COLLEGE OF BUSINESS ADMINISTRATION

SILLIMAN UNIVERSITY
Dumaguete City, 6200
Negros Oriental

KFC ERM and COSO Analysis with Policy Implementation

In Partial Fulfillment of the Requirements in

FM-EL 1 - Risk Management

Submitted To:
Mr. Khristian Rei Rivera
FM-EL 1 Instructor

Submitted By:
Rosillo, Claire Marie O.
Saludar, Luke Grant T.

May 4, 2024
 KENTUCKY FRIED CHICKEN (KFC)

History

Colonel Harland Sanders created Kentucky Fried Chicken, also known as KFC, during
the Great Depression. Sanders' fried chicken recipe began in a roadside restaurant in Corbin,
Kentucky, and quickly acquired popularity, prompting the brand to be franchised in the 1950s.

KFC's journey in the Philippines began in 1967 when the first outlet opened in the
bustling city of Manila. KFC quickly gained traction among Filipino consumers with its unique
blend of herbs and spices coating its signature fried chicken. Over the years, KFC expanded its
presence across the archipelago, establishing a strong foothold in the fast-food market. KFC's
success in the Philippines is attributed to its ability to cater to local tastes while maintaining
global quality standards.

Its menu comprises mostly of fried chicken options, served with sides like mashed
potatoes and gravy. KFC operates primarily through a franchise model, with stringent quality
control standards and an intricate supply network to assure uniformity throughout its locations.
The business is well-known for its marketing efforts featuring the famous Colonel Sanders, as
well as its digital initiatives that improve customer convenience, such as online ordering,
cashless payments and delivery.
SITUATION: KFC (Kentucky Fried Chicken), a well established restaurant chain, in a cashless
business scenario.

POLICY
In a situation where KFC only accepts cashless transactions, the policies that we had decided to
implement are as follows:
● The management of Kentucky Fried Chicken (KFC) must provide their own Wi-Fi
and ensure a strong internet connection that can be utilized by their consumers.
- This is to ensure the smoothness and reliability of operations. We believe that it is
necessary for the store to provide their own Wi-Fi so that transactions will be
hassle-free for customers as they do not need to buy their own data anymore. It
will also be beneficial on the management’s side because a strong Wi-Fi access
will ensure a fast and smooth sailing service. Otherwise, people providing their
own data may cause delays because not everyone has a strong internet connection
on their phone and will always depend on the location and service provider. With
that being said, providing the store’s own internet connection might be the most
efficient route for everyone.
● The customers must have the privilege to choose the payment method (Preferred
Banking Application) that is most convenient for them, which means that they must
be given numerous methods to choose from when paying (e.g. GCash, Paymaya,
mobile banking apps, credit/debit cards).
- This way, it will be easier for customers to adjust with cashless transactions given
that they have a lot of options to choose from. Nonetheless, it is important for
KFC to be clear with what specific payment methods they can offer so that
customers will be aware as to what extent they can pay with and be informed of
the specific apps that they are allowed to use. Additionally, offering various
payment options can be reliable in times of needing substitutes when one of the
payment methods are down or temporarily unavailable.
● Using cash as payment is prohibited unless the bill exceeds PHP 1,000.
- Even though cashless transactions are already common in this scenario, it is
inevitable that there are still people who prefer cash payments. To handle this, we
 decided to implement a policy wherein people with orders exceeding PHP 1,000
will be given the option to pay in cash or not. This policy might entice customers
to order more, especially those who find cash payments more convenient.
Therefore, this can be beneficial to both sides; customers having more options and
KFC gaining more income.
● Cash payments will be allowed in case of power outage, internet connection servers
being down, and cyberattacks.
- KFC must implement this policy in consideration with external factors that may
affect business operations. Natural disasters, for example, are inevitable and that
is one of the factors that can affect power supply and may result in power outages.
In such cases, KFC must allow cash payments to avoid loss of income even in the
midst of trying times.
ERM ANALYSIS

RISK CULTURE

Communication and Monitoring:

Filipinos, particularly those in the lower-middle income bracket, heavily rely on cash for
their transactions due to factors like accessibility, familiarity, and limited access to banking
services. Consequently, there's notable resistance towards embracing cashless payments,
stemming from distrust of technology, security concerns, and a preference for the tangible nature
of cash.

