Menu

Justification for an Internal Control

Forecasting and planning for risk is the best way to avoid losses, rather than passively accepting the inevitability of such losses in the insurance mindset. For example, when a corporation has the hot new toy at Christmastime, rather than assuming the toy will always be as popular, it often creates artificial scarcity before the holidays, and then afterwards it plans a new type of publicity campaign to continue to sell the toy at robust levels, but without expecting the same level of buying frenzy will continue into the next year. Planning for the future is the best way to guard against losses and bad decisions.

Mitigating risk by spreading risk around is also problematic as a strategy, because it can simply result in embarking upon more risky ventures in a half-hearted way, and dilute rather than avoid risk. For example, regarding our line of chicken nuggets, what if consumer demand begins to suddenly abate because of the health concerns about processed poultry-based fried nuggets? Having alternative suppliers will not guard against this type or risk. Continually monitoring market trends is a better way to anticipate the possibility that vegetable-based or baked nuggets might rise in popularity. Secondly, having alternative sources, in case one supplier is found to be contaminated, will not solve the problem of the consumer fears that might occur if our product line is found to be tainted.

All of our products might suffer losses. Better to have strict monitoring of quality, than try to use many suppliers in the hope that only a few will provide a tainted product.

We should not, of course, abandon the use of insurance. For some anticipated hazards, such as the inevitable loss of a product to spoilage if a freezer truck breaks down during the summer, insurance is well worth the cost outlay. And mitigating risk does indeed avoid putting all of ones chicks in the same basket — no pun intended. But to judiciously choose what types of insurance, and how to hedge ones risk requires careful monitoring of the market environment. And internal risk management with an emphasis on zero defects and strict quality control is the only real assurance that a company has against a loss of face. Food companies such as ours require the public trust to succeed, and only by avoiding risk altogether with internal controls, rather than simply striving to mitigate risk with external controls, can Crafty Foods thrive in the future..

Leave a Reply

Your email address will not be published. Required fields are marked *