Risk Assessment at the Wal-Mart Stores Inc. Industry and company information

Risk assessment

System characterization

Threat identification

Vulnerability identification

Control analysis

Likelihood determination

Impact analysis

Risk determination

Control recommendations

Concluding remarks

Bibliography (Annotated)

The current economic climate is more challenging than ever and economic agents face incremental difficulties in registering profits through the serving of a population with a decreasing purchasing power. Nevertheless, in a context in which most economic agents register decreasing revenues, America's number one retailer -- Wal-Mart -- registers growing profits.

The company does nevertheless encounter numerous challenges as a result of internal vulnerabilities and external threats. In addressing the risks which face Wal-Mart, the current report has used the Risk Management Guide for Information Technology Systems, from the Special Publication 800-30 of the National Institute of Standards and Technology. The choice for this methodology was made as it is easily accessible and applicable, regardless of the field in which the entity operates.

The analysis of the risk has revealed two primarily important risks -- the threat of the economic instability in the current climate and the vulnerability of the past failures with international expansion. The negative reputation of the company represents a medium level risk and the competition in the industry represents a low level risk. Recommendations were forwarded to addressing all of these risks.

1. Introduction

The corporations in the United States are no longer only important from an economic perspective, but they have grown to be part of the American culture. Figures of corporate founders, such as the Sam Walton, Henry Ford or the McDonald brothers are part of American history and their heritage foundations are not just employment places, they are in fact integrant parties of the American society.

But in recent years, these corporations have been presented with the pressures of the internationalized economic crisis and many of them were forced to downsize or even declared bankruptcy. The main problems were pegged to the decreasing incomes and purchasing powers of the consumer, materialized in a low demand for products and services. But in this day and age, despite the limitations encountered, some corporations continue to thrive. Such is the case of America's number one retailer -- Wal-Mart.

Numerous accusations have been forwarded against Wal-Mart through its existence, but it is nevertheless true that the company is a symbol of corporate success. A question is however being posed relative to the future stability of the firm in the current circumstances, given the risks it faces. To better understand these risks however, it is first necessary to understand the features of the firm and the industry in which it operates.

2. Industry and company information

Wal-Mart was founded in 1962 in Arkansas by former soldier Sam Walton. Having returned from the front, Walton envisioned a community in which the people would have quick and easy access to the necessary commodities. And not just to any commodity, but to a wide selection of products, from which they would choose the ones that best served their needs. Walton as such opened the first Wal-Mart store on the 2nd of July 1962 and operated it as a discount store. Gradually, he came to open more and more stores. Today, the hypermarket chain is formed from no less than 8,500 stores and these still strive to preserve the identity of the founder. Sam Walton also focused on the well-being of the people and focused on training and internal promotions to managerial functions. Optimism is still present at the modern day Wal-Mart stores, where the employees gather up every morning to give the morning cheer.

From a financial standpoint, Wal-Mart is a highly successful business, with continually increasing revenues and profits. In 2007 for instance, the revenues of the stores totaled up to $345 billions, to have followed a sustained growth trend and reached a total of $419 in 2011. The main generator of these revenues is represented by Wal-Mart United States, followed by Wal-Mart International, and Sam's Clubs. The charts below reveal this:

Source: Wal-Mart 2011 Annual Report

Source: Wal-Mart 2011 Annual Report

In terms of the revenues expectations for 2012, the belief is that they would increase by an estimated 4 to 6 per cent. This increase would be due to the addition of new spaces in the already existent Wal-Mart stores. In terms of other important financial outcomes, most of them have also followed an ascendant trend. The table below presents some of the more relevant figures pointing out to the results registered by Wal-Mart in 2011, and their evolution comparative to previous years.

