Week 4: Deliverable: Risk Management Plan with Risk Analysis

A risk analysis by evaluating the risk factors that faced by parent (acquiring) company

Projectmanager.com tells Risk analysis is the process that us to figure out how likely a risk will arise in a project and how it would impact the project in term of schedule, quality, and costs. Further, it tells us that it is not an exact science, its more like an art.

Before moving forward, lets define corporate risk. In finance, risk can be defined as exposure to the chance of an unfavorable event. In the Capital Asset Pricing Model (CAPM), risk is defined as the volatility of returns.

An assets risk can be analyzed in two ways:

1. On a stand-alone basis
2. On a portfolio basis

On a stand-alone basis, the asset is considered in isolation, on which an investor would face if she/he held only this one asset. On the other hand, in second case, the risk comes with a collection of assts, which is less risky than former one.

We can also segregate corporate risks into diversifiable risk and systematic risk. With diversifiable risk, we can diversify our portfolio of investments to minimize our risk of loss by creating a portfolio of stocks or other securities that will allow losses to be minimized since market price of stocks is volatile. This category falls under on portfolio basis assets risk.

In contrast, systematic (non-diversifiable) risks are those that cant be overcome by diversification. Some that are less reactive to systematic factors, as such depression, war, pandemic, etc.

Risk factors facing by the parent (acquiring) company

Before the merger or acquisition:

1. Lack of due diligence: Prior to the transaction, purchasing company (here is Johnson & Johnson) should learn as much as possible about selling com (Baxter International) financials, contracts, customers, insurance, and other pertinent information to ensure that it has in-depth understanding of the deal on the table.
2. Overpayment: Both companies; acquirer and acquiree may be getting urged by intermediaries involved in the agreement that could force acquirer to overpay in order to simply push the deal through, rather than work out an arrangement.

After the merger or acquisition:

1. Miscalculating synergies: Several problems can arise if your organization completes a transaction with misguided synergies. These can also feed overpayment as they may be rolled into the purchase price for your company to gain control over assets before it can fully reap the benefits.
2. Integration issues: With the lack of a detailed integration plan in transaction, the companies may function separately for longer than anticipated, resulting in increased costs over time. Furthermore, there may arise collaboration issues that impede efficiency and delay the consolidation process.

References

1. Brigham & Ehrhardt (2017), Financial Management: Theory & Practice, 15e, Cengage Learning
2. Harvard Business School (25^th July, 2019), Retrieved on Sep 23, 2020 from https://online.hbs.edu/blog/post/mergers-and-acquisitions
3. Projectmanager.com(Dec 9, 20219); Retrieved on Sep 23, 2020 from https://www.projectmanager.com/training/how-to-analyze-risks-project

Identifying the major risks exposures and also recommend specific tools, techniques, . .. in some way manage the posed risks.

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A brief written report to document your risk management plan, including key elements of your risk analysis

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