Risk avoidance/reduction

Title

Creator

Del Rosario, Albert

Language

English

Source

Business Day XIV (99) July 15, 1980

Year

1980

Subject

Risk management

Corporations -- Finance

Rights

In Copyright - Educational Use Permitted

Fulltext

Page 2 Business Day Tuesday, July 15, 1980 Exporters at BEPZ Pena breaks silence on complaints (Continued from page 1) “We are not sweeping under the rugs the defects of the system, we are working on them,” the EPZA administrator continued. NO TREND. He discoun ted any suggestion of a general trend among re gistered and prospective investors in the export processing zones to back out, attributing the change of heart on the part of a number of them to the workings of eco nomic forces over which EPZA has no control. Risk avoidance/reduction By ALBERT DEL ROSARIO significant He said he had count ed seven export enterpri ses that started opera tions at the BEPZ but later closed shop. Com pared to the “success” record — 57 companies in operation to date, af ter seven years — Pena conceded a “10% attri tion” rate. “It is my thesis that in a free and open economy like ohrs, companies which, for one reason or another, are inefficient will have to close up shop,” Pena said. He gave these reasons why companies have ter minated operation at the BEPZ: lack of expert management, business partners who can not come to terms, and the firms’ thin capitalization. For those firms which had shown interest but The Ford stamping plant projects proceeded. “We must remember that BEPZ was originally a marginal fishing zone (which) we were asked to convert into a new modern industrial com munity,” Pena said. Towards this end, he said EPZA brought in, aside from factories, much of the 60,000-70,000 souls now in Mariveles (the town had a population of only 16,000 in the 1970s, according to Pena). All the 11 basic human needs (identified by the human settle ments ministry) de served equal positions in the BEPZ scale of prior ities, he enphasized. He pointed out that the zone’s population needed a school, medical facili ties, recreational facilities and hotels as much as water, power and com munications services. switchover from an autom atic-exchange tele phone system to a manually operated switchboard system. The present 37-trunkline tele phone facility in the BEPZ, which had been complained’about by ex porters for being ineffi cient and inadequate, could be expanded to accommodate 100 exten sions through manual operations, he said. The operation of the telephone system was turned over two weeks ago to the Philippine Long Distance Telephone Co. which instituted metered calls with the use of the manually operated exchange — a move much criticized by the BEPZ exporters who even complained to Pres ident Marcos. Pena said the metered telephone system will in sure the judicious use of EPZA/ is, as Pena pointed out, “not a utility company.” Pena said EPZA was not responsible for the cost of the controversial water supply reservoir, which he said had been designed and constructed under the management of the National Power Corp. The charge for water supplies in the BEPZ is the same as in Metro Manila, Pena said as he denied that EPZA is shifting the cost of the BEPZ water system to the export firms. Ricoh Watch workers the best sites or terms and conditions they can get” among alternative countries trying to outdo each other in competing to attract the firms. Pena cited expansion programs of five export companies located at the BEPZ; namely Ricoh Watch Philippines, Inc., Mattel Philippines, Inc., Manila Glove Manufact uring, Inc., Bataan Inter national Garments, Ensite Ltd. (Ford Philip pines stamping plant), and Mariveles Apparel Corp. MANAGEMENT. Criti cisms had been leveled on the BEPZ manage ment for what export enterprises in the zone perceived as wrong prior ities in developing service facilities. They had cited ’ inadequate water, com munication and other ‘basic” services, while construction of the EPZA administration building, cinemas, shop ping centers, and other “Some of these facili ties are easier to deliver than others because we have the knowhow to do them, so that these are realized ahead of the (rest of the) require ments,” Pena said. Water is delivered to certain areas in the water system which is not now reached by the piping system. The supply used in watering the golf course come from. a creek and not from the potable, water supply system, he said. He denied that EPZA is overcharging the ex port firms in their elec tric power