Occurrence of Risk in Relation to Economic and Legal Implications

Table of Contents

TOC o “1-3” h z u 1. Introduction PAGEREF _Toc86321326 h 32. Occurrence of Risk in Relation to Economic and Legal Implications PAGEREF _Toc86321327 h 32.1 Definition of risk PAGEREF _Toc86321328 h 32.2 Difference between risk and uncertainty PAGEREF _Toc86321329 h 32.3 Origins and the Nature of risks PAGEREF _Toc86321330 h 42.4 Business and societal setting PAGEREF _Toc86321331 h 52.5 Identification of risks in the context of economic and legal implications PAGEREF _Toc86321332 h 52.5.1 Compliance risks PAGEREF _Toc86321333 h 52.5.2 Hazard risks PAGEREF _Toc86321334 h 62.5.3 Control Risks PAGEREF _Toc86321335 h 62.5.4 Opportunity risk PAGEREF _Toc86321336 h 63. Risk management plan PAGEREF _Toc86321337 h 73.1 Control measures PAGEREF _Toc86321338 h 73.2 Corrective actions PAGEREF _Toc86321339 h 73.3 Record keeping and review frequencies PAGEREF _Toc86321340 h 84.0 Summary PAGEREF _Toc86321341 h 8References PAGEREF _Toc86321342 h 10

1. IntroductionThe purpose of writing this report is that by studying PepsiCo’s risk and its economic and legal impact, and formulating a risk management plan, better decisions and policies can be made in future. The report further intends to contribute to the body of literature on the matter of risk and decisions related to the same. The report has reached the conclusion that firms must institute strategies to mitigate economic and legal implications of risk which pose the biggest threat to the success of the organization.

2. Occurrence of Risk in Relation to Economic and Legal Implications

2.1 Definition of risk

Relying upon the goal and viewpoint of a discourse, the word risk is described and discussed in a variety of ways. According to (Yusoff & Husnina, 2018) a risk is uncertainty that has the consequences of losses and/or sometimes damage. They imply that something unpredictable does not necessarily entail a danger; nonetheless, if an event is both unclear and involves a loss, it might be classified as a risk. Risk can be defined as a situation in which there is a probability of losing but also a chance of winning (Kahn & Zsidisin, 2012), because no one would be risking losing if there was no possibility of winning.

2.2 Difference between risk and uncertaintyThe relationship between uncertainty and risk, like the relationship between certainty and uncertainty, is not just theoretically significant, but also quite practical (Rachev, Stoyanov, and Fabozzi, 2011). The latter is especially important when making choices since the procedures and events that impact a firm’s or a commercial context’s condition could be in various states of uncertainty or risk, affecting the system’s functioning in various manner (Gifford, 2003). This is the reason why it is vital to differentiate uncertainty and risk, as well as the notes that separate them, in order to modify one’s perspective regarding them.

2.3 Origins and the Nature of risksPascal Wager mentions that risk originated from the human gamble regarding the existence of God or otherwise. Based on this argument, Pascal advices that people believe in God’s existence for the positive expected value that lay the foundation. According to Hopkin, there are four classifications of risks; compliance (or mandatory) risks, hazard (or pure) risks, control (or uncertainty) risks and opportunity (or speculative) risks.

2.4 Business and societal setting

Business risk can be defined as an industry’s or firm’s vulnerability to variables that could cut down the productivity or hurt the company. A business risk is something that jeopardizes a corporation’s potential to attain its investment objectives. There exist several things that may come together and bring about business risk. A company’s social risk encompasses acts that have an impact on the communities in which it operates. Labor difficulties, workplace civil rights breaches, and corporate corruption are just a few examples. Healthcare issues can also be a source of concern because they might affect employee enthusiasm and attendance. If the corporation does not have a clear knowledge of the local structure of power and who the power brokers are, political uncertainty might be a societal risk. Another politically connected sticking point is land utilization. A company looking to create a new site, for instance, may run into zoning complications with the local community planning board. Organizations that seem to have social risk issues face political blowback, public outrage, and a tarnished legal reputation, and they may not be able to survive in the long run. The business environment of PepsiCo is faced with several risks that can arise from political aspects such as taxation and political stability, economic factors such as inflation rate and interest rates, social factors such as attitude, rate of technological diffusion and environmental factors such as whether. The social environment of PepsiCo is affected by aspects such as demographics, attitude, culture, education levels and class structure.

