Implementing Enterprise Risk Management: Case Studies And Be

Implementing enterprise risk management: Case studies and best practices...

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

In recent years, the automotive industry has experienced a transformative shift toward electric vehicles (EVs), driven by technological advancements, shifting consumer preferences, and stringent environmental regulations. For a traditional automaker like General Motors (GM), transitioning an existing vehicle line to fully electric models represents a strategic venture into this evolving landscape. To effectively navigate the potential risks associated with this transition, GM can employ game theory—a mathematical framework that models strategic interactions among rational decision-makers—to identify, analyze, and mitigate key uncertainties. The application of game theory enables GM to anticipate competitor moves, consumer responses, and regulatory responses, thus facilitating a comprehensive risk assessment of the transition process.

Utilization of Game Theory in Risk Identification

Game theory offers valuable insights into potential strategic interactions that could impact GM's transition to EVs. By modeling competitors’ reactions—such as Ford, Tesla, and other established automakers—GM can evaluate the likelihood of aggressive pricing, technological innovations, or marketing strategies aimed at capturing market share. Additionally, understanding consumer preferences through game-theoretic models can highlight market segments most receptive to EVs, as well as resistance or skepticism among consumers. Regulatory bodies also play a crucial role; their policies, incentives, or penalties can be modeled as strategic moves that influence GM’s risk landscape. Overall, game theory provides a structured approach to simulate various scenarios, allowing GM to identify critical risks and develop strategies to mitigate them proactively.

Major Risks From Transition to Electric Vehicles

1. Market Acceptance Risk

The primary risk associated with GM's transition to all-electric models is market acceptance. Consumer willingness to adopt EVs remains variable, influenced by factors such as vehicle cost, battery range, charging infrastructure, and environmental consciousness. Despite growing popularity, EV adoption is still facing barriers, including range anxiety and high upfront costs, which may limit demand. This risk aligns with the strategic competition among automakers, who are racing to produce affordable, high-performance EVs to capture market share.

Inherent risk, representing the fundamental uncertainty present before any controls are implemented, for market acceptance is high (rated 4 on GM’s five-point scale), given the unpredictable pace of technological innovation and consumer behavior. The current risk—reflecting existing controls such as marketing strategies, incentives, and infrastructure development—might be moderate (rated 3) as GM is actively investing in charging networks and customer education. The residual risk, after implementing strategic initiatives, could be low to moderate (rated 2), depending on how well GM can adapt to market feedback and emerging trends.

2. Technological and Supply Chain Risk

The second significant risk concerns technological uncertainties and supply chain stability. Developing reliable EV technology—particularly batteries—requires advanced manufacturing processes, specialized materials, and a robust supply chain. Disruptions in sourcing critical materials like lithium, cobalt, and nickel can impede production schedules and inflate costs. Moreover, rapid technological changes may render early investments obsolete, leading to stranded assets or strategic misalignments.

The inherent risk in technological and supply chain uncertainties is rated high (4), due to the complexity and volatility of raw material markets and innovation pace. The current risk level might be moderate (3), as GM can establish diversified supplier relationships and invest in R&D. Residual risk could be lower (2) but remains significant depending on geopolitical stability and technological breakthroughs or setbacks.

Conclusion

Applying game theory to GM's transition to electric vehicles provides a strategic advantage by exposing potential risks stemming from market dynamics, technological uncertainties, and regulatory interactions. By assessing inherent, current, and residual risks for these identified challenges, GM can develop targeted mitigation strategies—such as diversifying supply chains, enhancing consumer education, and engaging proactively with policymakers. This comprehensive approach enhances GM’s ability to adapt to the rapidly evolving EV landscape, ensuring competitive advantage and long-term sustainability.

References

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