bills. EPZA is only passing on to them “what the NPC charges us,” he said. ■ He justified the the communication faci lity. In the past the ex porters tied down lines by dictating even com pany payrolls or pur chase orders over the phone, he said. PLDT also indicated it would increase the number of switchboards if necessa ry, he added. NECESSITY. EPZA did not intend to handle the utilities (such as water, power and communica tions) but “we had to do it” because these could not be provided at once by the proper utility companies. If the services deliver ed by EPZA in these areas were poor, as claim ed by the export firms at the BEPZ, it is probably PHONE SYSTEM. He said the switchboard tele phone system would fill in the communication re quirements until the new equipment which would allow “unlimited tele phone lines” is installed in about two years. The telephone system, to cost 384 million yen and financed from an OECF loan, will be delivered by the Nippon Electric Co. some 15 and a half months after its receipt of the letter of credit from EPZA, which Pena •’gtfd.t^as du^.tp_open_ He indicated 'that PLDT may also operate the new telephone system. The exporters had expressed fears that PLDT’s management of the BEPZ telephone system would be for good, instead of only for the remainder of the life of the present 37-line “interim” facility. The objection of the exporters to PLDT’s entry in the telephone system is apparently based on the more ex pensive cost of PLDT’s service which they had anticipated. PLDT’s new rate for calls between BEPZ and Manila is: P4.70 for the first two minutes and P2.35 per succeeding minute. The new rates are much higher than the Pl.80 the exporters used to pay for an unlimited length of call. PLDT’s rates at the two other export pro cessing zones are: P5.60 plus P2.80 from Baguio City to Manila and P9.40 plus P4.70 between Mactan and Manila. Risk manage ment subdivides into two major categories, risk control and risk finance. Of these, risk con trol is clearly the foundation and is therefore considered the element. Identification and measurement In implementing risk control, the first step is the identification of all potential loss producing factors, both insurable and uninsurable, to which an organization is exposed. The risk factors identified are then measured or quantified in terms of loss frequency, including severity,, predictability and probability so that ultimate strategy can be expressed in numerical terms. Fol lowing identification and measurement, risk reduction are extreme ly important strate gies in the exercise of risk control. Avoidance and elimination Where risks are considered as being so inherently hazardous as to make it prudent to pursue the action, elimination and avoidance procedures should be undertaken. To illustrate, risk elimination or avoidance would involve such deci sions as a change of plans in the design stage due to the recognition of high risk potentialities, a dis continuance of a hazardous process or possibly contracting it out to an other firm which is more special ized in the process, withdrawal of a product from the market, and an avoidance of business operations in areas of high political uncertainty, or where extreme weather con ditions, flood or earthquake, could 1 s>_|hjpz'jLr>rvow*1"“>tD undue liokV - Often there are "methods that can reduce the level of risk to a deg ree that does not necessitate the need for any disruption of opera tions or plans. However this is not always the situation. Risk avoid ance may involve an activity that produces benefits but substitutes other risks. For example, a decision to avoid flood risk by building on a higher site may mean that benefits of lesser construction cost and easy production flows on a flat site are offset by an increased expectation of wind losses in a higher and more exposed position. Whatever alter native is decided upon, following a cost-benefits evaluation, a careful identification and analysis of the risk is vital. Reduction Reduction of risk is the final stage in the risk control process. Its objective is to create reasonably secure pre-loss conditionsand to es tablish a"post-loss plan to lessen, in so far as possible, adverse effects of the loss event. Risk reduction in volves analysis of: 1) Pre-conditions for a loss, such as faults in premises, plant design, etc. Examples are a badly insulated electric wire .(fire risk), an un guarded machine (human safety risk), inadequate perimeter protect ion (security risk) or the escape of toxic fumes from fractured piping (human safety/pollution risk). 