Identification of risks in the context of economic and legal implications2.5.1 Compliance risks

Compliance risk is one of the risks that PepsiCo is facing. Regulatory compliance is just one of the numerous expenses nowadays for the organization. Businesses are frequently obligated to follow at least one, if not several, pieces of legislations. There exist numerous non-mandated and intangible motivations to execute compliance-associated tasks. Other than the fines and bad publicity, the principal cause why organizations gladly leap through the required hoops are to safeguard their consumers and their own image. Adjustments in rules and regulations governing the utilization or disposal of plastics or other packing materials of PepsiCo’s products, such as plastic product limits, have resulted in a major decline in the revenues (Zhang, 2019). Lawsuit, disputes, legislative or regulatory actions, inquiries, or investigations may lead to liabilities and expenses that negatively damage the business, financial situation, or operating results. Keeping on top of the industry’s specialized legislation, regulatory organizations, as well as state regulations, is essential for preventing compliance problems. Regulatory bodies such as the Occupational Safety and Health Administration (OSHA) and the Environmental Protection Agency (EPA) issue alerts to a multitude of sectors on a routine basis, while the Health Insurance Portability and Accountability Act (HIPAA) is an example of a complex and constantly shifting legal framework particular to one sector.

2.5.2 Hazard risksThese kinds of dangers arise from hazardous working conditions. Here are a few examples: Biological risks which encompass viruses, bacteria, and other organisms that have the potential of harming one’s health. Chemical risks which encompass compounds that have the probability of causing harm. Physical risks which entail heights, noise, radiation, and force, all of which can cause harm to a worker without even touching them. Psychosocial hazards are those encompassing aspects that have the potential to adversely affect a worker’s mental health or welfare. Sexual harassment, victimization, stress, and violence in the workplace are just a few instances.

2.5.3 Control Risks

The danger of financial records being materially incorrectly stated as a consequence of an internal corporate controls malfunctioning is referred to as control risk (Belás et al., 2014). While there are substantial control breaches, PepsiCo is more likely to have unrecorded capital deficits, which implies that its financial statements may indicate a profit when there is really a loss. The management of a corporation is responsible for establishing, implementing, and maintaining a system of controls that effectively prevents asset loss. Sustaining a strong control system is challenging since it must be changed on a regular basis to suit ongoing changes in business operations as well as entirely new commercial activity. Managers may also actively avoid implementing some controls because they are too expensive to maintain or interfere with the smooth operation of customer-facing transactions.

2.5.4 Opportunity riskOpportunity risk is a type of risk connected with a loss that results from the unchangeable utilization of resources for a new opportunity, which prevents them from being utilized in the case of a superior chance (Ivascu & Cioca, 2014). It is crucial to grasp the meaning of the word “opportunity.” Due to a misunderstanding of the term, most people only think about it in a negative light and describe opportunity risk management as preventing of terrible things from happening. As a consequence, a slew of organizations around the world have sprung up to promote awareness of the fact that risk can have both positive and negative consequences. By concentrating on the negative aspects of risk, businesses may miss out on opportunities that could lead to major corporate innovation and new competitive advantages. PepsiCo is expanding its healthier snack and beverage range throughout Europe, vowing to decrease artificial sweeteners in its portfolio of brands by 25% by 2025 and 50% by 2030. Nibbles will also get a transformation, with popped corn treats proving popular, and new green tea alternatives, and other sugar-free beverages with unique tastes, will be offered. Within next four years, healthy munchies are expected to be the firm’s fastest-growing food segment, with a goal of increasing to a $1 billion portfolio by the turn of the decade. 1990 is remembered for confetti cake, grunge vocal music, weekend sitcoms, and PepsiCo, Inc. (NASDAQ: PEP)’s foray into the world of crystal drinks. The massive debut of PepsiCo, Inc. (NASDAQ: PEP) Crystal had a life span of only a few years (Lin et al., 2018). Pepsi Crystal was marketed as a cure-all for stomach problems, although it lacked the necessary therapeutic capabilities. The flavor profile was likewise uninspiring. Consumer discontent, politics, unscrupulous rivalry, and a dash of corporate interference wrought havoc on PepsiCo, Inc.’s (NASDAQ: PEP) Crystal debut, shattering the Pepsi Co. The cost was so high that the company could not afford to undertake another business for a long time. The economic loss may not have been in the billions, but the repercussions of a lack of reputation were far-reaching.

