RISK MANAGEMENT PLAN OF PepsiCo

I. EXECUTIVE SUMMARY

a. Summary of your Risk Management Plan

Many Asian countries have many operational beverage-manufacturing companies

following the ease of the capacity of such companies to penetrate the market. Even with such
ease, such companies face many risks ranging from availability of quality raw material, the
process of production, as well as the management of the entire company. In the current paper,
water stands out as an essential raw material accounting for about 75% of the raw materials
used in the manufacturing of beverages. Fraud, as well as health and safety are also other two
additional volatile situations that may put beverage companies at risk. However, the paper
focuses on the mechanisms of mitigating these risks particularly in Pepsi Company established
in Philippines. In the first volatile situation, the products of the Pepsi Company are the subjects
impacted by the event of utilization of polluted water for their manufacturing. This event
results from factors such as increased utilization of water that require treatment in the
company, following the reduced quantity of fresh water because of the impacts of global
warming. In the second volatile situation, shareholders are the main subjects while the event is
the probability of occurrence of a fraudulent or misconduct within Pepsi company.
A subtle factor leading to this event is reluctance of fraud and misconducts of
monitoring and control systems. Finally, under the health and safety volatile situation, the
employees of Pepsi Company are the key subjects. The event is failure of a production or
packaging machinery contributed by factors such as negligence of conducting preventive
maintenance of the machineries.
b. Background of a business/project that you would want to make a Risk Management
plan.

Pepsi Company limited is a Philippines-based soft drinks bottling company specializing in

canned products. It manufactures, sells, and distributes soft drinks belonging to the non-
carbonated (NCB) and carbonated soft drinks (CBDs) category. These comprise the main two
business segments of the company. The products of are distributed to wholesale, retail outlets,
bars, and restaurants. With each segment of the products being manufactured by the company,
varieties of product brands exist. In the CBDs’ segment, brands such as 7Up, Mug, Mountain
Dew, Pepsi cola, and Merida exist. Pepsi Lipton, Gatorade, Propel Fitness Water, Twister, and
 sting energy drinks comprise the NCBs segment. Given the wide range of products that the
company produces, it is significant that the organization determines the most appropriate
product mix in an attempt to attain optimal profitability. Achieving optimum profitability
implies optimal mitigation of risks to investors (shareholder). This means that one of the
plausible risks that Pepsi Company endeavors to mitigate is protection of the shareholder
against encountering undue losses of the investment. In this extent, Pepsi states categorically in
its mission statement that it “seeks to produce financial rewards to investors providing
opportunities for growth and enrichment to its employees, business partners, and the
communities in which it operates” (PepsiCo Inc Para. Additionally, disability and risk managers
within Pepsi Company have come up with strategies for mobilization of all resources with the
organization over a long time to ensure that the organization improves its profitability
continuously.

II. VERSION HISTORY

Provide information on how the development and distribution of the Risk

Management Plan up to the final point of approval was controlled and tracked.

Version Implemented Revision Approved Approval Reasons

by: Date By: Date
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the 21th
century.

III. INTRODUCTION
In the normal operational environment of any business, several risks are evident.
Organizations have to address them to ensure their future presence. In the business
planning process, it is crucial for management to incorporate concepts of risk management.
This is necessary in the attempt to minimize organizational risks that may influence the
performance of an organization negatively. For the purposes of discussions of this paper,
risk management is “a process for identifying, assessing, and prioritizing harmful conditions
(risks) of different kinds” (Alexander and Sheedy 10). Depending on the nature and type of
 risk that an organization may anticipate to face, a number of strategies may come in handy
to help in mitigating them. Some of the risks that organizations endeavor to mitigate
include undue lawsuits, theft, fraud financial markets uncertainties, credit risks, and
confidential information leak risks amongst others. Proper management of these risks
lowers the degree of vulnerability of an organizational. Even though, it is crucial for
organizations to concentrate on reducing financial risks, risk management has an important
function towards aiding in protecting customers, public, and employees from negative
impacts including fires and terrorism amongst others. It also entangles the protection of
organizational physical assets, records, data, and other physical facilities. From this
perspective, the paper utilizes Pepsi Company to describe three volatile situations showing
how one can apply risk management to resolve them. The situations are fraudulent
activities, which may result into the shareholders losing their long-term investments, as
well as health and safety risks for both workers and consumers of the organization. Since
water is an important raw material in the manufacture of beverages, the paper treats the
risks of water pollution as an additional risk to Pepsi Company.