2) Prevention of loss which deals with devices designed to prevent the pre-conditions of loss from actually developing into a loss such mm Risk Management as electric fuses, security locks on external doors, automatic cut out devices on machinery to cope with overheating or the entry of a for eign body, security bars on win dows and filters in fume extract chimneys. 3) Early discovery of the loss event. The size of many losses can be reduced if the event is discover ed and treated quickly. Fire alarms, sprinkler systems, and security pat rols give early warning of the out break of fire or unlawful entry to premises. 4. Limitation of loss. If an em ploye is injured or a fire occurs, it may still be possible to limit the loss either by rapid action, or by use of facilities already available. Prompt first aid treatment may ( 1 lifnit the extent of injury and the use of normal or automatic fire fighting equipment may extinguish a fire or prevent its spreading. Salvage operations, too, can re duce the loss following fire. Add itionally disaster planning for catas trophic events is an essential limit ation of loss technique, and one that can in itself be a complete sub ject. Risk reduction methods elected obviously will depend on the na ture of the operation and the man agement structure being evaluated, but typically, it will always involve physical devices designed to reduce either possibility or size of loss, procedural techniques to adapt to working methods and character istics, and organizational planning. 9 firms get BOI incentives MIGUEL Z. PATOLOT Business Day Z—— Published under PCPM Certificate of Registration No. 108 RAUL L. LOCSIN Editor/Publisher EXEQUIEL S. MOLINA LETICIA M. LOCSIN Editoric Managing Editor JOSE M. GALANG. JR. JUAN R. REDOBLADO News Editor Senior Editor BUSINESS DAY Is published Monday, through Friday by Buslnessday Corporation, with editorial offices and plant at No. 113 West Avenue, Q.C., Philippines, telephone 99-15-46 to 49 connecting all departments; advertising and circulation offices at No. 113 West Avenue, tels. 96-67-16, 96-77-06, 96-67-41 for advertising and 99-99-02; 99-98-53, 99-05-44 for circulation. Ail rights reserved. The contents of this publication may be repro duced In whole or In part provided due credit Is given. RE ENTERED AS SECOND CLASS MAIL MATTER AT THE MANILA POST OFFICE ON April 2, 1979. (Continued from page 1) Mattel will produce 2.7 million units of dolls a year, 11.2 million units of costumes and costume ensembles and 0.9 million units of assorted plastic toys. Mattel Inc. of the United States, the parent company, will absorb 100% of production to be marketed in the United States, Europe, Asia and South America. Josefina Manufacturing Inc., an export producer of garments with an annual production capacity of 68,000 dozens, was also registered under the Export Incentives Act. AGRIBUSINESS. The BOI likewise approved the registration of Vitarich Danish Foods Inc. and Console Farms Corp, under the Agricultural Investment Incentives Act (Pres idential Decree No: 1159). The Vitarich project, estimated to cost P6 million, will involve the production of 53 head of purebred “Hypor” boars and gilts. On the other hand, Console Farms proposes to set up an in tegrated piggery and feed mixing plant at an estimated cost of P6.01 million. Approved under the Foreign Business Regulations Act (Repub lic Act No. 5455) were the appli cations of the following: * Scientific Drilling Controls of Nevada, USA for authority to set up a branch office to provide services in the field of oil, geother mal and mining ventures. * Siemssen & Co. (Hong Kong) Ltd., a German firm registered in Hong Kong, for authority to transfer the activities of its local-office to Preneba & Co. (Hong Kong) Ltd. * Alhambra Industries Inc., a 100% Swiss owned firm, for author ity to increase its capital stock from P13 million to P18.2 million and to accept the investment of Philinvest AG. * Intercane Pacific Ltd. of Hong Kong for authority to set up a branch office to act as coordinator of marketing activities of Intercane Systems Inc. and NGM Interna tional in the Philippines; to render support services and administrative assistance to local buyers of Inter cane products; to explore the possibility of future manufacture of “Tilby” cane separators; and, to market animal feeds, alcohol, chem icals, fertilizers, fuel, lumber, sugar, wax and pulp and paper.

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