Group Members

Dounia AREZKI
Manuel CERRATO RAMIREZ
Seher El-Oujoud DRINE
Nuraina JAMANKULOVA
Meruyert IBRAIMOVA
Opeyemi SUNMOLA
Melody TAAL

Risk Management - Case #4

Read the PharmaCorp in Ukraine case study Questions: What major risks does PharmaCorp
face in the case? Provide a Risk Response Plan (see slide 19 hereto, focus most of the time
on elements in red) per each risk or per closely-related risks. Include as much detail as
possible. Somewhere in your write-up, briefly explain why you chose a certain risk planning
approach(es) (see slide 5 hereto).

Major risks that PharmaCorp is facing in this case:

The Risk Risk ID: 01

Risk Category: Political Risk
Risk title: War
Risk Description: War between Ukraine and Russia. This conflict
caused great uncertainty in the Ukrainian market. Share value was
fluctuating at an unusual pace after the break in the ceasefire in
Luhansk. Employees in the city of Kiev were afraid of being attacked
by pro-Russians. Political situations and charges have been
changing in recent years, causing disorder in the healthcare system.
Business activities impacted: supply chain, sales, bank transactions.

Risk Analysis Likelihood:4

It already happened, moreover as the case states after the main
events in 2013-2014, there were still certain dangerous actions
happening as “Massive bombings”.
Impact:4;
It impacts employees’ safety as “two employees disappeared” in
Eastern region and other employees are afraid to continue working
in that region.
Priority: 16 (4 x4) high

Risk Functional department(s) of most relevance: Board Members,

Response HSS (Health, Safety and Security), HR, Supply Chain
Category/categories: Transfer. It is an external factor which the
company cannot remove or reduce and it has a high impact on the
company to accept, thus, the option is to transfer to the third party.
(Insurance)
Specific actions to address risk:
❖ Gather an Emergency board meeting with RHQ to consider
leaving the country or staying
 ❖ In case of staying acquire War Risk Insurance for Business
and employees
❖ Reconsider Logistics and Sales in Eastern region:
distribution by local regional third party companies or
contractors
❖ Purchase/rent cars with Eastern Ukrainian number for
Eastern region
❖ Place GPS in all cars and work mobile phones
❖ Run monthly committee meetings to evaluate the situation
❖ Provide hot-line call service and Employee Assistance
Program to employees
❖ Ensure employees safety against sudden attacks: third party
safe shelters, bunkers etc

Timing/schedule: until the situation is stabilized;

Resources (people, assets, materials):
❖ Emergency team, third party providers (insurance, shelter,
distribution, EAP) which are not directly affected by the
conflict; money to pay for providers;
Specific responsibilities of staff in carrying out actions
❖ Members of the board: having a plan for every possible
situation. Considering the option of ceasing the operations of
the company in Ukraine.
❖ HR department: communication between employees and
board members. Gather employees' concerns. Clarity for
employees. Managing providers
❖ HSS: Ensuring safety shelters, cars and mobile phones with
GPS-tracking for employees
❖ Supply Chain: reconsidering the logistics in Eastern Region
Communication process when addressing risk
❖ Organize biweekly town halls with employees to keep them
updated and answer questions from employees

The Risk Unique risk ID: 02

Risk Category: Economic risk
Risk Title: Inflation & Devaluation of currency
Risk Description: Political turbulence, war and riots also have
influence over a country’s currency. All these factors indicate that
Ukraine was in an unstable and highly violent environment. As a
result, the hryvnia was losing its value and inflation rose to
extreme levels. While inflation cannot be avoided and is
considered healthy to some extent (around 2% annually), the
inflation levels in Ukraine during 2014 and 2015 severely
damaged PharmaCorp and Ukraine as a whole. With inflation
levels up to 12.1% in 2014 and an expected inflation rate of 50%
in 2015, purchasing power in Ukraine almost vanished. The risk
that PharmaCorp faced with this inflation trend was that prices for
 their drugs increased rapidly up to the point that there was no
demand for their products anymore (consumers could simply not
afford the drugs anymore). While PharmaCorp cannot directly
influence economic risks such as high inflation due to political
uncertainty, the company had to deal with this risk as they were
making strategic plans for their future operations in Ukraine.
Devaluation rate of Ukrainian hryvnia was changing rapidly in
2014, from -8% to +8% from January to August, and going up to
18 hryvnia for 1 euro, and from -4% to +3% in September and
going up to 17.4 hryvnia for 1 euro.

