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Risk Management – An Alstom Case Study

Executive Summary

 The advantages of rail projects involve cheap shipment transport costs, increased in the mobility of passengers, greater economic addition and the environmental advantages from condensed road traffic or develop and improved urban transportation. But for the railways projectsfinancers needs to consider and keep in mind the risks factors that they can face throughout their projects and on the basis of that knowledge they should take some steps and start an awareness programs for those who relate to this project. Risks awareness programs should include the awareness about the hazards and controlled risks along with the steps that can reduce and almost decrease the risks which can be beneficial for the workers and for the rail projects as well.

 Risk Management – An Alstom Case Study

Task 1:

  1. Why the risk management department/function is an important function for a company

In the newly established private sector of railway, requests for contracts to offer railway services and rolling stick entirely relies on rewards and risk. Though ALSTOM has a massive share of market and substantial experience in the in business, each contract it creates divergence according to the specification of train, provisions of financing and spares, maintenance of various agreements (Quinn, & Strategy, 2013).

This consequently puts more stress on managers to obtain carefully whether every tender is value the risk and what the linked incentives are probably to be. From the suppliers of about two years British Rail will go to identify a short period of warranty after taking the train delivery. It will then renovate and maintain the trains, in addition to offer transport and rail services, like ticketing for passengers, facilities for station and maintenance of railway infrastructure. Financers are avoiding the risks of UK extreme environment and not having the feeling of urgency of Risk Management (Adger, 2010). And there is a lack of importance among firms that are being affected by the extreme weather.

And there is a lack of importance among firms that are being affected by the extreme weather. First of all we need to find out those steps that can reduce above discussed risks so that the railways project can be completed (Quinn, & Strategy, 2013). Investor should realize the risks of extreme environment that can affect the project.

ALSTOM refused the opportunity of business development in the secondary market. As an outcome, manufacturers of train like ALSTOM, depend entirely on big contracts for manufacturing trains and experience from either scarcity or gorge that is they were either snowed under with commands and instructions or had to deny as commands rejects. Train manufacturing was a start or stop business and therefore each command was dissimilar, there were no retained technology and high capital cost.

To manage risk, ALSOTM was realy concernd about it risk management department. And in order to manage the risk ALSTOM found a serious and vital change in focus for manufecturing tains through moving from being merely a train manufecturer to a service provider. Late 1980s passenger transport were becoming more complicated system, integrating an increasing amount of equipment which are high value from suppliers which are specialist.

It was observed at ALSTOM that though these more comlicated and sophisticated trains were a chance to increase and improve the product quality , the risk of late delievery and non-performance had raised. The main point was to incorporare the tasks of specialist suppliers so that those kind of riswks can be easily managed (Reuter, Foerstl, Hartmann,  & Blome, 2010).

Long Term cost risk for ALSTOM can be the maor risk for the company. Now for a period of 20 years ASLTOM has a contrat to supply their trains for the Nothern Lines, it can no longer considers only of the manufecturing trains’ cost. As the company is not considering the long term cost of the company’s assets. So in ASLTOM’s main interest is to maintain trains in immaculate circumstance and enhance and develop them throughout the lifetime of  the company, if they continue this kind of attiutde and apply risk management function this will lessen the cost of maitainance and generate more profits.

The project of Northern Line offered ALSTOM with major experience , not just in developing projects but also in capitilizing them. By taking the risk of asset for the scheme, ALSTOM unmitigate its rile as a train producer to act as a sytemeatic stock firm. ALSTOM then went to the pecuniary markets to offer the capital for manufecturing the trains with capatilists who took the monetary risk for the project.

  1. Assess how different departments/functions of a company such as Alstom can help the company manage its risks

The business strategy and the human resource management should be entirely incorporated so that they can effectively and efficiently play an active role within the risk management and its assessment. Whenever there is amalgamation activity, the Human Resource Department frequently has a huge responsibility to ensure that business operation transition go easily and smoothly. When firms amalgamate, some of the most important modification happens in treatment and in number of its workers. If in ALSTOM human resource department can successfully tackle with these significant matters, they can have massive effects on the success of the firm (Reuter, Foerstl, Hartmann,  & Blome, 2010).

Major goal and role of ALSTOM is to establish and sustain trains until the end of era of franchise of Virgin. But the company is experiencing problem in maintain trains. The company is facing legal issues like accidents or suicides relating impostor, defect, and fire, electrical or mechanical failure caused by ALSTOM’s train or the company and especially workers’ strike which is due to the mismanagement of human resource, and it can cost a lot to ALSTOM.

The company hoped that they can carry on sustaining trains and can be able to manage their human resource after the franchise. Northern Line scheme’s financiers did not abridge risk whether it’s related to technicality or human resource mismanagement. Though the investors and the sponsors for the West Coast Main Line WCML project were signifying banks and other institutions of finance, are taking releasing risk, further than the date of primary franchise (Dimant,  Lindner, Liu,  Ruiz, & Tejpal, 2011). Till 2012, investors and sponsors have assured income flow from this project. But the risk comes after the year 2012, and the question raised that will the revenue generated for rest of the life of the advantages is enough to fund the financial make-up and produce a profit on the speculation of latest trains?

It is the sponsors and investors who having created the train manufacturing possible, who take the acclaim risk of supplying trains for the Virgin franchise (Narasimhan, & Talluri, 2009).  Due to systematic finance management of ALSTOM the company was able to generate profit on the speculation of latest trains. But the major types of risks that must be consider by ALSTOM are strategic risk, for instance a competitor will going to pose serious threat on the business, compliance risk for instance the introduction of new safety and health rules and regulations, financial risk for instance increased interest rates or non-payment by customers charges on business credit, last is operational risks for instance theft or breakdown of main instrument.

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