Enterprise Risk Management: Dr. Ronald Menold Email Protecti

Enterprise Risk Managementits 835dr Ronald Menoldemailprotectedch

Suppose General Motors wants to replace one of their traditional lines of vehicles with all electric models. How could GM use game theory to identify and assess the major risks to this decision? Identify two major risks that would result from GM converting an existing line to an all-electric line. Provide a brief discussion of each risk, and your assessment of the levels of inherent, current, and residual risk, using GM’s five point scale.

Paper For Above instruction

Introduction

The transition of General Motors (GM) from traditional combustion engine vehicles to all-electric models involves significant strategic and operational decisions. Utilizing game theory as a tool to identify and assess the major risks associated with this shift can provide GM with insights into potential challenges and uncertainties, allowing for more informed decision-making. This paper explores how GM can leverage game theory to assess risks and examines two major risks associated with converting an existing vehicle line to electric, analyzing their inherent, current, and residual risks on GM’s five-point scale.

Application of Game Theory in Risk Identification

Game theory is a mathematical framework used to analyze strategic interactions among rational decision-makers. In the context of GM's transition to electric vehicles (EVs), game theory can be employed to model competitive dynamics, regulatory responses, consumer behaviors, and technological advancements. By simulating various scenarios, GM can anticipate possible reactions from competitors, suppliers, and regulators, thereby identifying risks that might not be immediately apparent through traditional risk assessment methods. For example, GM can analyze how competitors might respond with pricing strategies or innovation delays, and how regulatory bodies might impose new standards affecting EV adoption.

The use of game theory enables GM to evaluate the likelihood and impact of various strategic moves by stakeholders, helping to identify risks related to market share, technological obsolescence, and regulatory compliance. It also assists in understanding how choices by one player (such as a competitor introducing a superior battery technology) could influence GM’s risk landscape, prompting preemptive mitigation strategies.

Major Risks Associated with Converting to All-Electric Vehicles

Two essential risks identified through this strategic modeling are supply chain reliability and market acceptance.

1. Supply Chain Reliability

The shift to electric vehicles places a significant demand on battery technology, which is largely dependent on critical raw materials like lithium, cobalt, and nickel. Disruptions in the supply chain—such as geopolitical tensions, supplier bankruptcy, or resource scarcity—could severely hinder production capacity and delay vehicle launches. The risk of supply chain disruptions is inherently high, considering the complexities of sourcing these materials (Hill, 2022).

The current risk is moderate due to GM’s efforts in diversifying suppliers and investing in sustainable sourcing initiatives. However, residual risk remains high because market volatility and geopolitical instability could still cause unforeseen disruptions, especially as demand for EV batteries increases globally. On GM's five-point scale, supply chain reliability would be categorized as follows:

- Inherent Risk: 4 (critical)

- Current Risk: 3 (significant)

- Residual Risk: 4 (critical)

2. Market Acceptance

Another major risk involves consumer acceptance of electric vehicles, influenced by factors such as range anxiety, charging infrastructure, and consumer perception of EV reliability. Even with technological improvements, consumer skepticism remains a barrier to widespread adoption, especially in regions still dependent on traditional vehicles. The inherent risk here is moderate, given the competitive market and consumer preferences (Wang & Li, 2021).

Currently, GM has invested heavily in marketing and establishing charging networks, reducing some uncertainty. Nevertheless, residual risk remains notably high if consumer preferences shift slower than anticipated or if competitors introduce more appealing offerings (Yan et al., 2023). Categorized on GM's five-point scale:

- Inherent Risk: 3 (significant)

- Current Risk: 2 (moderate)

- Residual Risk: 4 (critical)

Conclusion

Using game theory provides GM with a strategic lens to foresee potential risks in its transition to electric vehicles. By analyzing supply chain reliability and market acceptance—two critical risks—GM can formulate targeted mitigation strategies, such as diversifying suppliers and advancing consumer education initiatives. Although the company has taken steps to reduce current risks, residual risks remain significant, emphasizing the importance of ongoing strategic planning. Effective risk management during this transition is vital for GM to maintain competitive advantage and successfully lead in the EV market.

References

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