Risk Analysis Likelihood: these extreme inflation rates are not usual, but given the
political turmoil during that period, the likelihood of high inflation
rates was high.
Impact: It is a past event. But we can say that when countries have
political instabilities, war and riots - that affects the economics and
social stability of the country. Local currency value is going down,
inflation rate is increasing. These factors overall decrease the
economics of the country, increasing unemployment rate and
decreasing customers' purchasing power.
Score/Priority: High

Risk Functional department of most relevance: Finance

Response Category of risk planning approach: Transfer risk - Directive
control. This was a high impact event with a high likelihood given the
turbulent political situation.
Specific actions to address risk: Transfer the risk by investing in
Financial instruments (derivatives, alternative financing mechanisms,
forward contracts, futures contracts, swaps, options) to hedge
foreign exchange risk.
Timing/schedule: one-time investment
Resources: money (hryvnia that can be put into a financial contract
with a more stable currency)

Residual risk Residual risk and Monitoring Process:

Continuously Monitor company’s financial situation, investments. Be
sure to make correct forecasting and budgeting for future periods
(using macroeconomic analysis).
Contingency arrangements:
Create the Emergency Plan for Inflation/Devaluation of the currency
rate.

,
The Risk Unique risk ID: 03
Risk Category: Economic
Risk Title: Decrease in Consumer Purchasing Power and
Unemployment
Risk Description: The political and economic situation in Ukraine
has resulted in a rising unemployment rate that was 9.3 in 2014
and was forecasted to be 11.5 in 2015 with an increase of 2.2 in
just one year, making people more careful when spending, and
also reducing drastically their purchasing power. This has heavily
impacted Pharmacorp sales, as customers now consider
Pharmacorp’s product (vitamins) as a luxury they can’t afford.

Risk Analysis Likelihood: In this case it already happened (5)

Impact: Very significant (5)
Score/Priority: 25 (5 x 5) Very High

Risk Functional department of most relevance: Finance, Production

Response and Distribution
Category of risk planning approach: Remove the cause of
risk/Contingency
Based on our analysis, the impact of this risk is very significant on
the Ukrainian market and has drastically lowered the sales of
Pharmacorp. As a result, the best course of action would be to
remove the causes of this risk, based on the quadrant. This is
also a contingency plan as the risk has already materialized.
Specific actions to address risk: In order to tackle this risk
PharmaCorp should work on either reducing its production and
distribution costs or changing its brand from being premium to be
more mass market.
● Currently, Pharmacorp Ukraine’s portfolio is very small, and
contains mainly long-established, well-proven “premium”
drugs. The Company should consider including cheaper
drugs in its Ukraine portfolio. Specific actions include:
● Assessing the market for need for cheaper drugs
● Selling/proposed new drugs to medical practitioners

Timing/schedule: Immediate
Resources: Marketing team, production team, supply chain, Sales

Residual risk Residual risk and Monitoring Process: Monitor the economic
situation in the country and adapt the prices while working on
lowering the production cost.
Contingency arrangements: In case of extreme damages
PharmaCorp can leave the Ukrainian market to cut the losses.
The Risk Unique risk ID: 04
Risk Category: Political/Legal
Risk Title: Changes in Tax Policies
Risk Description: There exists the risk that taxes on the company's
products would be increased. Given the fact that there was a newly
imposed law installing taxes on medical supplies and imports in
2014, there exists the risk that the taxes installed on the products
might be increased.

Risk Analysis Likelihood: In assessing the likelihood of the taxes on medical

supplies and imports being increased, we have conducted
research on countries with similar profiles as Ukraine. Based on
details in the case, and further research, Ukraine currency fell
70% from the start of 2014 to March 2015 and as a result the
economy became one with hyperinflation. One of the
approaches by governments in order to stop inflation, and
fluctuations in exchange rate is to increase taxes to limit imports.
In order to predict the likelihood of taxes being increased, we
have analyzed hyperinflationary economies and economies of
similar size with Ukraine of cases where taxes were increased
on medical supplies and imports. From our analysis, changes in
tax policies are very rare and occur on very few occasions. In
this case we have assessed a further increase in tax on the
companies products as low and rated it a 1. To confirm, based
on our research, till date (10 February 2022) the taxes on
imported medical supplies are still 7% for transactions supplies
into Ukraine and imported into the customs territory of Ukraine of
medical products
Impact: From our analysis in countries where additional taxes were
imposed on medical supplies and imports, we realized that these
changes were mostly within the range of 2-7% increase. Based
on this, we assessed the impact of a change in tax profile as low.
We have assessed the impact as low and rated it a 1.
Score/Priority: 1 (1 x1) - Low

Risk Functional department of most relevance: Legal, Tax and

Response Accounting
Category of risk planning approach: Accept and Tolerate,
Contingency. We chose to accept this risk as based on our
analysis it is of low priority and has a low impact on the
Company. Taxes can also be passed to the consumer in pricing.
Specific actions to address risk:
● Monitor discussions of bills in the legal system, and press
releases on Tax Policies.
Timing/schedule: Continuous
 Resources: Legal Team, Tax and Accounting Teams

Residual risk Residual risk and Monitoring Process: Monitor discussions of bills
in the legal system, and press releases on Tax Policies.
Contingency arrangements: Start making provisions for taxes as
soon as bills which indicate changes in tax pass first reading.

