sector of economic activity which is main objective and goal of most organisations.Dalgleish Cooper (2005) support that organisations manage their operations on a day-to-day basis and risk management does not naturally add value to this activity. Its application is, however, becoming more focussed with organisations identifying a thought of purpose and making proper use of the assessments. This has resulted in its adoption within the internal control systems of organisations in making informed decisions, improving communication with the board and improving their understanding of the risks and controls within the busin ess.Therefore, risk appointment is the first stage in any organisations risk management. It is a base for correct future work of the organisation with regards to developing and implementing new programmes for risk control. According to George (2009), risk management is the process of planning, organising, directing, and controlling resources to achieve given objectives.Brown (2000) recommends that boards or amenable directors should consider the key risks and assess how they have been identified, evaluated and managed, and assess the dominance of the system of internal control. As a result, directors should have responsibility for all aspects of control and a affair to establish a strong system of risk management, designed to identify and evaluate potential risks in every aspect of the business operation. Risk management is fundamental process in every organisation, which includes control systems to inform managers that organisation has being exposure to risks, and guarantee tha t strategic risk management is properly implementing. financial riskAccording to Jorion GARP (2009), financial risk includes market risk, credit risk and operational risk. Market risk is the risk of losses due to movement in financial market prices or volatilities. This usually includes runniness risk which is the risk of losses due to the need to liquidate positions to meet supporting requirement. Liquidity risk is not amendable to formal quantification. Credit risk is the risk of losses due to the fact that counterparties may be unwilling or unable to fulfil their contractual obligations. Operational risk is the risk of less resulting from failed or inadequate internal processes, system and people or from external events.Financial risk is that a company will not have sufficient bills flow to meet financial obligations. Wikipedia (2010) supports that financial risk is the additional risk a shareholder bears when a company uses debt in addition to honor financing. Companies tha t issue more debt instruments would have higher financial risk than companies financed mostly or entirely by equity.Therefore, the financial risk management process must not be involve avoidance of risks, but designed at identifying and managing these risks instead.For example, according to McDonald, McDonalds restaurants worldwide, contribute 7% of global profits, making the UK a very important financial market for McDonalds shareholders. Each individual McDonalds restaurant is structured as an independent business, with restaurant management responsible for its financial performance. McDonalds financial reporting and management accounting ensures the best financial position for the company now and for the future.Market riskAccording to Monetary Authority of Singapore (2006), market risk refers to the risk to an organisation resulting from movements in market prices, in particular, changes in interest rates, strange swop rates, and equity and trade good prices.The market risk st rategy should first determine the level of market risk the organisation is jelld to assume. This level should be set with consideration given to, among other factors, the amount of market risk capital set aside by the organisation.The organisation should develop a strategy that balances its business goals with its market risk appetite.Accessing to all current operative cash flows and to all financial transactions is indispensable for complete risk management. In order to determine and control risks, the information from these two sources needs to be brought to together.Currency exchange rate risk for McDonaldAccording to Mathur Loy (1984), in a world of change magnitude uncertainty about the future value of exchange rates and increased visibility of strange exchange gains and losses, it is not surprising that global companies have become more concerned about minimising foreign exchange risks. Exchange rate risk may strongly affect firms profitability and it can be hedged. Once a company becomes twisting in international trade, it consequently becomes subject to foreign exchange risk exposure.In other words, because of the increased globalisation, exchange rate has become an important source of risk for an organisation operating in international environment.McDonald is international franchise fast food restaurant. Lashley Morrison (2000) support that franchising business format has become an established global enterprise trend within the service sector. They indicate further that franchising has become a mature industry in the USA and well established in the UK.According to Edwards (2006), the reasons why company is going for international are build more brand and shareholder value, add revenue sources and growth markets, reduce dependency on home market and leverage existing corporate technology, supply chains, know-how and intellectual property.However, surely, some risks are exposure for those reasons. Exchange rate risk is one of them which unavoida ble for global company.According to FinancialCAD Corporation (2009), in 1967, McDonalds opened its first foreign country franchise in Canada. Today, more than 65% of total revenue is derived internationally, as more and more restaurants are opened in countries outside the United States, with increasing McDonalds foreign exchange and interest rate risks. McDonald is challenged with managing these risks as hedging the interest rate and foreign exchange risks for operations based in foreign countries is complex. As a result, McDonalds warned their investors of the potential changes in currency exchange rates to impact company profits, but that the company has tried