Question

Evaluate a company's recent actions (within the last six months) dealing with risk and uncertainty.

Offer advice for improving risk management.

Examine an adverse selection problem your company is facing and recommend how it should minimize its negative impact on transactions.

Determine the ways your company is dealing with the moral hazard problem and suggest best practices used in the industry to deal with it.

Identify a principal-agent problem in your company and evaluate the tools it uses to align incentives and improve profitability.

Examine the organizational structure of your company and suggest ways it can be changed to improve the overall profitability.

Use at least five quality academic resources in this assignment. One reference must be about the risk and uncertainty the company has faced in the last six months.

Answer 1

I am working with a company dealing with Oil and Gas extraction. As the world is passing through risk and uncertainty due to COVID-19 pandemic, so the demand of oil has come down drastically. Moreover, the people are now inclined towards electric vehicles, so the Oil market would be even worse in the coming future. Keeping this in mind, the firm is planning to sell off the Oil and Gas division of the company. This has created a big risk in the minds of the employees.

Employees who have been associated with Oil and Gas division started assuming mass layoffs.

This is the time for Risk management. The top Management authorities handled this uncertain scenario in a very effective way. The steps taken were as follows :

• Define the vision and mission of the company : The top management redefined the vision and mission of the company and diverted its attention from the risky business.
• Communicate the Vision : The vision is being communicated to all the employees by the way of effective communication through top management in order to avoid any panic condition amongst the employees.
• Diverted the business in a new sector : Top management assumed the future and thus decided to divert the business awy from oil and gas to a new sector. The top performing employees have been retained and the others would be asked to quit after being given some monetary compensation.
• Regular interaction with the employees : The HR and top officials are always been in touch with the employees to avoid the panic situation amongst the employees.

Thus the Risk and Uncertainty is being handled in a planned way and thus the company was able to handle it properly.