Risk Management Study Guide RMI2302 Module 6 Results of Decision Making Individual s risks are measured using expected utility Organization s risks are measured using expected value CAPM only rewards using systemic risk What is a bias o Subjective view probability Types of Bias o Age Biases o Cultural biases o Experience biases o Gender biases o Media biases Incentives societal level Types of Incentives o Incentives are things that motivate individuals to perform an action o Incentives can be at the individual level organizational level or o Financial Most incentives o Moral do the right thing o Natural curiosity fear anger pain joy pursuit of happiness o Coercive negative reinforcement o Personal vs Social The study of Economics is basically a study of incentive systems Political incentives increase the discount rate Module 7 Is the use of Smart Pills Dangerous Smart pills are stimulant drugs such as Ritalin and Adderall that have been developed to help manage ADHD Classified as Schedule II drugs by the DEA same as coke What are the risks associated with the use of smart pills o Insomnia weight loss decreased appetite jitteriness o Increased risk of cardiovascular problems o Exacerbate depression psychosis anxiety o Potentially addictive o Decreased performance over time o Paranoia aggression irritability What are the rewards associated with the use of smart pills o Improved performance on learning tasks such as memorization o Need to be on drug while studying not when taking exam Problems in the health care system o Quick diagnosis o Ability to manipulate feign symptoms o Quick to medicate o Doctor shopping Joshua Gowin s point on smart pills is that they are no different than other stimulants life coffee They are just more sophisticated so go ahead and use them Module 7 Individual Risk Management Lots of ways categories of looking at risk at the individual level o Property Asset exposed to loss Real property Land buildings crops ect Personal property Cause of loss Fire theft windstorm accidents lost Financial Consequences Reduction in property value Increased expenses Lost income o Liability Asset exposed to loss Money other financial assets General Special Punitive damages Cause of Loss Claim lawsuit Civil law vs criminal law Tort contract statutory Negligence Financial Consequences Defense costs Monetary damages Specific Types of Liability Automobiles Employer employee Parents and children Animals o Life Premature Death Asset Exposed to Loss Your life Cause of Loss Premature death illness accident stupidity o Life Long Life Asset Exposed to Loss Your savings retirement wealth Cause of Loss Outliving assets expenses income for too long o Health Asset Exposed to Loss Your health livelihood Cause of Loss Poor care poor genes bad luck injury illness ect Financial Consequences Ability to earn income may decrease or cease Living expenses may continue or increase Evaluate same exposure categories as premature death o Financial Asset Exposed to Loss Your wealth Cause of Loss Health disability unemployment poor planning ect Financial Consequences Inadequate savings Can t retire Risk Management Process Determine Objectives Identify Risks Evaluate Risks Choose your alternatives Implement Review Evaluate Module 8 Overview of Risk o Business Risk o Operational Risk o Hazard Risk o Financial Risk o Strategic Risk Module 8 Data Analytics Lots of ways categories of looking at the organizational level Operational Risk the people processes and systems in place to produce the company s product service 30 of business loss Black Swan Risk an extreme outlier high impact hard to predict rare events that generally people don t expect Module 8 British Petroleum Two Specific BP Incidents o March 25 2005 Explosion at Texas City refinery o March 2006 Oil Spill at Prudhue Bay Alaska In January 2007 CEO Browne Resigns BP was formed in 1998 o Merger of British Petroleum AMOCO Overriding Themes of Case o Corporate Strategy o Public Relations o Corporate Culture o Workplace Safety o Process Management Module 9 Supply Chain Risk A supply chain is a system of organizations people activities information and resources involved in moving a product or service from a supplier to customer A supply chain risk is anything that interrupts the ultimate product delivery anywhere along that supply chain Risk Management has often relied on looking at historical data to estimate frequency and severity of future losses Methodical approach Four benefits Identifies hidden exposures 1 2 Avoids the need for predictions about rare events 3 Reveals supply chain dependencies and bottlenecks 4 Promotes discussion and learning Module 10A Are the Risks of Derivatives Manageable What is a derivative A derivative is a contract between two or more parties whose value is based on an agreed upon underlying financial asset index or security Common underlying instruments include bonds commodities currencies interest rates market indexes and stocks Warren Buffet is quoted as saying derivatives are financial weapons of mass destruction Module 10B Human Misery Our wants and desires spur economic activity GDP Gross Domestic Product o Primary measure of product o Total value of product using market prices o Doesn t take into account ownership o GDP as the economic pie o Doesn t tell us what is produced What Causes Poverty o Quality of the labor force o Stock of Capital Capital Accumulation o Technology o Efficiency o Population What Can Governments Do o Less Developed Countries Communism vs Capitalism Planned vs unplanned economy Involvement in education Infrastructure Attract FDI Foreign Direct Investment o Developed Countries Humanitarian aid World Bank loans Partnerships Cooperation Outsourcing
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