Case Study Note: In developing your answers you can make any assumptions you wish provided these are reasonable, do not contradict the content of the case study and are clearly written down. Company and individual names are shown in italics. The city of Caroria has suffered from severe traffic congestion for a number of years. The city is the ancient capital of Scotlonia. The city centre features a range of famous buildings and part of the city is designated as a world heritage site. As a result, over the past 20 years the city centre has not developed in parallel with developments to the city suburbs and outskirts where extensive industrialisation and commercial development have taken place. An obvious manifestation of this disparate rate of development is in the citys transportation system. There is only one central railway line that traverses the city from east to west. There are no underground railways or other forms of mass transit system. No motorway penetrates within 10km of the city centre. The result of this lack of transport system development is a gross over-dependency on cars as the primary mode of transportation. This has resulted in severe congestion problems. These have reached a scale where something has to be done before the city centre grinds to a halt. Several years ago the local authority considered the various alternatives available and came to the conclusion that the only technically feasible and economically viable option was to build a network of electrically powered trams over several years as a programme to be completed in a number of phases. The programme was given the title Tramsways. Phase I of the Tramways programme involves an east west link connecting the airport to the docks and passing right through the ancient city centre. The tram route makes use of existing roads so there will be no demolition of buildings or the alteration of any existing road layout. Phase I has been awarded to a consortium of developers and contractors called Tramworks. The contract is expected to take 3 years to complete at a cost of around K10.5 billion. As part of the feasibility study for the tram Phase I project, the local authority commissioned a risk management consultancy called Risk Analysis Associates to carry out a comprehensive project risk assessment and develop a risk management system Page 3 of 7 for the Phase I project. The works are causing a great deal of disruption in the city as it is necessary to close off a number of main roads while the tram lines and associated infrastructure are put in place. This disruption has had a major negative impact on local traders and there is growing opposition to the noise and diversions resulting from the works. In addition, there have been numerous delays and cost increases and it has emerged that phase I will go considerably over cost and the hand-over will be delayed. Phase I receives a contribution from central government, but this contribution is capped at a pre-set level. As a result, any cost increases will have to be paid for by the local authority using local taxation. Phase I is due for completion in the next six months. The local authority will then evaluate the effective- ness of this first tram route before making a decision on whether to proceed with phase II and the rest of the programme. If the local authority decides not to continue with the tram programme, it will have to consider an alternative way of addressing the congestion problem. One possibility could be the introduction of a congestion charge whereby car users are obliged to pay a standing fee each time they use their cars to access different traffic zones within the city. The local authority tried to introduce a congestion charge some years ago but voters in a local referendum rejected the idea. Any compulsory introduction is likely to be controversial and highly unpopular with voters. Other alternatives, such as an underground railway network, are likely to be prohibitively expensive or technically too complex.

REQUIRED: Question 1 a) Discuss the concept of change management and identify the change management styles that are suitable for the Caroria Local Authority.(8 marks)

b) Discuss the main components that are likely to be included in the EWRM system designed by Carolia Local Authority. Explain what each element or component is and how each relates to the other elements or components that comprise the system. (12 marks) Page 4 of 7 (Total 20 marks)

Question 2 a) Discuss the underlying rationale behind the philosophy of the enterprise wide risk management system (EWRMS) with particular emphasis on how this differs from a basic risk management system and the potential advantages it may offer the Carolia Local Authority (20 marks)

Question 3 a) List the heading items that a risk management policy should include (10 Marks)

b) Discuss the concept to risk transfer as a risk treatment option and develop examples of two alternative possible risk transfer mechanisms that Carolia Local Authority could consider for transferring strategic, operational, change and unforeseeable risks. (10 Marks) (20 marks)

Question 4 The COSO ERM framework presents eight interrelated components of risk management: 1. the internal environment (the tone of the organization), 2. objective-setting, 3. event identification, 4. risk assessment, 5. risk response, Page 5 of 7 6. control activities, 7. information and communications, and 8. monitoring.

Write brief notes on each of the COSO ERM framework relating it to ISO 31000, where appropriate (20 marks)

Question 5 a) One of the touted advantages of an ERM system is the stabilization of revenue that results in shareholders valuing the business highly on the markets. Assume a firm has operating free cash flows of K300 million, which is expected to grow at 13% for four years. After four years, it will return to a normal growth rate of 8%. Assuming that the weighted average cost of capital is 12%. Calculate the value of the firm. (15 Marks)

b) A project has a worked out IRR of 15%. Would you advise the company to undertake this project at its current WACC? Give reasons for your answer. (5Marks)

Question 6 Describe how you would set the context for identifying risks in the new upgrade programme of the Carolia Local Authority and what methods you would use to ensure that the identification is as comprehensive as possible