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Vol. 4 :: No. 1 January,
2002 (Paush
- Magh)
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Management |
| Risk Management Strategies in Infrastructure Finance-III -By Surendra Bhusan Shrestha Quantitative Risk Management Techniques Quantitative Risk Management Techniques can be used to determine the value at risk (VaR) of certain project for a given market with a certain level of confidence. The risks of the project associated with market, credit and operation can be isolated as well in the use of Quantitative Risk Management Techniques. The VaR method can be used to find out the value at risk while there are other approaches such as Probabilistic Measurement Approach, Linear Programming etc. In the Probabilistic Measurement Approach, the probability of the event of risk and non-occurrence of it can be attributed to different outcomes of a project and the probabilities assigned can be multiplied with the value of NPVs at each outcome to ascertain the probable NPV of the project. While VaR method can be used for finding out Maximum Possible Loss the project may be sensitive to various parameters. The different parameters/alternatives can be evaluated on the terms of maximum possible loss the project may suffer. On the other hand, in Linear Programming, with different constraints present, minimizing of risks can be achieved with the help of Simplex Method and Transportation Models. It is a basic concept that the cost of the project will increase if risk materialize. Hence risks such as Construction, Operation can be assigned to the project. The cost components of the risk of the project in different period of time may be linked with the revenue of the project in the different periods of time to build a matrix such as Cost Matrix, Revenue Matrix & Profit Matrix. The Cost Matrix, Revenue Matrix & Profit Matrix built for different alternatives can be used to find out better alternatives within the project in the process of minimizing risks to the extent possible. Financial Derivatives - As a Risk Management Tool Financial Derivatives viz. futures, forwards, swaps and options, of which value depends on an underlying asset, are used for hedging financial risks. Hedging makes financial planning easier, it reduces the risk of cash shortfall, and prevents financial distress and bankruptcy. Well organized futures markets exist in commodities such as wheat, coffee, soybeans, sugar etc., metals such as copper, gold, aluminum etc. crude oil, currencies such as US$, Sterling Pound, Swiss franc, Yen etc. and stock indices. Futures contract which are standardized and which mature on specific dates can be traded on specific exchanges such as London Futures Exchange, Commodity Exchange of New York, Chicago Board of Trade etc. Forwards are tailor-made future contracts which are often concluded by Banks and their customers meeting specific requirement of the customers. Firms often resort to swaps to limit their exposure to foreign currency risks. The swap Bank matches two counter parties with opposite hedging needs. For instance, Walt Disney, USA, after Tokyo Disneyland became operational in April 1983, received royalties from the operator over Yen 8 billion for the fiscal year 1984 and it was expecting the growth of the royalty by 10%-20% a year over next few years. However, large fluctuations in Yen/Dollar exchange rate during the period exposed the Yen receipts to exchange risks. In absence of any other suitable instrument which could contain the risk over four or five years, Walt Disney entered into a swap agreement with the Industrial Bank of Japan (IBJ). Under the agreement, Walt Disney issued ten year ECU denominated Eurobonds. The net ECU proceeds and the Yen cash flow in excess over its requirements were exchanged with IBJ for making future ECU payments to Walt Disney exactly matching the coupons and the principal payments of the Eurobonds and dollar payments at the spot rate to reduce its high cost short term borrowings. IBJ found a French utility counter party who was prepared to take ECU liability in exchange for commitment. Thus Walt Disney and the French Utility entered into a swap, facilitated by IBJ, the swap bank. For Walt Disney, the swap resulted not only in reducing the exposure of its yen cash flow but also in reducing its high cost short term dollar loans, killing two birds in one stone. NEP - Net ECU Proceeds Options are financial derivatives which provide flexibility to its owners and hence valuable. Options on stocks, commodities etc. are traded on option exchanges. Warrants and convertible securities give their holders an option to exchange their securities for common stock. A call option on a bond gives the issuing company the right to repurchase the bond before maturity. In evaluation of projects, often options embedded in projects are not valued. The real options found in capital investment projects are:
In order to get a better appraisal of projects, valuation of real options are being done particularly in projects related to Mining, IT sectors etc. For instance the firm RTZ-CRA had a real option to invest US$24 Million. in 2 years to assess the deposit size of Copper and Zinc in Antamina mine and then decide whether to invest $581-622 Million in development of the mine. This real option was valuable as its exercise reduced the risk of loss considerably. Conclusion Thus, it can be concluded that the various risk management techniques described in this and previous editions play important roles in their own might and assist in a big way in mitigating and managing different types of risks associated with the infrastructure projects through the entire project life cycle. CRM for Seeking and Keeping Customers -By Bimal Bhatta Customer Relationship Management (CRM) has now a days become a subject of interest for companies and marketing professionals especially with the onset of E-Commerce. There is a need for marketers to understand what it is, its impact on the organization, its applicability and its benefit to customers and organization. The main thing to be