Other Risks

Mahmoud

Chehab
For any type of business analysis there are a plethora of risks to be considered within and
around the category other risks, however in the case of Braincof and yet in particular
the geographical positioning and location of Romania makes it noteworthy to mention a
few yet significant risks that could be hazardous and rather lethal.
To begin, it is vigorous to identify the difference between Internal risks and external
risks. Internal risks result from factors known as endogenous variables, were one has
the ability to control the risk such as human and technological factors: strikes,
malfunction of equipment, fire or theft. On the other hand external risks develop from
factors known as exogenous variables which cannot be controlled such as economic and
natural factors: market risks, floods, earthquakes and other environmental misfortunes
known as other risks. Other risks can also result from unforeseen external events such as
transportation systems breaking down, or a supplier failing to deliver goods. Everything
that is not categorized as financial, operational, or business risk, may fall under the
category other risks.
The following is a list of subcategories of what could be classified as other risks for
Braincof:
Environmental risks, including natural disasters:
Floods, earthquakes, epidemic and disease exposure
Local political and social unrest and change of governmental policies and practices
Political and economic instability in foreign markets where the shirts are exported
Internal health and safety risks
Employee risk management, such as maintaining sufficient staff numbers and cover,
employee safety and up-to-date skills
Earthquakes
During the last 1,000 years, according to historical data, it is thought that 17 earthquakes
with 7 and over magnitude have occurred, which suggests a mean for unleashing the
energy of every 58 years. Statistically, the magnitude 6 and over earthquakes in the
Vrancea area occur approximately every 10 years, magnitude 7 every 33 years, while

those with 7.5 magnitude every 80 years. (According to "Earthquake Risk Perception in
Bucharest, Romania", Geological and Mining Engineering and Sciences).
Throughout the world and not just Romania, there is an increasing distress about the
occurrence of natural hazards. The number of disasters related to natural hazards and
their impact have increased firmly during the past 20 years. Both are due to increased
human exposure and/or to an actual increase in the frequency and magnitude of the
hazards (EM-DAT database), Alexander, Alcantara-Ayala and Twigg, (1993, 2002) noted.
The main concern is the social and economic costs of natural hazards; they are
significant, not only as damages costs, but also due to recovery.
The geographic location and positioning of Romania provides somewhat a risk to
Braincofs persuasiveness of its operations and potential success, there are frequent
earthquakes with an Average Recurrence Interval of 100 years (in accordance with the
Order No. 1711/2006 of the Ministry of Transportation, Constructions and Tourism).
Of the largest activities Vrancea near Braila County has been noted as a hotspot.
Earthquake risk remains medium because of the proximity to the most active zone
Vrancea County.
Floods
Floods are nonetheless recurrent in Romania. The 2012 Romanian floods were of the
most prominent floods in the past decade, and were the result of an extreme weather
event that struck Romania in late May 2012. Authorities reported four deaths throughout
Romania. The southeast of the country, especially Vrancea County was most affected.
Each year the country is affected several times by floods due to lack of proper preventive
methods inadequate infrastructure.

Map below shows: the most exposed counties to extreme natural phenomena - rate of
exposure grows from lighter to darker as per the map

Epidemics And Disease Exposure

Romanias general health sector is dreadful compared to other countries in Europe such
as Germany. Romania mostly lacks properly trained and experienced workforce in
disease battling and infection release. The probability of occurrence of disease and other
epidemics is rather low, however it is still noteworthy to mention; since any disease could
have an impact on employee turnover at Braincof.
According to Eurosurveillance (2011) a recent outbreak dates back to July to October
2010: Outbreak Of West of Nile Virus Infection In Humans, Romania. A total of 57 cases
of West Nile virus infection (54 with neuroinvasive infection and three with fever) were
identified in Romania between July and October 2010. The median age of the cases was
53.4 years, with the highest incidence in the age group 6069 years. The case fatality rate
was 8.8%. Cases were distributed in 19 districts in the southern, western, central and
eastern parts of the country. Molecular investigation revealed lineage 2 West Nile virus,
related to the Volgograd 2007 strain.

