Mr. Krishi is having an experience of 15 years in manufacturing and selling pharmaceutical products. He is the managing partner of M/s. Krishi Pharma situated in Mumbai.

In the month of May 2018, he came across a notification No. F. No. 10(6)/2016 - DBA-II/NERdated 12th April, 2018 issued by Ministry of Commerce and Industry which announced a scheme called "North East Industrial Development Scheme (NEIDS), 2017".

The scheme provides

Central Capital Investment Incentive (30% of the investment in plant & machinery with an upper limit of ` 5 crore),

Central Interest Incentive (3% interest on working capital for 5 years),

Central Comprehensive Insurance Incentive (Reimbursement of 100% insurance premiumfor 5 years),

Income Tax Reimbursement of centre's share for 5 years,

GST reimbursement of Central Govt. share of CGST & IGST for 5 years,

Employment Incentive under whichadditional 3.67% of the employer'scontribution toEPF in addition to Govt. bearing 8.33% Employee Pension Scheme (EPS) contribution of the employer in PMRPY and

Transport incentive on finished goods movement by Railways (20% cost of the transportation), by Inland Waterways Authority (20% of the cost of transportation) & by air (33% of cost transportation of air freight) from the station/port/airport nearest to unit to the station/port/airport nearest to the destination point. Also, under thisscheme, a single unitcan avail overall benefits up to ` 200 crores.

He immediately formulated an idea to commence a private limited companyinthestateof Assam to commence manufacturing and selling of pharmaceuticalproducts.Hecheckedthe said scheme and ensured that the proposed manufacturing of products would be eligible underthe scheme.

With the help of a consultant he floated a private limited company in Assamand constructed factoryand officebuildings ina 15-yearleased landof30000 sq.ft.Theinitialcontributionof 10 crores was made by him along with his other family members. The consultant, who was appointed for preparing the project proposal, totally estimated a cost of ` 20 crores for the entire project including purchase of new machinery. He also estimated that there might be a probable project cost overrun of 5%. The company could manufacture the pharma products from 1st April, 2019.

The consultant put forth the following:

The consultant has employed various statistical tools for arriving out at various projections made in the project. He had also prepared a detailed cash / funds flow analysis for three years commencing from 1st April, 2019.

To approach the bank for a 10-year term loan of ` 10 crores

Initially,for two years,the companycould face liquidity problemsand suggested togo for a working capital loan of ` 2 crores initially.

To consider alternative logistic arrangements for movingthefinishedgoodstovarious parts of the country.

To consider the possibility of exporting the finished products to friendly foreign countries.

To appoint

(i) an internal auditor to look into various control aspects and

(ii) a statutoryauditor for ensuring required compliances.

A risk committee would be constituted with a main focus toconducta detailed company- wide risk management program including the possible oversights and as far aspossible strive to include all the foreseeable risk situations, possible measures to prevent the same and steps to be taken for mitigation.

Prepare detailed process manual and safety manual and periodically to revise the samewith the improvements happening.

As a risk management consultant, you are required to clarify the following to the management.

MCQ

Choose the correct answer in the following Multiple Choice Questions:

For calculating 'the cash flow available to pay current debt obligations', the bank would

most likely use which of the following calculations?

• (PAT + Dep + Interest) / (Current portion of long-term debt + Dep + Interest)
• (PAT + Dep) / (Current portion of long-term debt + Dep)
• (PAT + Dep + Interest). / (Current portion of long-term debt + Interest)
• (PAT + Interest) / (Current portion of long-term debt + Interest)

What is the probability of getting a tail each time, if the coin is flipped foreight times ?

(A) 1/32

(B)1/256

(C)1/128

(D) 1/64

The company is preparing a process manual for its manufacturing activities. The process manual would LEAST likely contain:

• technology used in the sub-process
• factory specifications
• specific individual roles
• controls to be tested

The company, while analyzing the significance and assigning prioritytothe risks,wouldplot the identified risks in a matrix chart. This would be done under:

• Qualitative Analysis
• Impact Analysis
• Likelihood Analysis
• Quantitative

An internal auditor, who is appointed would LEAST likely look into which of the following

aspects, when concluding on the company's risk maturity level?

• Control environment is strong including the tone from the top
• Risk appetite is defined and communicated across the organization
• Regularly reviewing and monitoring the objectives set as part of the framework
• Business

Which one of the following is a NOT type of risk that the company would face in its investment project decision making?

• Decision making under uncertainty
• Decision making under probability
• Decision making involving risk
• Decision making under certainty

1. As per the suggestion of the consultant to Mr. Krishi, a risk committee was constituted

appointing an Independent Director as chair oftheCommittee.Thecommitteeidentified the risks that the company would face,but did not give any solutionstomitigatethe same. A consultant was asked to provide the advice on mitigation of the risks and sound practices that should be adopted. Now you are appointed as the consultant, please give a report describingthe advices that wouldbe givento the company.

1. In the above report under 1.11, it was mentioned 'a loss wouldoccuror nolosswouldoccur and there would be no possibility for gain'. Explain thisriskand differenttypesof such risks.
2. Since Mr. Krish wanted to export his company's goods, describe the various qualitativetools that may be used tomeasure countryrisk assessment