understood is that CRM is not just a sales tool with a short term orientation and it must be practiced with appropriate investment and long term planning. The concept of CRM: CRM as a concept is as old as marketing itself. Firms in both consumer and business-to -business marketing have always (either by accident or design) tried to encourage repeated buying from their customers. A common consumer would have also realized this fact directly or indirectly dealing with their day-to-day buying process. The CRM structure varies for business-to-business and business-to-consumer as the process of buying and selling differs in both segments. So, the concept of CRM can be defined as a relationship process which a company can cultivate with its customer groups/segments in such a way that it would benefit both the consumer and the company. Some marketers bear a wrong perception that just having a database of consumers for sending direct mails, establishing a social relationship or offering discounts is actually CRM and hence bring back disappointment. The pre-requisites of any CRM programs are:
CRM for business to consumer: Some research show that only around twenty percent of the consumers under the frequent flier programs in the airline industry contribute to around eighty percent of profitability. Given the fact, especially when airline companies in our country are facing a hard time due to various circumstances inside and outside the country, it is quite advisable to find out specific segment of customers and try to convince them with the marketing strategy which includes CRM. Studies conducted in retail outlets revealed the fact that if customer retention increase by five percent then profits rise by 25-30 percent as repeated customers spend twice as much in the second and third year then they do in the first six months. Similarly, the objective of a CRM program for a fast food company must be to increase the frequency of purchase of their offering. To get the repeated purchase from the customers, a promotional program for the brand could be roped in as a part of CRM program. This would, if properly done, result in rebuy from the customers and also word-of-mouth referral to other influence group. In FMCG sector, innovative CRM approach would help in building brand loyalty along with customer satisfaction, which in turn guarantees increased revenues and profits. Similarly, a manufacturer of consumer durables would find increased sales through CRM program, however repeated buying may not be the case here. But this could result in maximum customer satisfaction, brand loyalty for reference in influence group and, of course, repeated buy in case of new innovations in the products. The company running CRM program is likely to give the customer enhanced priority in terms of attention, apart from cost saving in maintenance over a period of time and the customer will get benefit of dealing with the same company with regard to maintenance schedules, exchange facilities and other marketing promotion activities offered by the company. Apart from loyalty and customer satisfaction, communication is a vital aspect of any CRM program, communication with regard to the state of the art offerings concerning the product category, the efforts of the company, brand to keep itself updated in terms of benefit offered. Satisfied customers of a CRM program and specific benefit of CRM program may help a marketer to keep in touch with a prospective target segment of consumers who wish to be a part of it. CRM for business-to-business: Companies which deal with business customers often find it hard to retain their clients as normally depend on few big clients who buy in bulk. The products in B2B are often industrial raw materials, accessories required for the final products and the relationship between the buyer and seller plays significant role in continuing the business. It may be also essential for a company to make an assessment of the life time value of a customer before designing the CRM program. Apart from loyalty and satisfaction, the specific objective of a CRM program should be reducing the cost of distribution, restructuring ordering patterns, taking into consideration the consumption patterns, and also the inventory level at the customers end. In B2B segment, selection of target segment or specific companies is of utmost importance because profitability of such programs will vary across segments or companies. CRM and Internet: It may be little early to calculate the impact of the CRM through the Internet in a country like ours where Internet penetration is relatively low with urban areas benefiting from it. But the e-loyalty seen in which we call developed markets is quite interesting and it would be very useful to know them, as some day we may need to include it in our marketing strategies. E.g. e-stores normally provide additional discounts than the actual stores as one can find products in amazon.com with 30 percent more discounts than the actual stores. Apart from that, launching the products on the Internet and making the e-stores more interactive are few well worked strategies for CRM program on the Internet. Power Guide Power Point -By Khusbu Sarkar Shrestha You’ve got a major business presentation coming up. This is the first time you are considering using technology to sell your point. You had been highly impressed by the PowerPoint presentation delivered by that young marketing executive just before new year. You too have fiddled with the software and think it would not be that difficult to create one. If this is your case, here are some do’s and don’ts that will help you make a successful presentation:
Avoid the following at all costs:
Making effective presentations is one of the best ways to move your career ahead. If you can present your message in a clear, persuasive, entertaining and professional manner, you will be able to close more sales, move your company ahead and win friends and influence people. Use the best combination of personal skills and technological skills to achieve that. |
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