RMI2302 Module 9 14 Module 9 Supply Chain Risk Supply Chain System of organizations people activities information and resources involved in moving a product or service from supplier to customer Supply Chain Risk Anything that can interrupt the ultimate product delivery o Risk Management has often relied on looking at historical date to estimate frequency and severity of future losses o common supply chain problems Poor supplier performance poor quality late Forecast errors not ordering enough too much Transportation breakdowns o Solution Ignore the cause of the disruption to the supplier Develop a model that focuses on time to recovery TTR of the supplier estimated Our exposure to that supplier risk exposure index Take out one supplier at a time Using their estimated TTR make the adjustments we would make to the rest of our supply chain to keep getting our product to market for that duration Determine how much it would cost us low profitability Plot the results to see our risk exposure to each supplier Methodical approach does not forget about small low cost commodity suppliers which can have a large impact o How o Results Benefits Identifies hidden exposures Avoids the need for predictions about rare events Reveals supply chain dependencies and bottlenecks Promotes discussion and learning Allows for more focused risk management Many key suppliers are properly managed Small suppliers are not overlooked with this method Strategy Strategic Risk Strategy should make companies more COMPETITVE and RESILIENT Strategic Risk Mistakes in strategy that can be severe o Problems with Strategy Competitive advantage time shortened Positional volatility of leaders o Need Adaptive Strategy Instead of developing one strategy based on analysis prediction and deduction Create asset of optimal conditions for the continuous emergence of superior strategies o Strategy will need to incorporate Risk Boundaries Corporate purpose Environment Module 10 Derivatives Derivative a contract between two or more parties whose value is based on an agreed upon underlying financial asset index or security How are they used o As a hedge o To speculate Why use them Hedging future price risks o Legitimate hedging function risk management tool o Amplify returns good and bad o All about risk reward o Help make money move faster o Help make money work harder What don t we know o What is the exposure in derivatives o No one knows exactly how big the derivatives market is Economic Reasoning Insatiable wants o Wants desires spur economic activity Needs food water shelter clothing Wants entertainment communication variety o Our limited means Resources are scarce Technology Labor Capital Capacity of the Economy to Produce o GDP Primary measure of production Total value of production using market prices Doesn t take into account ownership GDP as the economic pie Doesn t tell us what s produced o Production Possibilities to produce Every economy has a stock of resources labor capital and technology How they are combined to produce products services is virtually limitless If only two products o Can government use GDP to measure well being Are we producing more Real GDP Are we using more labor resources Per capita real GDP What caused Poverty o Quality of the labor force o Stock of capital capital accumulation o Technology o Efficiency o Population Government s Part o Less Developed Countries Communism vs Capitalism Planned vs unplanned economy Attract FDI Foreign Direct Investment Involvement in education Infrastructure o Developed Countries Humanitarian aid World Bank loans Partnerships cooperation Outsourcing Module 11 Global Risk Report 2014 Underlying Themes in the Report o Trust o Long Term thinking o Collaborative multistakeholder action o Global governance Global Risk occurrence that causes significant negative impact for several countries and industries over a time frame of 10 years Systemic Risk breakdowns in an entire system as opposed to breakdowns in individual parts or components o Modest tipping points combining indirectly to produce large failures o Risk sharing or contagion as one loss triggers a chain of others o Hysteresis or systems being unable to recover equilibrium after a shock 31 Global Risks in 5 categories o mapped based on likelihood and impact o mapped based on how interconnected they are with the other risks o Economic o Environmental o Geopolitical o Societal o Technological Risks analyzed along 3 paraeters o Highest concern qualitative o Likelihood and impact quantitative o Interdependencies systemic Top 10 highest concern o Fiscal Crises in Key Economies Causes lack of confidence high level of government debt o Structurally High Unemployment Underemployment o Water Crises Connected to extreme weather Not just a third world convern Impact of food availability and prices CA FL o Severe Income Disparity o Failure of Climate Change Mitigation Adaptation o Greater Incidence of Extreme Weather Events o Global Governance Failure o Food Crises o Failure of a Major Financial Mechanism Institution o Profound Political and Social Instability Others o Urbanization o Existential threats Trends to watch o Demographic Trends aging o Societal Concerns extremism youth unemployment gender inequalities o Technological privacy mismanagement o Environmental fracking o Science technology D printing self drive vehicles o Economic monetary policy o Social Political cost of living longer Risks in Focus o Geopolitical risks Low level conflicts Geopolitics systemic Sectors Energy US as exporter Financial Services Healthcare o Youth risks Education unemployment Spain Greece 50 youth unemployment Supporting older generations Professional vs formal education Youth dissatisfaction politcs o Cyber risks Cyberspace has proven resilient Cyberwarfare Smart Grid Global Navigation Satellite Systems GNSS Snowden Disruptive Technologies Strategies for Managing Global Risks o ID Risk o Prioritize Top Risks o Undertake Risk Assessment o ID Risk Management Options o Design RM Strategy o Design Crisis Management Strategy o Implement o Monitor Strategy for Managing Global Risks Issues o Trade offs o Public private partnerships o Long term thinking o Large scale disasters Module 12 Natural Disasters and Natural Hazards Natural Hazards o Disasters can happen anywhere o Poor Countries High share of risk Greater economic losses of GDP Least resilient Leads to real poverty Risk not evenly distributed o Biggest exposure LLDC Disaster Risk
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