The Philippines boasts a diverse geographical landscape, encompassing urban areas with
robust internet connectivity and rural regions with limited access. Moreover, power outages and
network congestion exacerbate connectivity issues. This inadequate infrastructure and unreliable
internet service pose a significant risk to the smooth operation of cashless transactions,
potentially leading to customer frustration and lost sales.

Although digital payment methods are gaining traction in the Philippines, consumer
preferences vary widely. Some may favor specific payment apps or banking services based on
factors like convenience, security, or rewards. Neglecting to offer a comprehensive range of
payment options could alienate segments of the customer base and impede the adoption of
cashless payments at KFC outlets.

Operating in the Philippine business sector necessitates compliance with diverse laws and
regulations, encompassing payment processing, data protection, consumer rights, and taxation.
Non-compliance can result in legal penalties, fines, reputational harm, and business disruptions.
Given the evolving regulatory landscape and regional discrepancies, ensuring ongoing
compliance presents a significant challenge for KFC.
Internal Environment and Objective Setting:

Given the Philippines' cash-centric economy, various consumer preferences, and

regulatory landscape, KFC must conduct a complete internal review to properly handle these
problems. This assessment involves looking at KFC's current abilities, resources, and operational
procedures. Evaluating the readiness of KFC's infrastructure and personnel to establish and
support cashless payment solutions. Furthermore, a thorough analysis of financial resources and
allocation strategies is required to identify areas for investment in digital payment infrastructure
and compliance procedures.

In addition, KFC's operational methods must be reviewed to ensure that they can handle
cashless purchases and meet varied consumer demands while providing excellent customer care.
Finally, a thorough risk assessment is required to identify and minimize any hazards connected
with the shift to cashless payments, such as technology failures, security breaches, and regulatory
noncompliance. By establishing strategic objectives that are aligned with these internal
assessments, KFC can manage the complexity of the Philippine market, improve customer
experience, and assure compliance with local legislation.

Event/Risk Identification:
● Resistance from Cash-Dependant Customers
● Connectivity Issues
● Limited Payment Options
● Compliance with Business Sector Laws

Risk Response and Action:

- KFC should start to implement an extensive public awareness campaign, well before the
full implementation of their cashless-basis transaction system. They can highlight the
benefits and ease of cashless transactions, they can also offer incentives and discounts for
going cashless to encourage adoption.
 - KFC must invest in resilient Wi-Fi infrastructures and backup systems to ensure
uninterrupted service. This may involve partnering with reliable internet service
providers, implementing redundancy measures, such as backup generators or alternative
communication channels, and regularly monitoring network performance to proactively
address any issues. Additionally, providing offline payment options or manual processing
in case of connectivity issues can help maintain customer satisfaction.
- KFC should collaborate with multiple banking and payment partners to offer a diverse
array of cashless payment options, including popular e-wallets like GCash and PayMaya,
mobile banking apps, and credit/debit cards. Regularly updating and expanding the list of
accepted payment methods based on customer feedback and market trends will ensure
inclusivity and convenience for all customers.
- KFC must establish robust compliance processes and procedures, including regular
audits, staff training, and legal counsel engagement to stay ahead of regulatory changes
and ensure adherence to applicable laws. Collaborating with legal experts can provide
valuable insights and guidance on best practices for compliance. Additionally,
maintaining transparent communication with regulators and stakeholders can help
mitigate regulatory risks and foster a positive regulatory environment for cashless
payment operations.
-
Risk Assessment and Measurement:
1. Risk: Resistance from Cash-Dependant Customers
Likelihood: High
Impact: High