IV. RISK MANAGEMENT PROCEDURE

a. Process – PepsiCo consists of a concentrated beverage base and a liquid sweetener
which are combined to form the syrup from which the drink is made.
The Company ships the concentrate to bottling and canning plants where the
franchisees mix it with sugar and local water. Risk Identification – an evaluation of the
environment factors, organizational culture and the project management plan.
b. Methods of Risk Identification - The PepsiCo Company markets, manufactures and sells:
beverage concentrates and syrups; and, finished beverages (including sparkling soft
drinks; water and sports drinks; juice, dairy and plantbased drinks; and tea and coffee).
Risk Analysis – all risk identified will be assessed to identify the range of the outcomes.
Risk will be prioritized by their level of importance.
c. Qualitative Risk Analysis – the probability and impact of occurrence for each identified
risk will be assessed
i. Probability

On a cumulative basis, the default probabilities for the PepsiCo Company range from

0.04% at 1 year to 1.89% at 10 years

ii. Impact

Risk Management System

i. Integration of risk management into our business planning processes

ii. A continuous process to identify and evaluate significant risks to the achievement of
business objectives
iii. Implementation of management processes to mitigate significant risks to an
acceptable level
iv. Implementation of strategies to further embed risk management into the cultural
fabric of the business
v. Continual monitoring of our internal and external environment for factors that may
change our risk profile
vi. A regular review of both the type and the amount of external insurance we purchase
and the role of our captive insurance entity, with reference to the availability of
cover and cost (this is measured against the likelihood and magnitude of the
identified risks)
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d. Quantitative Risk Analysis – analysis of risk event that have been prioritized using the
qualitative risk analysis process and their effect on activities will be estimated, a
numeral rating is applied to each risk based on quantitative analysis.

There are many tools and techniques available to perform quantitative risk analysis.
Below are a few of them;

i. Decision Tree Analysis: The PepsiCo Company typically introduces a new soft drink
to a local market before potential distribution throughout the U.S. Coke has
recently developed two new energy drink products, Colorado Gold and Cactus
Crush, and they wish to determine whether to test these products in the Charlotte
area before distributing nationwide. Three-Point Estimate: Three-point estimate is
applicable to both duration and cost estimates. It relies on three different
estimates that are Optimistic, Pessimistic and Most Likely estimates.
 ii. Sensitivity Analysis: PepsiCo is performed to understand the internal capabilities.
The conclusion of this paper emphasizes that the company needs to reduce its
dependence on carbonated beverage and diversify its product portfolio into the
noncarbonated sector to remain competitive.

iii. Failure Mode and Effects Analysis (FMEA): The infographic applies not only to
PepsiCo but to all caffeinated fizzy drinks. Coke is not just high in high fructose
corn syrup, but it is also packed with refined salts and caffeine,” writes Naik on his
blog, The Renegade Pharmacist. Regular consumption of these ingredients in the
high quantities you find in Coke and other processed foods and drinks can lead to
higher blood pressure, heart disease, diabetes, and obesity

iv. Monte Carlo Analysis: The PepsiCo, Inc. is a global food and beverages company,
most commonly known by its famous brands such as Pepsi-Cola and Frito-Lay.
Using historical performance data, we have determined through a Probabilistic
Discounted Cash Flow (P-DCF) analysis and Monte Carlo simulations that the
company is fundamentally worth $81.25/share. Despite PepsiCo’s cost-cutting
efforts and reorientation of business to accommodate the shift of consumer
preferences towards healthier and eco-friendlier food, the macroeconomic and
political instability in PepsiCo’s emerging market segments, as well as the
company’s high debt levels lead us to conclude that PepsiCo does not have the
revenue generating potential to justify the current market price. For all the
reasons above, we rate PepsiCo a SELL.

e. Risk Response Planning

In Pepsi Company, immense measures get plausible attention to ensure that the
organizational goals and values articulate with anticipated stakeholders’ benefits. The
values of the organization form the frameworks upon which specific goals cling. These
include vision statements and objectives of all departments that must work
 collaboratively to deliver high quality beverage products, while not negating the overall
corporate strategies coupled with managerial tactics. In the quest to mitigate risks within
any organization, organizations determine quantitatively or qualitatively the extent to
which they have accomplished their visions, values, evening anticipating performance
strategies. In the formulation of such values, attention goes to strategies and visions to
ensure that the organization in question can reduce the degree of its susceptibility to
risks. For this purpose, before continuing with the analysis of risks facing Pepsi Company,
a consideration goes to the scrutiny of Pepsi’s organizational goals and values. However,
the scope of this paper does not warrant consideration of departmental objectives, goals,
and/or how they contribute to the overall mechanisms of risks reduction with Pepsi
Company.