2011

2010

2009

2008

2007

Net sales

$418,952

$405,132

$401,087

$373,821

$344,759

Net sales increase

11.6%

Gross profit margin

24.7%

24.9%

24.2%

24.0%

23.4%

Income

$15,355

$14,449

$13,235

$12,841

$12,224

Total assets

$180,663

$170,407

$163,096

$163,200

$151,274

Long-term debt

$43,842

$36,401

$34,549

The demand of consumers is pegged to the level of economic development and business activity. Specifically, in times of economic prosperity, demand and consumption increase, whereas in times of economic stagnation or recession, these variables decrease. Wal-Mart does nevertheless reveal an unexpected outcome of an increased demand for its products, which could be explained by the fact that the crisis has pushed consumers to seek discount purchases, constantly offered by the company. Also, the stores sell commodities necessary for human life, regardless of economic state.
Wal-Mart, similar to the rest of the corporations in the retail industry, has created economies of scale. These allow the company access to impressive resources and help it create efficiencies. Strong managerial models, well implemented logistics and marketing efficiencies are key competitive points for large size players in the retail industry. Smaller size companies compete by offering customized products to niche markets. Today, Wal-Mart's top competitors are Carrefour S.A., the Costco Wholesale Corporation and the Target Corporation. Despite the intense competition it faces at an international level, "Wal-Mart Stores is an irresistible (or at least unavoidable) retail force that has yet to meet any immovable objects. Bigger than Europe's Carrefour, Metro AG, and Tesco combined, it's the world's #1 retailer" (Hoovers, 2011).

3. Risk assessment

The assessment of the risks facing the Wal-Mart Stores is important to understanding the jeopardy which threatens it, but also to revealing solutions to reducing the chances of the risks materializing. There are several means of assessing the risk, each relevant and applicable in specific contexts. For the current risk assessment process, the methodology was selected as it reveals clarity and easy applicability. Specifically, however it is created in the context of the IT industry, the methodology hereby used is applicable in virtually all business fields.

The risks facing the Wal-Mart Stores would be assessed with the aid of the Risk Management Guide for Information Technology Systems, featured in the Special Publication 800-30 of the National Institute of Standards and Technology, Technology Administration at the United States Department of Congress. This specific methodology is composed from nine gradual stages, as follows:

Step 1: System characterization, in which emphasis is placed on the information related to the system and the method used in the collection of the information

Step 2: Threat identification, at the level of which focus is placed on the identification of the sources of threats and the threat motivation and actions

Step 3: Vulnerability identification, where emphasis falls on the identification of the sources of vulnerability and the assessment of the security of the system

Step 4: Control analysis, where emphasis is placed on the control methods, the control categories and the technique of control analysis

Step 5: Likelihood determination, where assumptions are made over the likelihood of the threats and vulnerabilities materializing

Step 6: Impact analysis, during which phase emphasis is placed on the estimation of the impacts which would be felt in case the threats and the vulnerabilities materialize

Step 7: Risk determination, during which stage emphasis is placed on the identification of the risks, based on the chances of materialization of the threats and vulnerabilities, as well as based on the impacts which would be felt. At this stage, the identified risks are ranked in order of severity and importance.

Step 8: Control recommendations, at the level of which recommendations are formulated in the mitigation of the identified risks

Step 9: Results documentation (Stoneburner, Goguen, Feringa, 2002). At the level of the ninth step, it has to be noted that this specific stage of the risk assessment process refers to the actual completion of the report on the information collected throughout the research process. The ninth step is in essence represented by the entire project, which centralizes the findings of the research conducted. A separate section for this step would not as such be integrated.

The chart below indicates the structure and components of the risk assessment methodology.

Source: Stoneburner, Goguen, Feringa, 2002

Since the method is in fact developed for the IT systems, it would be applied to the case of Wal-Mart through adaptation of the specifics. In other words, while the nine steps are preserved, their particular applications and contents would differ based on the differences between IT and retail systems.

3.1. System characterization

Wal-Mart is the largest retailing company within both the United States as well as within the entire world, revealing a size larger than that of its primary competitors combined.…