3. Risk management plan

Risk management is a technique that assists businesses in reducing risks associated with attaining their objectives. Effective risk and opportunity management both offer value to an organization (Singh and Gaur, 2021). The concept of opportunity management is comparable to that of risk management. Comprehensive risk and opportunity management is gradually being recognized as a competitive differentiator that may help firms succeed even in challenging economic times. Managing opportunities entails cultivating an environment conducive to innovation.3.1 Control measuresActions made in reaction to a risk factor which has the possibility to trigger an accident or injury in the workplace are known as risk control measures. Control measures can be developed to either minimize or eliminate hazards, with the latter option clearly being desired. Manage measures are organized in a hierarchical order, with every step getting done through and applied to control and minimize the risk. For the case of compliance risk, PepsiCo, one of the control measures that the organization can use is understanding the latest enforcement policies. Data security, export restrictions, and anti-corruption legislation are all common areas where compliance problems exist. The firm must ensure that it comprehend the obligations set by all applicable regulations and laws as part of the risk analysis. Nevertheless, it is critical for PepsiCo to stay current with the newest guidelines and compliance rules issued by enforcers, as prosecutors have extensive discretion in deciding whether or not to charge misbehaviour. If difficulties arise, doing this might be quite useful because the company will have been capable to alter its compliance program to qualifying for leniency. After ensuring that the organization up to date with the latest regulations, the organization can couple this by building a culture of ethics compliance within the organization to reduce the chances of falling into compliance risks. In terms of hazard risks, the government can make it mandatory for workers to user personal protective equipment to minimize the risk if it does takes place. Gloves, spectacles, ear plugs, aprons, safety boots, and dust masks are examples of personal protection equipment (PPE) that are meant to decrease exposure to hazardous substances. PPE is typically considered the last line of defence, and it is typically employed in combination with one or even more additional control measures. In the case of control risks, the organization’s anti-corruption programs must handle accounting and record-keeping in the light of their specific risk exposure. Further, practical protections ought to be developed to reduce the possibility of accounting information and record-keeping being abused for dishonest purposes, such as: All transactions, resources, and obligations ought to be accurate and credible when they are recorded in the firm’s books and accounts, with sufficient detail and authentic documentation. Only the firm’s official books must be used to document every transaction. Slush funds and other off-the-books accounts ought to be forbidden. Transactions, resources, and obligations must all be documented in a timely and sequential manner. When it comes to opportunity risks, the organization can control the risk by engaging in the business ventures strategically. The organization can develop products that are only required by the consumers and sell the product before its creation.

3.2 Corrective actionsOne of the corrective actions towards business risk is the transfer of risk approach. Risk transfer, also known as risk sharing, allows businesses to shift the effect of a negative outcome among multiple stakeholders. This may be in the form of business associates or employees, an outsourced company, or the purchase of an insurance plan. Risks that are improbable to materialize and may have a significant financial consequence are best shared (Cavusgil et al., 2020).

One can also adopt a strategy for reducing risk. Risk reduction entails taking steps to reduce the likelihood and severity of a risk occurrence. The goal is to bring the risk down to a manageable level, which is frequently referred to as a residual risk level. When practical and financially viable, many organizations should aim to limit risk. To minimize the worst risks, you may, for instance, implement additional safety measures, tighten internal controls, or diversify company activities. In the case of hazard risks, PepsiCo can correct the risks by the use of engineering controls. Engineering controls, like equipment guards, closeness guarding, evacuation systems, or relocating the user to a remote position away from the hazard, include modifying a process to establish a boundary between the individual and the hazard or eliminate the dangers from the people.

Acceptance of risk is another corrective action. Accepting the risk essentially takes no steps to reduce its severity and likelihood (Saglam, Çankaya, and Sezen, 2020). This ‘do nothing’ strategy recognizes that some amount of loss is inevitable – typically the sort of loss that can be easily assimilated inside the company, at least initially. Nevertheless, if risk occurrences happen on a routine basis, business disruption and the expenses associated with managing it would almost certainly increase. It’s critical to weigh risk retention alternatives against other potential mitigation strategies in order to find a long-term solution.

3.3 Record keeping and review frequenciesThe success of managing risk, which prioritizes and recognizes hazards throughout an organization, determines the strength and efficiency of a record-keeping system. The recognition of relevant information is enabled by assigning the recognized risks into an organizational directory or a file plan architecture, which guarantees that the validity and security of electronic documents are managed (Zivania et al., 2014). From a risk aspect, documentation is required to establish that an organization has handled itself appropriately, as risk is related with avoiding or eliminating impediments to success. It is indeed impossible to verify that something occurred if nothing is recorded. Because of its ambiguity, weakness, and folk’s predisposition to recall things that never occurred, depending on human memory is risky (Ngoepe, 2014). This can result in records and information management hazards, which are defined as any risk to the company resulting from poor records management.

4.0 SummaryHazard risks, compliance risks, control risks, and opportunity risks are the four types of risks discussed in the paper, each of which has a different result. The first category, hazard risks, can only have a harmful consequence if they happen, thus the goal is to prevent or limit these disruptions from occurring. PepsiCo must learn to handle these risks up to a specific extent. The acceptance of shoplifting, as an illustration of varied tolerance levels for hazardous risks, might range between various retail establishments. Control risks are defined as risks with a level of uncertainty in the results. For instance, there is always some element of uncertainty in various types of projects. A good example is the Pepsi Crystal product that failed during the 90s. PepsiCo ought to be careful with future product innovations as they have the potential to completely destroy the reputation of the organization. There must be a clear consistency between the intended outcome and the results achieved in order to manage control risks. There are various strategies that can be adopted to mitigate the risks should they occur. Control measures can be put in place to prevent the risk from happening while corrective measures can be implemented as a means of reducing the extent of the impact should a risk occur. 

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