Social Unrest
According to the Economists Intelligence Unit (2014), Romania is a country with high
probability of social unrest. The 201215 unrest in Romania is a great example of how
such social disturbances can hinder operations at Braincof as well as the respective
apparel industry it operates in. These risks could stimulate the employee absenteeism at
Braincof, for instance due to participation in certain demonstrations. The conflicts refer to
a prolonged period of civil unrest and political scandals in Romania, which had greater
impact after the second half of the 2010s. The upsurge of civil demonstrations started in
January 2012, once with the introduction of a new health reform legislation. The protests
were ran by the rigor measures applied in May 2010, but also by the unpopularity of
Bsescu-backed Boc Government. Widespread rioting and acts of vandalism
characterized the demonstrations. The political condition accelerated, so Prime Minister
Emil Boc decided to resign on 6 February 2012.
Political Turmoil
Similar to the social unrest risks mentioned earlier, political turmoil could have parallel
effects on Braincofs operations. According to Bunce. V and Wolchik, S. (2006), over the
past 25 years, Romania has experienced a complex process of democratization with
moments of crisis, economic stagnation, radical nationalism and extreme polarization.
Even after joining the NATO in 2004, and the European Union in 2007, Romanias
political situation remained unstable, with continuing institutional conflicts between the
President, Prime Minister and Parliament, such as in 2007 and 2012 and tough austerity
measures that increased social pressures. Triggering a governmental change has a low
probability of impact and occurrence; yet, the emergence of political tensions and
conflicts carries a high probability.
To summarize the risks, the following page displays a frequency table based on the
probability of each risk emerging
Variables used:

High Greater than 60% chance of happening

Medium Between 20% and 59% chance of happening

Low Below 20% chance of occurring

Risks
Earthquakes
Floods
Epidemic & Disease
Exposure
Social Unrest
Political Turmoil
Government Change

Probability

Impact on Braincof

Medium
Low
Low

High
Medium
Low

High
High
Low

Low
Medium
Medium

Employee Risk Management

Finally, it is important to note that health and safety regulations are constantly evolving
and are becoming more complex by the day. It has become problematic for both public
and private entities to stay up-to-date and conforming with the latest regulations at
Braincof employee safety is key, and providing employees working in the embroidery
and sewing unit as well as the production line units with proper equipment and protection
against harm, danger and injuries is highly motivated and widespread. This allows
Braincof maintain sufficient staff numbers and cover, employee safety and up-to-date
skills.
Quantitative Risk Analysis
Precisely quantifying how much in dollar value will Braincof suffer as a result of the
emergence of any of the risks mentioned earlier is a rather exceedingly challenging task
to do, since most of the risks are not controllable, and thus arise from natural
phenomenal. With the help of specialists and experts in the field of study of earthquakes
and floods and geologists, perhaps one could get a step closer to finding some estimation
to the impact on profits and performance at Braincof.

Risk Mitigation Plan For Other Risks:

Earthquakes:
Concerning this risk, since its a natural phenomenon and it would simultaneously have a
significant impact on Braincof if took place, the need for constant planning and
awareness seeking is vital, managers have to keep informed stay proactive as much as
possible by following up frequently published reports or breaking news on any possible
upcoming earthquake or indicators of an earthquake. More importantly the company
should consider reinforcing its physical premises by renovating the infrastructure and
buildings to be able to withstand earthquakes level 8.0. Communicate with employees
regularly (earthquake false drill) how to deal and handle emergency situations.
Floods:
Similar to earthquake risk mitigation methods mentioned above, floods if are a result of
infrastructure and an organization issue, the risk could be somewhat controlled, however
if it is a result of excessive rainfall and draughts then it is difficult to control the results,
but one could manage and prepare beforehand when a period of heavy rainfall is
predicted. Braincof could collaborate with meteorologists to help and stay informed more
with when and what should be done.
Epidemic and Disease Exposure:
Staying informed and proactively raising awareness within and outside the company
about potential viruses, diseases, and illnesses is a vital task for any company to pursue,
not just at Braincof. Communication is key in this case (and all cases). Create emergency
response plans to help handle emergency situations more smoothly. Importantly, have
procedures in place before a crisis occurs.
Political Turmoil:
Political instability has tremendous impacts on the economy as well as the company
itself, and in particular exchange rate risk. Braincof should seek different methods to
mitigate exchange rate fluctuations, perhaps Braincof should hire political scientists and
financial specialists that are able to foresee and forecast future political hurdles and thus
prepare hedging methods to mitigate those risks. It is important to note that political
instability cannot be avoided but can be managed, for example other risks that could arise
due to this unrest include:

trade barriers, state actions to promote state-owned

companies, actions to tap into the cash flow of companies operating within national

borders; these risks can be managed when company CEOs place more strategic planning
and emphasis on rational hedging.
Government and Social Unrest:
New regulations can change the status of the products at Braincof, products can be
recalled because of safety measures. And thus the company should be prepared to have a
new product and price policy.
Introducing a Risk Budget:
It is important that Braincof assigns a certain amount of its expenditure and budgeting
plan to risk management activities. This could prove to be one important approach to
being proactive against the risks that are uncontrollably occurring. Designing Best
Practice approaches to mitigating as many of these risks as possible is one of the
solutions to preparing a risk contingency plan.

References
*KINDLY SORT THE REFERENCES IN ALPHABATICAL ORDER (Once you
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