to reduce these risks.FinancialCAD Corporation continously states that the McDonald financial markets group is responsible for hedging the balance sheet and income statement against foreign exchange and interest rate risks, while funding the growth of global operations. They often fund assets locally, but in many markets th is is challenging. The assets are funded by more than $8 billion in debt, with over 50% of the debt denominated in a foreign currency.According to Abor (2005), foreign exchange risk is the risk that an entity will be required to pay more or less than expected as a result of fluctuations in the exchange rate between its currency and the foreign currency in which payment must be made. outside(prenominal) exchange risk is commonly be as the additional variability experienced by a multinational corporation in its worldwide consolidated earnings that results from unexpected currency fluctuations. It is generally understood that this considerable earnings variability can be eliminated partially or fully at a cost, the cost of foreign exchange risk.Companies are exposed to foreign exchange risk if the results of their projects depend on future exchange rates and if exchange rate changes cannot be fully anticipated.According to Madura (2003), companies are generally exposed to three types of foreign exchange risk which are transaction (commitment) exposure, economic (operational, competitive or cash flow) exposure and translation (accounting) exposure. motion risk occurs where the value of existing obligations are worsened by movements in foreign exchange rates. economical risk relates to adverse impact on equity or income for both domestic and foreign operations because of sharp, unexpected change in exchange rate. Translation risk is also related to assets or income derived from shoreward enterprise.Foreign exchange risk can be managed in various ways. There are techniques used for hedging against risk. According to Prindl (1976), hedging can be defined as all actions taken to change the exposed positions of a company in one currency or in multiple currencies. Clark, Levasseur, Rousseau (1993) betoken that hedging refers to the technique of making offsetting commitments in order to minimise the impact of unfavourable potential egresss. The risk managers choi ce of the different types of hedging techniques may be influenced by costs, taxes, effects on accounting conventions and regulation.Foreign exchange risk is mainly managed by adjusting prices to reflect changes in import prices resulting from currency fluctuation and also by buying and saving foreign currency in advance. The main problems firms face are the usual appreciation of foreign currencies against the local currency and the barrier in retaining local customers because of the high prices of imported inputs which lead to affect the prices of final products sold locally.Investing in a foreign stock market is tantamount(predicate) to investing in two assets foreign stocks and foreign currency. Therefore, the return-risk outcome of a foreign investment can be separated into contributions from the local market factors and the currency factor. The currency impact on the return outcome can be positive or negative, and can be a substantial part of the total return.According to Fa temi (2000), the objectives of risk management include minimise foreign exchange losses, reduce the volatility of cash flows, protect earnings fluctuations, increase profitability and ensure survival of the firm.Conclusion and RecommendationRisk winning is essential for any organisation in the global environment. Therefore, organisations need to understand the nature of the risks they meet and prepare to manage them appropriately.Evaluating significance by estimating potential damage and possibility of events is often not an exact science, and sometimes based on best guesses.However, monitoring and managing significant exposures of risk is vital in globalisation of immediately business strategy as many factors in our environment are changing with extreme speed.McDonald is one of the biggest and most successful international franchise companies in the world. The research indicates that the way of how company manage risk is outstanding compared to other global companies. Burger King has just imitated what McDonald has done for risk management. Excellent risk management might be the best reason that McDonald has become successful business in the field. In other word, it is hard to find unmanaged area to be in risk in organisation.As a result, well prepared risk management of company and flexibility for changing environment are bringing to organisation benefits.However, there are some unanticipated other risks still may occur. For example, McDonalds size of business could be obstacle of effective hedging.International service organisation such as McDonald must consider the prospect cost of international expansion. Being more flexible and international expansion might be a benefit to get wider market customers. On the other hand, this might cause of taking risks. It therefore certainly requires a thorough analysis of the factors such as the details on key current economic environment for the country, the main competitors, demand characteristics and trends, contr ibution of the project to shareholder value, the level of risk and potential difficulty for the organisation.Moreover, the company need to consider that competitors are not just other fast food chain restaurant. It means that company should put lots of effort for analysing other companies. For example, variety of more relevant carte du jour can be developed.Furthermore, the research indicates that the company should be well aware of importance that steady rise of profitability and share price. Therefore, company manage for financial strength by reducing capital disbursal and using the money remaining after capital expenditures to pay debt and return cash to shareholders.The research also shows that changes in exchange rates generally impact the outcomes negatively. That is why it needs to be managed properly.Therefore, global organisation management must consider commitments for innovation and flexibility to enhance positive risk management effects.