Nucor at The Crossroads: Enterprise Risks and Mitigation Mechanisms
Nucor at The Crossroads: Enterprise Risks and Mitigation Mechanisms
Mitigation Mechanism at
Enterprise Risk Sub Category
Nucor
External Risks Supplier: Nucor had its own independent
1) Unreliable scrap steel supplier which delivered in
suppliers which has potential for short times
rising material cost
2) Dependence on outside
vendors to deliver timely
2. Identify the Project related risks and attempt a risk mapping. Make appropriate
assumptions
Risk event Risk driver Risk Mitigator Impact Impact driver Impact
mitigation
Delay in Labour Strikes Incentivise the Loss in Sales is time Keeping buffer
production workforce revenues dependent of in sales
depending on production timeline
production
targets
Dependency Extraction of
on external iron from iron
source of raw ore within the
material company
Bureaucracy in Advance
compliance planning of
filing requests
Threat From 1) Loss of IPR Remove Loss in Sales is Offer price
competition because of factory see out revenues dependent on discount to
company's policy price and bulk customers
policy of quality of and filter
factory view product defective
out. products
Loss of market Nucor is not Allocate some Dwindling Higher the Better buying
share spending much portion of stock prices market share, incentives to
on marketing budget for Higher the customers in
marketing stock price terms of
initiatives payment and
bulk buying
discounts
resulting in
improved sales
Risk Mapping
1
0.9
Probability of impact (Pi)
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
0.45 0.5 0.55 0.6 0.65 0.7 0.75 0.8 0.85 0.9 0.95
Probability of risk (Pr)
3. Based on the data given in the case, and the Project risks identified by you, compute the EMV of
loss before and after mitigation. You can make appropriate assumptions where you do not have data.
Before Mitigation
After Mitigation
Assumptions –
Nucor’s net worth is around $340 million which shows it has the financial strength to undertake the risk.
Assumptions
Max production – 900000 tpa --- Construction -800000 tpa and Auto – 100000 tpa
Production Build up
Hourly(20hrs) – 150
Costs
Variable cost
- Scrap 100.5
- Marerials and supplies 56.0
- Energy 24.0
- Variable Labour 28
Total 208.5
Fixed Costs
- Labour 6.3
- Maintenance 9
Total 15.3
R7 risk – Reliability
1 hr/week = 150 x50 = 7500 tonnes
7500 x98 = 735000
R8 risk = Lukewarm response by construction = 100000 x 98 = 9800000
R9 risk= Non acceptance by automotive = 100000 x 98 = 9800000