Ford Motor Company Risk Assessment

Given the highly confidential nature of the content management, pricing, product, service, and distribution data delivered to Ford Motor Company locations and the applications for order status, online ordering, and quoting being central to the structure of the company, there are many business and security risks of propagating these tools to their dealers. This is exacerbated by the fact that today Ford Motor Company is actively trimming its dealer network and there are major risks associated with firing dealers while critical company information is ion the dealerships.

Security risks, internal risks of embezzlement and fraud, risks of valuable pricing and volume data being comprised, and the risks of a natural disaster all must specifically be planned for in any risk assessment. First with security risks the impact could be in the range of between $20M to $100M per dealer being fired, as this is the typical dealer backlog in each region. Coupling this with the risks of embezzled and misdirected funds due to lower morale, and the costs could easily go into the hundreds of millions of dollars. The risks of firing dealers and have them sell their pipelines to competing dealers or take the pipeline and redirect them to new car models is significant.

Take just fleet sales for example. This could be a major risk of redirected sales pipelines and “sold” pipeline lines to other dealers that for a large dealer in a major metro market say for example Los Angeles, could amount to over 50,000 vehicles a year.

Next the issue of pricing confidentiality and the risks of exposure specifically in this area are massive to Ford Motor Company. As it stands today the company has cash and incentives that total over $3,000 per car, and the intricacies and competitive strengths of these incentives are critical to the competitive strength of the company going forward. If any dealer comprised the plans of these cash and incentive offers to a competitor, Ford Motor Company would continue to struggle even more to gain the necessary sales to fund future development. The competitive risk of cash and incentives being known by a dominant competitor are in the hundreds of millions of dollars and to alleviate this risk there needs to be compliance measures put into place immediately before Ford decides which dealers to let go. The implications of how Ford handles special pricing requests also need particular attention as well, as the expediting of pricing exceptions on fleet vehicles is another competitive advantage. Columbus (2003) states that of all pricing workflows, the highest ROIs are possible when the special pricing request workflows are automated and taken away from being a purely manual process to one where rules engines are used for quickly making decisions. Protecting this proprietary pricing process is critical for the future of Ford’s ability to win sales into the future. Ford Motor Company must focus on how to alleviate the many potential areas of pricing itself and pricing processes being compromised. What’s needed is a risk management plan aimed at the dealer channel to alleviate the many financial risks to Ford Motor Company from trimmings its dealer ranks throughout the United States.

Ford’s Need for a Risk Management Plan

The risks specific to the Risk Management Plan will include the following key sections, highlighting the need to manage risks by the probabilities of their occurrence, according to Risk Management completed by the Department of Energy as it relates to best practices in risk mitigation and disaster recovery al;so apply to Ford Motor Company’s dealer channel Department of Energy (2005). While specific to another industry the applicability of these key concepts are well applicable to the Ford Motor Company dealer channel.

The focus first on isolating risks and defining potential losses from both business events and natural disasters needs to be defined using Net Present Value Analysis according to Carnegie-Mellon (1996). The focus on providing discounted cash flows from operations to accurately assess the financial impact of these resources, regardless of how they are lost. The following table illustrates the Net Present Value of key information assets Ford Motor Company has exposed as they downsize their dealer channel:

Net Present Value Today (Dealer Channel)

Estimated Cost to Replace (Company-Wide)

Cash & Incentives

3,000 a car

600M

Dealer Mgmt. Systems 2M

1.2B

Pricing Exception Processes

1.1B

Fleet Sales

100M in dealer profit

3B in corporate profit

Sales Pipelines

Varies by dealer but typically $20M

6B

Through either natural disaster or the attrition and the trimming of the dealer ranks, Ford Motor Company is in a highly risky situation right now as it relates to these core assets. Managing risk by focusing on the value of these assets and the need to protect these core intellectual properties is a core requirement for Ford going forward.

References

Carnegie-Mellon (1996) – Definition of Software Risk Assessment Concepts and Directions: -Retrieved from the Internet on October 15, 2006 at http://www.sei.cmu.edu/pub/documents/96.reports/pdf/tr012.96.pdf

Department of Energy (2006) – From the CIO’s website for the U.S. Department of Energy, Retrieved from the Internet on October 15, 2006 at http://cio.doe.gov/ITReform/sqse/index.html

Risk Management (2005) – Acquisition and Program Risk Management Guidance – Volume 2: Chapter 4 -Retrieved from the Internet on October 15, 2006 at http://nasdocs.faa.gov/nasiHTML/risk-mgmt/vol2/04_ch_v2_01.html