Business Finance – Operations Management Week 2 Assignment
Wk 2 – Apply: Summative Assessment: Risk Analysis
Read the Sandora Company Case Study (Kerzner, 2022).
You are assigned to replace the existing project manager in charge of the Sandora product line. You understand there are issues with outsourcing manufacturing to overseas suppliers, which have been exasperated by current business and political conditions. Your first assignment is to perform a risk analysis on the existing project based on the enterprise environmental factors identified by the consulting company in the case.
Assume the product cost of goods sold (COGS) is $100, the retail price is $500, and the consumer demand is approximately 1,000 units per day. With full staff and inventory, Sandora can build 1,500 units per day running 3 shifts.
Write a 2- to 3-page risk analysis and remediation/risk reduction plan describing your findings and your plan as you would present it to management stakeholders (C-level, division heads, etc.). Do the following in your risk analysis and remediation plan:
· Summarize the possible risks identified.
· Based on these risks, assess the value and potential impact to the organization.
· Indicate which metrics might be useful in this scenario.
· Provide policy recommendations that would mitigate the impact of these risks, and explain how you would convert these policies into processes.
Review Domain III and Domain IV in (PMI) Risk Management Professional (PMI-RMP) ® Examination Content Outline and Specifications .
Sandora Company Case Study
Sandora Company Sandora Company, a US-based firm, was struggling to remain profitable. Attempts were made to downsize and cut costs, especially in manufacturing. Unfortunately, they were limited to cost reduction attempts because of required compliance to United States laws related to health, safety, and the environment.
Sandora designed and manufactured the components that went into their products. They were almost 100% vertically integrated. Management believed that they could increase profitability as other companies have done by outsourcing some of the manufacturing work to companies in emerging-market countries with highly qualified lower-salaried human capital that could do the job and Sandora would then focus internally on assembly efforts rather than on manufacturing and assembly.
The company decided which of the components in their products they were willing to outsource and looked for suppliers through worldwide competitive bidding efforts. Several companies in low-income emerging market countries submitted bids. The low-income countries appeared to have less stringent laws related to health, safety, and the environment. This is what Sandora had hoped for to lower manufacturing costs and increase potential profitability.
The criteria that Sandora used for contractor proposal evaluation and acceptance was based heavily upon cost, quality, and schedule. Several companies met Sandora’s evaluation criteria. But Sandora knew that there could still exist enterprise environmental factors unique to certain countries that could have a serious impact after contract award. A multinational consulting company was hired to evaluate the enterprise environmental factors of government impact and influence, political climate, and industry standards in the countries that Sandora might award a contract.
The consulting company identified the following issues with enterprise environmental factors that could impact the ability of the suppliers to perform as Sandora expected:
• Host governments may have the final word in who local companies can select as subcontractors. Contractors hired by Sandora may be forced to hire only subcontractors from within their country. To make matters worse, the contractor chosen may be required to select subcontractors in the cities with the greatest unemployment, regardless of the qualifications of the subcontractors and even if more qualified subcontractors are available elsewhere in the country.
• Local government agencies may act as silent stakeholders but have the final say as to whether any overtime will be allowed. The government may not want overtime to be allowed if it might create a new class of citizens.
• Sandora may have no say in the way that the contractor assigns resources. Also, workers may have the right to “own” a job once hired into a company. Sandora may not be able to get incompetent people removed from working on the contract once they are assigned to their project.
• If the workers believe that they may be laid off once the contract is completed, they may slow the work down significantly to elongate their employment. Sandora may have no input in accelerating the contractor’s schedule.
• In companies in the United States, project problems and issues are most frequently resolved with meetings between the team members and the project sponsor or governance committee. But in other countries, the problems and issues may be elevated to high-ranking government officials who instantaneously become active stakeholders to make sure that the problems and issues are resolved in favor of the host country. When host countries are awarded contracts, the government within the host country sees this as a source of national revenue entering the country and a means of keeping people employed. As such, the government may closely monitor many of these contracts without the company, in this case Sandora, recognizing that this surveillance is taking place.
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• The maturity level of project management in the contractor’s company may be less than Sandora expects. The contractor may not possess the tools and software needed to report progress as needed by Sandora.
• Senior managers in the host countries may be fearful of project decisions being made between Sandora and the contractor’s project team, and mandate that all customer- contractor communications go through senior management.
Senior management at Sandora now had a critical decision to make regarding the outsourcing of some of their components.
Questions 1. Should the impact of enterprise environmental factors be treated as criteria for contract award? 2. Can Sandora control the enterprise environmental factors after the contract is awarded? 3. Could Sandora require in the contractual statement of work that changes must take place in theenterprise environmental factors? 4. What should Sandora do now?
Sandora Company Case Study Page 3 of 3