"3. Risk Analysis, Evaluation and Treatment3.1. Risk AnalysisRisk analysis is defined as the evaluation of the potential outcome that some event is likely toincur over the business or the project. There are different elements under which this risk could beanalysed. These include cost, time, quality, benefit and resources (Hulett, 2011). Shaneparticularly focused on the cost and time elements because it planned to complete SAPimplementation in a year with a total cost of $10 million. However, it proved to be unrealisticdeadline for the business and the real implementation took around 3 years and incurred the costof $36 million (Bhagwani, 2009). The probability and consequences of risk could be determinedby evaluating each element through a particular risk level such as low, moderate or high. Oncombining these levels, the risk for the overall project is evaluated as shown below (ProjectManagement Institute, 2009). However, rather than evaluating the project on different risk levels,Shane Co. followed the unrealistic planning.Thus, with the implementation of SAP, Shane Co. encountered bankruptcy and poor inventorymanagement as the end result instead of better demand forecasting and planning for business asillustrated below (Bhagwani, 2009):Table 3.1.1: Risk Analysis based on Different ElementsElements Used in Risk Planned Outcomes Actual OutcomesAnalysisCost Cost of $10 million in implementing $36 millionSAP in Shane Co.Time Estimation of 1 Year 32 months (3 years approx.)Source: (Hulett, 2011)3.2. Risk EvaluationTable 3.2.1: Risk Evaluation for Shane Co.Risk EvaluationImplications for Shane Co. OutcomesTo consider the risk There was no point of spending 3 No Risk Tolerancetolerance of the years and $36M in SAPcompany before implementation in the time when thedetermining the retail industry was going through theprobability of the risk tough phaseRisk Appetite Declining Sales due to weakening The risk was not acceptableeconomic conditionsRisk Evaluation A sensible approach towards Not Followedanalysing different situationAccepting or Risk treatment Accepted and filed bankruptcyUnacceptingSource:(Ranong and Phuenngam, 2009)It can be seen from the above table that it is important to consider the risk tolerance of thecompany before determining the probability of the risk (Ranong and Phuenngam, 2009). AsKimberling (2009) contended that for a company like Shane Co. there was no point of spending3 years and $36M in SAP implementation in the time when the retail industry was going throughthe tough phase and the business did not even have enough power to tolerate any risk. Ranong etal. (2009) further stated that the risk appetite i.e. the willingness to take risk of the company isone of the most important factors in evaluating the risk. This determines whether the risk wouldbe acceptable or not. For Shane Co. the risk was not acceptable as it was already pressurised bythe declining sales due to the worst economic situation (CRMoutsiders, 2009). Ranong et al. (2009) enunciated that risk evaluation is a sensible approach towards analysingdifferent situations under which business should take decisions. This decision usually leads tothird step which is called risk treatment if the company find the risk unacceptable. This step isabout deciding whether risks are acceptable or need treatment.3.3. Risk Treatment Risk treatment is usually defined as the remedy to risk which could be pursued by differentoptions. Standards Australia and Standards New Zealand identified different options for treatingrisk. These include avoid risk, change the consequences, change the likelihood of occurrence,share risk and retain risk. The risk retention is followed when the risk is under the acceptablelevel (Ranong et al., 2009). However, the leading jewellery retailer - Shane Co. accepted thefailure of its SAP implementation and filed for bankruptcy (Kimberling, 2009). This showscontradiction with the above options of treating risk. However, risk retention is somehow related to the case Shane Co. but the loss of huge capital andtime was not something that is acceptable for Shane Co. This implies that the poor managementas mentioned by Bhagwani (2009) is what led to the selection of poor approach for the risktreatment as well. Gunasekaran and Sandhu (2010) articulated that the risk externalization oracceptation is another approach that is used to treat the risk. Therefore, Shane Co. approach foraccepting the failure and filed for bankruptcy show congruence with this conviction ofGunasekaran et al. (2010).Table 3.3.1: Different Approaches of Risk Treatment Approaches of Risk TreatmentWhat Shane Co. Did? ResultsAvoid risk, change the X Xconsequences, change thelikelihood of occurrence, sharerisk and retain risk (Ranong etal., 2009).Risk externalization or Shane Co. accepted the failure of The risk was acceptedacceptation (Gunasekaran et al., its SAP implementation and filed2010) for bankruptcySource: (Gunasekaran et al., 2010; Ranong et al., 2009)"