The Risk Unique risk ID: 05

Risk Category: Political
Risk Title: Corruption
Risk Description: There are various definitions of corruption,
depending on the context. Transparency International proposes
a general definition: “Corruption involves behavior on the part of
officials in the public sector, whether politicians or civil servants,
in which they improperly and unlawfully enrich themselves, or
those close to them, by the misuse of the public power entrusted
to them”. Operating in a competitive environment where not
everybody plays fair, or facing illicit requests from corrupt public
officials are just two real world examples that companies
experience every day. PharmaCorp was faced with this risk as
public offices were fluctuating, and each Health minister had his
own strategy and rules which didn’t really benefit the health care
system.

● Decisions are influenced behind closed doors or in return for

payments: Holding meetings behind closed doors fuels
suspicion about the integrity of important planning decisions.
● People in charge are putting their private interest over the
public’s: if a public officer has other outside employment and
interests, which is not unusual, these should be made
available for public scrutiny. This is required by law. However,
publishing registers of financial interests as PDFs and other
non-machine-readable formats do not meet good practice
standards for transparency. Financial interest registers that
are poorly formatted and decentralized limit the public’s
ability to properly hold elected officials to account. The more
easily accessible they are the greater transparency and
accountability there is over these interests.

Risk Analysis Likelihood: Analyzing the corruption risk in the Company can be
very difficult. Factors to consider include:
❖ The nature of the process for transactions (e.g., whether
there is any interaction with government officials);
❖ Incidents of corruption occurring in the past at the Company;
❖ Incidents of corruption in the Company’s industry;
 ❖ The local corruption culture and environment in the region
where the organization is located
❖ The number of individual transactions in the organization
❖ The complexity of the scheme and the level of knowledge
and skill required for execution;
❖ The number of individuals needed to perpetrate the scheme;
❖ The number of individuals involved in approving or reviewing
the process or transaction related to the scheme.

Based on the factors of all transactions going through the RHQ at

the moment, it can be assessed that the likelihood of risk of
corruption occurring is low. However, should the Ukranian office
consider localizing its transactions, the probability of this risk
materializing would be higher. As a result we have rated this risk
as a medium probability, and assigned it a risk level of 3.

Impact: Some of the factors to consider when estimating the

potential impact of each risk or scheme include:
❖ Impact of past incidents of the corruption scheme at the
company, if any;
❖ Impact of incidents of the corruption scheme at other
companies;
❖ Potential amounts of fines or penalties;
❖ The opportunity cost arising from regulatory restrictions on
the company’s ability to operate or expand;
❖ Impact on operations such as interruption in the company’s
ability to transport goods or obtain permits or other required
approvals;
❖ Potential impact on financial statements;
❖ Impact on recruitment and retention of employees;
❖ Impact on retention of customers and future revenues;

Given the nature of the company and that legal or any other issues
in one single market could quickly spill over and cause damage to
PharmaCorp as a whole, we have rated this risk as moderately high
in impact, and assigned it a risk level of 4.

Score/Priority: 12 (3*4) - Moderate

Risk Functional department of most relevance: Human resources,

Response Every staff
Category of risk planning approach: Reduce. We chose to reduce
the causes of this risk as given the nature of our assessment,
although the probability of the risk was assessed as medium, the
impact can range from medium to high.
 Specific actions to address risk:
● Develop a code of ethics, policies and standards:
Develop a code of ethics that defines the standards of ethical
conduct that employees must apply. It is a key resource and
practical tool, providing guidance to each employee about
the attitudes to adopt in interactions within and outside the
company.
● Place Employees at the Centre: Build a training program to
raise employee awareness and deliver continuing education.
Every year, employees must complete compulsory ethics and
business integrity training. Tools include e-learning modules
and short videos based on real-life situations that could
expose them to various types of risk including corruption,
conflicts of interest, fraud, and data confidentiality breaches.
● Improve Lobbying Transparency: Minute and publish all
meetings to help provide greater confidence in interactions
with the involved parties. Meetings should be:
- attended by all the concerned individuals.
- recorded in detailed notes, and shared among
members.
● Improved management of financial interests: They should
publish registers of financial interests as structured open
data and maintain them in a central location on their
websites.

Timing/schedule: Continuous
Resources: Human resources, Every Staff

Residual risk Residual risk and Monitoring Process: Continuously Monitor

company’s operations
Contingency arrangements: Public relations management plan.

References:
https://www.investopedia.com/ask/answers/111314/what-methods-can-government-use-cont
rol-inflation.asp
https://www.washingtonpost.com/news/wonk/wp/2015/03/01/ukraine-unofficially-has-272-per
cent-inflation/
https://pubmed.ncbi.nlm.nih.gov/29059656/
A Guide for Anti-Corruption Risk Assessment - The United Nations Global Compact