Environmental considerations and numerous problems related to oil supply have made it possible to implement battery-operated/electric technologies for the automotive industry. In April 2019, ABC Scooters Limited agreed to start manufacturing battery-operated electric scooters under the Startup India Programme. This company is a two-wheeler development company based in Maharashtra. It was founded in 1997. They manufactured and sold 125-cc gearless scooters.

The battery-operated electric scooter comes into the electric car battery category (BEV). It can get the strength to operate from packs of batteries. There will be no internal combustion engine or fuel tank in it.

It is possible to use one of the two forms of I nickel metal hydride (NiMH) (ii) lithium-ion batteries (Li-ion)

It has become the industry standard for the use of Li batteries and is favored to Fuel cells.

The car can be equipped with a wireless networking built-in, GPS such as the speed of the vehicle, mileage, time taken to charge, the condition of the battery and health of the engine could be collected and shared with the central sever through an application installed in the user's mobile. Such data would be automatically analyzed by software in the company's server and which in turn would give automated response to the users on various parameters.

The mobile application would also provide the user information about the availability of nearby charging station, facility to reserve the time for charging and to make online payment.

Standard charges can be used for charging the vehicles. A charge for four hours would make the vehicle run for 150 kms. at an average speed of 30 kms. per hour.

Charging Stations to be established in petrol pumps on trial basis.

Suitable modifications were done to the manufacturing facility and trial production commenced in January, 2019.

The risk management consultant engaged to explore the various risk aspects of the proposal made the following observations:

The estimated project cost of manufacturing NiMH Batteries (Project A) and Li-ion Batteries (Project B) ` 30 Lakhs and ` 34 Lakhs respectively.

During the trial run of 50 vehicles for 100 kms. at an average speed of 30 kms. per hour, five vehicles broke down due to battery failure.

Based on projections made, the worst-case and best-case scenarios were analyzed using statistical tools. There are no precedents available to compare the results projected in the scenarios.

The company can export the vehicles to neighboring countries. Thus, forward exchange contract with bank could be entered. The estimated US Dollar rate on 30th April, 2019 was

69.50 per dollar and it was expected that the rupee would weaken by 2% at the end of 3 months.

The consultant stressed upon. to the management that the risk management should be a continuous and developing process which runs throughout the company and improvements are to be made proactively in the areas of: Strategy, dynamically adopted Tactics, achieving Operational Objectives and Compliances.

The consultant elaborated on counter measures such as, periodic inspections of the supply chain mechanisms (SCM) and periodic staff training. The same toconsider measures tobe taken in case of shortage of availability of raw materials, skilled man-power and reduction in sales. There would be a disruption in company's SCM but that would notimpact the ERM process and there is a 10% probability that the project would not be successful.

Questions:

Multiple Choice Questions

Choose the most appropriate answer from the answer options.

(1.1) It was revealed that specific vehicles fell down due to battery degradation during the second test run with another 50 vehicles in the same circumstances as the very first trial run. So instead battery loss, the cumulative risk of car malfunction is:

(B) 0.080

(C) 0.160

(D) 0.06

(1.2) On 30 April 2019, the forward swap deal with the bank for USD 10,000 with its planned figure for 3 months was entered into. The real USD per contract expiry cost was $71/-. The organisation has:

1. Earned a profit of` 1,390/-
2. Incurred a loss of` 1,100/
3. Incurred a loss of` 1,500/
4. Earned a profit of` 1,420/-

(1.3) What will More be considered a structural risk one of the following?

1. Failure of the outsourced person to supply the raw materials on time.
2. Risk of skilled employees leaving the employment of the organization en masse and joining the company of a competitor.
3. Break down of machinery.
4. Risk of disruption in the functioning of the entire industry.

(1.4)

What more will be considered one of the following systemic risks?

1. Consultant is wrong as it increases speculative risks.
2. Consultant is right as it minimises the project risk.
3. Consultant is wrong as it has an effect on ERM process.
4. Consultant is right as it does not have an impact on human resource risk.

(1.5) The system of the company for evaluating the stress scenario will be created primarily from:

1. Events that will cause movements in the relative risk factors.
2. Events that will have adverse risk factor movements.
3. Events that will lead to control failures and exposures.
4. Events that will have the attention of the board of directors.

Descriptive Questions

(1.6) Discuss the technique for evaluating vehicle movement data that you would recommend.

(1.7) To Project A and Project B, net present value and probability distribution:

NPV estimates Probability NPV estimates Probability

12,00,000 0.10 12,00,000 0.40

11,00,000 0.20 11,00,000 0.30

9,00,000 0.30 9,00,000 0.20

7,50,000 0.40 7,50,000 0.10

1.00 1.00

Compute the expected net present values of projects A and B.

Compute the profitability index (Pl) of each project and suggest which Project can be undertaken. (5 Marks)

(1.8) The areas of changes recommended by the consultant with respect to the company's activities are to be explained.(4 Marks)