2.1 Risk Identification of System.  

At the first stage, there should be assessment and acknowledgement of inherent risks. The risks are identified as follows:

2.2 Business Risks  

APIL, which is operating in Real Estate business, is prone to External and Internal business risks. External risks involve, risks prone to Real Estate Industry as a whole, such as change/s in Government policies, change/s in business cycles affecting sale, vagaries of nature affecting business like floods, earthquakes, riots, war with enemies etc., and other external factors beyond the control of APIL. Risk of competition is also included in External risks.

Internal risks involve inability to perform despite favourable conditions prevailing the market. These risks can be due to the following:

• Key Man Risk :- The top management is responsible for overall business success and continuity and in his absence there will be risk on the Company as a whole.
• Failure Risks :- Lack of coordination amongst various functional departments, by which there can be mismanagement of the projects. This can also happen due to lack of internal controls, failure of planning and execution in any of the functional areas of management viz, marketing, construction, finance, etc.
• Operational Risks :- Quality Control and time management are inherent to successful execution of Real Estate projects. Any failure in quality and delay in completion of projects can constitute a risk to Company's performance.
• Legal Liability Risks :- For alleged non compliance/ violation of various laws applicable to the Company, there can be legal liabilities on the Company and the management. This may arise and be fixed on the Directors, individually or collectively, and all the officers who are involved.
• Manpower Risks :- There is inherent risk on account of skilled and specialized manpower. They gain experience working with the Company and need continuous motivation and supervision, so that their efforts are best used in the Company. There is a risk of specialized manpower leaving the jobs, joining competitors, sharing confidential information with competitors etc. There is also the risk of they being under-utilized or put in areas where they are misfit.
• Risk of materials and inventory:- The prime raw material and inventory of the Company are land, structures & buildings. These are prone to the risk of market depreciation, encroachment and take over by government under laws.
• Technology, Consumer Preference Risks:- Change in technology of construction can lead to Company lagging behind competitors. Change in consumer preferences/ choices can make the planned projects or those under execution, difficult to sell.
• Financial Risks.
  Financial risks as applicable to APIL are:-
  • Non-realization of money from customers.
  • Increasing interest costs on amounts borrowed for projects, which may get delayed.
  • Non-supply of materials or breach of any conditions of contracts made with contractors, who do the construction of the projects, resulting in need to re- route supplies involving higher costs or delay the projects thus increasing the overall costs.
  • Imposition of any fresh or increased taxes or levies on the Company/ industry, by the Government.
  • Discontinuance of any existing finance facilities given by the Banks/ Financial Institutions, which may result in higher cost of borrowed funds to be taken from others.
  • High cost of carrying inventory due to delay in sale of project/s.
  • Foreign exchange risks on account of fluctuations in foreign exchange vis a vis the rupees.
  • Fall in profitability on account increased cost not matched by prices, and also falling price of the products.
  • Fall in liquidity resulting in cash flow problems.

2.3 Risk Management Framework  

Risk Management involves:-

• identification of the risks.
• Evaluating the risks
• Laying down procedures to monitor/ control and reduce/ minimize the risks.

2.4 Risk Management Procedure/ minimization 

(i) A detailed identification of the Risks of APIL should be done in consultation with all the concerned Departments/ functions. It should be evaluated in detail and be reviewed periodically. If need be, services of consultants who are familiar with the subject, may be taken.

(ii) To monitor/ control risks, and their reduction/ minimization, APIL has already taken/ shall take the following measures/ steps:

{a} External Business risk is sought to be monitored and minimized through keeping a strict watch on the policies of the Government and economic scenario of the Country, better customer relationships, better quality of products and competitive pricings, keeping abreast of competitors activities, and insuring the assets of the Company against destruction/ damage and other material risks.

{b} Internal Business risk is sought to be controlled and reduced by:-

• For Key Man risk - Key Man Insurance policy.
• Establishment of internal control systems, which involves internal audits and internal checks by internal and external auditors who are professionals.
• Establishment of Quality Management System/s which is controlled through ISO 9001: 2000 and other system implementation and periodical monitoring by outside certification agencies, by way of surveillance audits.
• Legal liability risks are minimized by ensuring that legal compliances are duly done and there is constant reporting back to the Board about the compliances.
• Implementation of effective HR management for monitoring manpower resources. Laying down formal organization structure, various rule/ regulations/ policies, their implementation, delegation of authorities to key professionals in functional areas and seeking their accountability, restriction of leaking of confidential information through contractual terms etc.
• Keeping a watch on the market practices/ technology advances/ strategies of the competitors for continuous monitoring of the products and the marketing policies of the Company as well as understanding consumer preferences.
• Taking insurance of buildings, assets etc of the Company. Insurance includes that of fire, burglary, money, personal accident, fidelity guarantee, car, insurance etc.
• Effective management of the financial resources of the Company so that the Company's financial risks are minimized. Foreign exchange risk is managed through forward contracts.
• Best utilization of the existing resources in order to aim at the maximum and long term gains;
• Aiming the future business with due caution after careful assessment of international and national market indicators, lessons from the past and the scenario which is likely to dominate the forthcoming years.
• Priority in creating assets which may take care of the financial health of the Company up to longer duration and may protect from loan trap.
• Being alive to efficient and cost effective techniques of execution and open to changes and improvements at right stages of operations; and continuous updating of the project management systems.