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PHYLOSOPHY
ERMAN A SUMIRAT
RISK ON THE OLD TIME
NATURE LOOKING
Airlines accident
Energy Prices
What is Risk (2)
What is Risk?
To what extent people aware with this
term?
Do we really think about risk when we will
do something?
Do we care about risk?
Does people have the same perceptions
about risk?
Do we take rational decision and regard
risk management?
Risk Definition
Risk is a chance to deviate as a
consequence of something that
occurred.
Risk is uncertainty from the
generated output in the future
Limitation
– Limitation: dice, coin
– Unlimited: Y2K, global warming, financial crises
Risk Terminology
RISQ (Arab)
“Anything that has been given to you (by God)
and from which you draw profit”
Connotation: a fortuitous and favourable event
RISICUM (Latin)
“The Challenge that a barrier reef present to a
sailor”
Connotation: a fortuitous and unfavourable event
Risk
Risk: Uncertainty concerning the
occurrence of a loss
Objective Risk vs Subjective Risk
HAZARDS
will cause a
LOSS
is
RISK
Uncertainty Matrix
Limitation of Chance of Occurrence
Uncertainty
Known Known
Known Unknown
Unknown Unknown
Risk VS Uncertainty
Risk Uncertainty
RISK IDENTIFICATION
RISK EVALUATION
RISK QUANTIFICATION
Level of risks
Extremely High
High
Medium
Low
Introduction > Risk example
> Risk factors
> Shark
> Driver
Theexpected situation is to know
any chance of occurrence and to
determine the probability for any
occurrence.
2.Knowledge
3.Culture
4.Position
5.Financial Status
6.Personal position in handling
situation
10.Rose-tinted glasses
11.Single-mindedness
Titanic
Discuss
“ Risk Management can help you seize
opportunity not just avoid danger”
DAN BORGE
Discuss
The Water we clean our teeth
The milk we use for cereal
The train we catch to work
Our PC System
Key Staff, our right hand
Purchase Order
Interest Rate
Merger
Risk Dimension
Until what time that risk still be occurred
?(time).
The impact of risk (exposure).
Chance of Risk occurrence? (probability).
volatility
Complexity
inter-relationships of Risk
Influence to Mitigate Risk
Risk Financing? (cost effectiveness)
Risk Cycle
Risk and Our Action (1)
We will be understand or
misunderstand about the uncertainty
limitation
We can or can not determine the
chance of occurrence
We have different perspectives
There is always risks surrounding us
We have to understand risk
dimensions
Risk and Our Action (2)
1. Risk Awareness
2. Risk Measurement
3. Risk Mitigation
– (accept it),
– (control it),
– (avoid it).
4. Risk Monitoring
Feedback
Contingency Planning
monitor
Manage
Accept
Avoid
Risk Management Paradigm
Risk Identification
Risk Measurement
Risk Management
Risk Reporting
38
Risk and Decision
High High
Determine Contingency
Accept Risk Planning
Low
Low High
Impact
Economic Environment
Domestic Global
Company
Social Factors Proposition
Critical Thought
Risk can impact everybody
From BOD to Office Boy
People
Technology
Reputation
Investors /Speculators
Discuss
Japanese’s Kobe Earthquake
brought down one of the Britain’s
Oldest Investment Bank
Subprime Mortgage threaten Asian
and European Financial Markets
Indonesian Textile Manufacturers
are having difficulties in exporting
goods to overseas market
Elements of Risk Management
IDENTIFY RISKS
MEASURE RISKS
REPORT RISKS
Quantitative factors
Qualitative factors
ROLE OF RISK MANAGER
Qualitative factors
Owners, Management
Investments: LT earnings, no over-investment in sector
Products: demand, innovation vs. cost leadership or niche
Competition: Market entry barriers, pricing power
Risk evaluation
Government regulation
ROLE OF RISK MANAGER
Quantitative factors
Growth: Sales, Investments
Profitability: Operating and net margins, ROE
Risk: Sales and profit stability, capital structure, size, liquidity
Valuation: Ratios (P/E, P/S, P/BV, P/CF), Discounted Cash Flow
(Focus: capital costs)
Methods and TOOLS of risks
Scenario Analysis
What – If Analysis
The determination of what happens to
NPV estimates when we ask what-if
questions SIMULATION ANALYSIS
• ASSESS IMPLICATIONS OF
PARTICULAR Combination of scenario and
COMBINATIONS OF EVENTS sensitivity analysis
• NO PROBABILITY STATEMENT
Sensitivity Analysis
Investigation of what happens to
NPV when only one variable is
changed
Technical forecasting
involves the use of historical data to predict future values.
E.g. time series models.
Fundamental forecasting
is based on the fundamental relationships between economic
variables
quantitative measurements based on regression models and sensitivity
analyses.
Methods and TOOLS of risks
STATISTICAL ANALYSIS FIND PROBABILITY OF LOSSES
Technical forecasting
involves the use of historical data to predict future values.
E.g. time series models.
Fundamental forecasting
is based on the fundamental relationships between economic
variables
quantitative measurements based on regression models and sensitivity
analyses.
Introduction > Why risk management
1ISO/IEC Guide 73
Why Companies have RM?
Critical Thought
Survivors will be those that hope for
MARKET RISK
CREDIT RISK
LIQUIDITY RISK
SYSTEMIC RISK