f. Risk Monitoring, Controlling and Reporting

This overview of our most important risks, involving an assessment of the likelihood of
occurrence and potential consequences, does not include all the risks that may ultimately affect
our company. Some risks not yet known to us, or currently believed to be immaterial, could
ultimately have an impact on our business or financial performance. We remain constantly
vigilant to changes to our economic and regulatory operating environments, to ensure we
proactively identify and evaluate new risks and understand threats to our business viability.  

For the reporting period to December 2019, we validated the continued importance of
our 17 identified principal risks. This was done through our ongoing ability to aggregate and
analyse risk, our functional collaboration and the think tank approach of the company's Group
Risk Forum.
 g. Risk Contingency Budgeting
PepsiCo is an American multinational corporation dealing with snack and beverages. The
company is the world’s largest in the snack and beverage industry. In terms of revenues
forexample, the company’s revenue hit a high of $66.4 billion. The company has a wide
range ofsubsidiaries in its portfolio. These subsidiaries include Frito-Lays salty snacks,
Quaker Chewy, granola bars, Pepsi soft drink products, Tropicana orange juice, Lipton
Brisk tea, Gatorade,Propel, SoBe, Quaker Oatmeal, Cap’n Crunch, Aquafina, Rice-A-Roni
and Aunt Jemimapancake mix. The products produced by PepsiCo and its subsidiaries in
most cases as regarded ascomplements as they are consumed together. This process can
help to provide faster service to customers from available stock and lower costs
considering Coke normally has a distribution process of bulk items. The customers buy
directly from the available inventory. Demand management and distribution is therefore
a fey focus. They use the continuous flow method of manufacturing. The products are
made in a continuous fashion and tend to be highly standardized and automated with
very high volumes of production. The production flow of Coca Cola involves passing sub-
assemblies/parts from one stage of production to another in a regular flow.

V. TOOLS AND PRACTICES

PepsiCo is the second biggest player in the global food and beverage industry. To maintain
this position, PepsiCo’s operations management (OM) practices must effectively address
business needs in the 10 strategic decision areas. These decision areas refer to the aspects of
business that need to be streamlined together to achieve optimal performance. PepsiCo’s
continuing international growth and expansion also warrant continuing reforms in such
operations management practices.
 Also it always focuses on fun & entertainment as it is the main message they want to
deliver. They adopt their message to target market based on some values: sharing happiness,
fun, tradition of coke.

VI. CLOSING RISK

One of PepsiCo’s growth strategies is to proactively adapt to emerging market trends for
natural, healthy, and nutritious beverages. The strategy makes the company’s supply chain
more global and complex. It also presents new challenges and risks. In order to manage these
risks and maintain the service levels that its retail customers expect, PepsiCo needed to develop
new risk management practices and redesign elements in its supply chain as it expanded its
beverage lines. These efforts have enabled PepsiCo to reap improvements that benefit both the
new product lines specifically as well as the established parts of the business as a whole. One of
the healthy beverages that make up the new growth strategy is coconut water. A natural
alternative to hydrating drinks that replenish electrolytes, coconut water is not simply an
extension of PepsiCo’s traditional line of beverages. Coconut water is a “good for you” product
that is an alternative to “fun for you” products like Pepsi’s carbonated soft drinks.

PepsiCo’s healthy beverage brands — O.N.E. Coconut Water and the smoothie/juice brand
Naked Juice — are manufactured in remote regions of the world, including Southeast Asia.

VII. RISK MANAGEMEN PLAN APPROVAL

Acknowledge for Approval

Signature Date: December 31, 2020

Print Name: ROSES B. MAAMO

Title: Risk Management Plan for PepsiCo

Owner/Manager of the organization

Signature Date: December 31, 2020

Print Name: JANE ROSE BASCO

Title: Risk Management Plan for PepsiCo

Business partner/Assistant manager

Signature

Print Name: JONNA ROSE SABANDAL

Title: Risk Management Plan for PepsiCo

Marketing manager