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Welcome to

Welcome to. Risk Management. Learning Objectives. Understand the definition of risk Learn how to assess and control your company’s risk Be able to implement systems for keeping risks under control. S1. Agenda. S2. What Is Risk?. Accepting the risk Avoiding the risk. S3.

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  1. Welcome to Risk Management

  2. Learning Objectives • Understand the definition of risk • Learn how to assess and control your company’s risk • Be able to implement systems for keeping risks under control S1

  3. Agenda S2

  4. What Is Risk? • Accepting the risk • Avoiding the risk S3

  5. Risk = Probability x Damage S4

  6. Activity: Defining Risk • Find a partner • Read the case study on p. 14 • Discuss questions on p. 15 (10 min.): • What was your definition of risk before? • How did you form this definition? S5

  7. A Typology of Risk S6

  8. Activity: Classifying Risks • Find a partner • Read the case study on p. 18 • Identify each type of risk at Snow Valley (10 min.) • Work individually; classify risks your company faces (5 min.) • Share the risks you and your partner identified (5 min.) S7

  9. Case Study: Classifying Risks • Form groups of 3 • Read Snow Valley information on p. 23 • Analyze, describe risks from poor snowfall, using pp. 20-22 • Record group's responses on p. 23 (15 min.) • Share responses with whole class S8

  10. Risks in Ignoring Interdependencies • Does not use resources optimally • May allow unrecognized risk to emerge • Gives false sense of security • Could lead to eventual demise S9

  11. Risk Mapping • Start with brainstorming • The list may be long! • Identify core risks • Risk = Probability x Damage S10

  12. Activity: Risk Mapping • Form groups of 3 • Read and discuss case study on p. 39 • Answer questions at bottom of p. 39 • Share group responses with whole class S11

  13. Activity: NPV and Real Option Theory • Form 4-6 groups • Half the groups read pp. 45 and 46 (NPV) • Half the groups read pp. 47 and 48 (Real Option Theory) • Discuss for 15 min. • NPV groups explain their method, benefits, and drawbacks • Real Option Theory groups explain their method, benefits, and drawbacks S12

  14. Case Study: Snow Valley • Form groups of 3 • Read the case study on p. 53 • Complete the activity on p. 54 • After 15 min., groups present their responses S13

  15. Legal Risk in Your Business • Include legal risk segments • Categorize your legal risks • Some business have higher exposure to legal risk • Some businesses have higher potential losses • Some companies set aside a litigation provision S14

  16. Transferring Risks • Transferring risk is outsourcing it • Doesn’t necessarily eliminate risk S15

  17. Other Options • Avoid or eliminate risk • Mitigate risk S16

  18. Risk Tolerance • Risk tolerance is different for every individual and company • Risk is becoming less accepted • Attempts to reduce risk are becoming exceedingly costly and less useful • A certain amount of residual risk will always remain S17

  19. Practice for the Real Thing • Practice can save lives • Establish contingency plans for all accepted risks S18

  20. Crisis Management Activity • Read pp. 74 and 75 • Receive handout with question and answer spaces • Create a “test” question based on pp. 74 and 75 • Write question on top half; question and answer on bottom half • Separate halves; keep bottom half as answer sheet • Form groups of 3-5 • Pass your question to the person on your right • Write an answer to the question you receive • Hand the question back to its creator for “grading” • Group with the most correct responses wins! S19

  21. Models vs. Common Sense • Models fall short • Scorecards attempt to present indicators • Find a balance S20

  22. Activity: Reducing Legal Risk • Find a partner • Receive handout with questions (H2) • Pairs answer questions using pp. 85-87 (10 min.) • Whole class reviews answers against answer sheet • Prizes to pair(s) with most correct answers S21

  23. Management Responsibilities • Planning • Organization • Involvement • Control S22

  24. A Posteriori Controls • Expectations derived from experience S23

  25. Anticipatory Controls • A desired, anticipated result is monitored constantly • Disadvantage: Results are subjective rather than quantitative S24

  26. Activity: Controls • Find a partner • Read pp. 94-95; respond to scenarios on p. 95 (10 min.) • Review the authors' responses together S25

  27. Detective, Preventive, and Protective Systems • Detective systems: Find potential problems • Preventive systems: Prevent problems from triggering others • Protective systems: Limit potential damage S26

  28. Organization of Financial Audits • Mandatory for publicly traded companies • Content differs from country to country • Audit committee is formed by nonexecutive directors S27

  29. Case Study: Management Audit at Snow Valley • Form groups of 3-5 • Read pp. 107-109 • Complete diagram on p. 110 (10 min.) • 10 minutes for the activity S28

  30. Case Study: CRO Wanted • Form groups of 3-5 • Read pp. 111-113 • Complete “ideal candidate” description on p. 113 • 10 minutes for the activity S29

  31. Implementing a Reasonable Approach • Create incentive for improvement • Remember environmental risk • Customize IRM for your company S30

  32. Know and Watch the Law • Imagine the worst-case scenario • Anticipate the risks • Be knowledgeable • Use legal help when necessary S31

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