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Estimating the Incidence of Operational Risks on Corporate Sustainability in the Cement Industry through Financial Simulation

Author

Listed:
  • Mariana Sepulveda

    (Universidad de Medellín)

  • Jorge-Andres Polanco

    (Universidad de Medellín)

  • Felipe Cuervo

    (Universidad de Medellin)

Abstract

This study estimates the impact of operational risks on corporate sustainability in the cement industry through a financial simulation. The methodology is based on a case study in the cement industry and identifies company’s operational risks before classifying them through a taxonomy of environmental, social and economic variables. The impact is quantified using a stochastic model with a Poisson distribution for frequency and a PERT distribution for severity. The results show that it is possible to quantify aggregate losses through the proposed probability distributions, eliminating the limitations faced by companies in the absence of historical information, and it is concluded that the average impact of these risks on FCF varies between 7.52% and 13.13% for the case study, also demonstrating that the impact is reduced when risks are proactively managed. Finally, the proposed model allows calculation and simulation of the financial impact of these risks on the company’s free cash flow and establishes strategies for cost mitigation and financial optimization. This research has two limitations: the validation in a single industry and the limitation of using solver for optimization.

Suggested Citation

  • Mariana Sepulveda & Jorge-Andres Polanco & Felipe Cuervo, 2024. "Estimating the Incidence of Operational Risks on Corporate Sustainability in the Cement Industry through Financial Simulation," Business Management, D. A. Tsenov Academy of Economics, Svishtov, Bulgaria, issue 3 Year 20, pages 38-55.
    • Handle: RePEc:dat:bmngmt:y:2024:i:3:p:38-55
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    File URL: http://hdl.handle.net/10610/5069
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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • G0 - Financial Economics - - General

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