2. Risk: Connectivity Issues

Likelihood: Medium
Impact: High

3. Risk: Limited Payment Options

Likelihood: Low
Impact: Medium
 4. Risk: Compliance with Business Sector Laws
Likelihood: Medium
Impact: High

COSO ANALYSIS

Control Environment
Ethical Values: KFC must adopt the ethical values in a cashless business. For example, they
must ensure that the banking applications that they offer do not have hidden charges. In a case
where there are hidden charges, customers must be informed beforehand that these specific
applications charge fees for every transaction. KFC must also be patient enough for people who
are not that technologically literate and must be able to maintain the business’ values.

Organizational Structure: The roles, responsibilities, and goals of KFC must also be adjusted in
ways that align with the implemented policies for cashless transactions. For instance, the
responsibilities of the employees must correlate with the technological updates and getting
skilled at the user interface of the banking applications that they use. The expertise in using these
applications must be also included in their training so that they will have no problem assisting
their customers.

Commitment to employing competent employees: KFC will make sure to hire employees who
have technological literacy so that they will be able to assist customers who are not that familiar
in paying using mobile banking applications. Through this action, KFC will have the ability to
cater with the consumers’ concern regarding their difficulties using the app.

Human resources policies: KFC’s HR Department must be able to handle a management that
will bring what is good for the business. It is also their task to implement policies that will help
in the adjustment from the shift of cash transactions to cashless payments. This will require
management who are knowledgeable enough about technology and how they can assist people
from all walks of life as they implement this type of payment method.
Risk Assessment
These are the risks identified if KFC engages in cashless business:
● Connectivity issues - Technology is not perfect and there are times where the internet
connection experiences issues at the most random or unexpected times. In case this
happens, the management must immediately contact their internet provider and in times
where service is down, then they must resort to allowing cash payments temporarily to
avoid loss of income during mobile applications’ down servers.
● Cyberattacks - KFC’s management must communicate with their partners in mobile
banking. They must ensure that they are collaborating with banking companies who are
established enough to afford skills technicians or engineers who can counter hacking
attempts and phishing scams on transactions. Being in a partnership with secured
companies will mitigate the risk of putting their business in danger when it comes to the
operating and financial aspect.
● It may have higher costs - The adoption of technology may result to higher costs so KFC
must form a plan on how they can gain more income as they upgrade their services. It
could be through strategies like promo bundles or subtle increase in some services that
attract customers. This is a job mainly for the marketing team on how they will market
and sell their offers to the customers, and so, KFC must consider hiring people who can
market individuals from all walks of life while still giving importance and focus to KFC’s
target market.
● Cash dependent customers - It is inevitable that there are customers who will less likely
adjust with cashless payments. To adjust with this, various policies are implemented
regarding the use of cash in promos or unforeseen circumstances (specific policies stated
in the policies section of this paper).

Control Activities
KFC must be consistent in following their policies and procedures. This can be done by
business performance reviews, checking papers for approval thoroughly while doing the good for
the business and keeping wise-decision making or strategies in mind, and they must also give
importance in monitoring both the external and internal management. There must be proper
monitoring in financial statements, human resources, logistics and suppliers, and services done at
the store itself. Everything must be checked to ensure smooth business operations.

Information and Communication

It is important for KFC to always communicate with everyone involved in the business,
from the suppliers down to the consumers itself. Actions that will be implemented must be made
after thorough communication only so that everyone involved can adjust and do proper actions
that will be suitable for the system upgrade. Everyone must understand one another so that they
will be able to come up with a proper agreement that can benefit everyone and will be good for
the business in the long run.

Monitoring Activities
Responsibilities of the management must be properly monitored from time to time to
ensure the consistency and quality of operations. Through this, KFC will be able to handle a
situation and counter risks in case of deficiencies and the management will see on which areas
they have to improve as the needs and wants of consumers changes. KFC can do this through
evaluation and communication and work together as they connect their roles with each other.