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The Edge Of Opportunity Or Catastrophic: Strategic Risk Sequences
The Edge Of Opportunity Or Catastrophic: Strategic Risk Sequences
The Edge Of Opportunity Or Catastrophic: Strategic Risk Sequences
The Edge Of Opportunity Or Catastrophic: Strategic Risk Sequences
The Edge Of Opportunity Or Catastrophic: Strategic Risk Sequences
The Edge Of Opportunity Or Catastrophic: Strategic Risk Sequences
The Edge Of Opportunity Or Catastrophic: Strategic Risk Sequences
The Edge Of Opportunity Or Catastrophic: Strategic Risk Sequences
The Edge Of Opportunity Or Catastrophic: Strategic Risk Sequences
The Edge Of Opportunity Or Catastrophic: Strategic Risk Sequences
The Edge Of Opportunity Or Catastrophic: Strategic Risk Sequences
The Edge Of Opportunity Or Catastrophic: Strategic Risk Sequences
The Edge Of Opportunity Or Catastrophic: Strategic Risk Sequences
The Edge Of Opportunity Or Catastrophic: Strategic Risk Sequences
The Edge Of Opportunity Or Catastrophic: Strategic Risk Sequences
The Edge Of Opportunity Or Catastrophic: Strategic Risk Sequences
The Edge Of Opportunity Or Catastrophic: Strategic Risk Sequences
The Edge Of Opportunity Or Catastrophic: Strategic Risk Sequences
The Edge Of Opportunity Or Catastrophic: Strategic Risk Sequences
The Edge Of Opportunity Or Catastrophic: Strategic Risk Sequences
The Edge Of Opportunity Or Catastrophic: Strategic Risk Sequences
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The Edge Of Opportunity Or Catastrophic: Strategic Risk Sequences

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  • 1. THE INSIGHT OF RISK MANAGEMENT SEQUENCES
    THE EDGE OF OPPORTUNITY OR CATASTROPHIC
    Diane Christina | me@dianechristina.com | 2010
  • 2. Risk vs Value
    Why would risk averse individuals or entities ever expose themselves intentionally
    to risk and increase their exposure over time?
  • 3. Risk vs Value
    They achieve their success
    not by avoiding risk but seeking it out
    Google’s Risk Taking
    Deviation on its’ advertisement charge from industry practices
    Microsoft’s Risk Taking
    Designing an operation system for a a personal product
    Aqua’s Risk Taking
    Launching a new ‘cheap’ product and different package from industry practices (bottle)
    (AMDK: Air MinumDalamKemasan)
  • 4. Only 2 attribute on the successful of a company:
    • New Product
    • 5. New Market
    Risk vs Value
    TO BE
    A WINNER OR
    A LOSER
    To achieve success, a company must
    DEALING WITH RISK
    that give them an advantage over the competition
  • 6. Risk vs Value
    Successful risk taking depend on HOW we could exploit our exposure on upside risk while managing downside risk
    PAYOFF TO RISK TAKING
  • 7. Risk vs Value
    PAYOFF TO RISK TAKING
    Discounted Cash Flow Model
    The cash flow from existing investment reflect to the consequences of past decisions on how much risk to take and in what forms
  • 8. Risk vs Value
    PAYOFF TO RISK TAKING
    Risk Taking as a Call Option Model
    Increasing the share of upside risk while restricting the exposure on downside risk
    Upside of Potential Risk Taking
    Cost of Taking Risk
    Risk Taking Downside
    Risk Taking Potential
    The Segment on which risk taking create value
  • 9. Risk vs Value
    PAYOFF TO RISK TAKING
    Risk and Relative Return Model
    Calculate the optimal risk taking value and exploiting the risk below the optimal risk taking value
    Zone 1
    Zone 2
    Zone 3
    Insufficient Risk Taking
    Excessive Risk Taking
    Optimal Risk Taking
    Risk-Adjusted Return
    Risk
  • 10. Risk vs Value
    PAYOFF TO RISK TAKING
    Bowman Paradox
    (Discrepancy of risk/return trade off)
    Firms that earned below the target level became risk seekers and the relationship between risk and return was negative, whereas returns and risk were positive correlated for firms earnings above target level returns
    NEGATIVE
  • 11. Risk vs Value
    PAYOFF TO RISK TAKING
    THE CONCLUSSION:
    Firms that are selective about the risks they take can exploit those risks to advantage, but firms that take risks without sufficiently preparing for their consequences can be hurt badly
    MEANS:
    Companies should assure that they develop a sensible risk assessment, where firms can pick and choose from across multiple risks those risks that they stand the best chance of exploiting for value creation
  • 12. LINKAGE YOUR RISK AND STRATEGI DEVELOPMENT
    Achieving the optimum value with your risk management implementation
  • 13. Fully integrated proactive risk management system approach
    STRATEGY PYRAMID
  • 14. Fully integrated proactive risk management system approach
    * * * BUILDING SUCCESSFUL RISK TAKING ORGANIZATION * * *
  • 15. Fully integrated proactive risk management system approach
    • Corporate Governance
    • 16. Aligning the interest of decision makers with
    stockholders by ensure the common purpose in
    mind which is increasing the value of business
    • Firm that have less insider-dominated firms, where
    managers are entrenched, tend take risk than they should do
    Expose on the RIGHT risks for the RIGHT reason
  • 17. Fully integrated proactive risk management system approach
    Risk Averse
    Too focus on firm’s
    specific risk
    More balanced risk taking
    Consider the right type of risks
    Decision Makers (Manager)”s Equity Owned
    Too little risk taking
    Ensure manageable downside risk
    Expose on the RIGHT risks for the RIGHT reason
  • 18. Fully integrated proactive risk management system approach
    • Personnel
    • 19. Seek out Good Risk Taker who tend to be
    realistic in their assessment of success and
    failure and confident in their capacity to deal
    with the consequences
    Individuals often make bad decision when faced with risk
    because the possibility of losses SKEW their decision making process
  • 20. Fully integrated proactive risk management system approach
    • Reward Punishment Mechanism
    • 21. Calibrate in order to reward good risk taking
    behavior and punish bad risk taking behavior
  • Fully integrated proactive risk management system approach
    • Organization Size, Structure,
    Culture
    • Ensure companies’ control capabilities on risk
    since flatter organizations tend to be better
    than more hierarchical organizations in
    handling information and responding quickly
    • The company’s culture act as an engine or as a brake
    on sensible risk taking
    Good Risk Taking Organizations
    treat failure and success as complements –not as opposites-
  • 24. Conclusion
    The essence of risk management is deciding which risks to exploit -not avoiding or eliminating risk-
    To exploit risk, company need an edge over the competitors who are also exposed to same risk
    5 scheme to exploit risk:
    Having timely and reliable information to mapping out the action plan in response to risk
    Using right speed of the response to risks
    Learning from past experience and knowledge on the response to risks
    Having adequate resources on capital, technology, personnel in response to risk
    Having a flexibility on operating, production, financial to build the action plan in response to risk
    Building a good risk taking organization align with their strategy
  • 25. References
    New York University. Stern School of Business, Paper on Strategic RiskManagement
    Chen, M. and D.C. Hambrick, 1995, Speed, Stealth and Selective Attack: How Small Firms Differ from Large Firms in Competitive Behavior, The Academy of Management Journal
    Journal of Financial Economics, 1999.
    Cohen, R., B.J. Hall and L.M. Viceira, 2000, Do Executive Stock Options encourage Risk-taking? Working Paper, Harvard Business School
    Low, A., 2006, Managerial Risk-Taking Behavior and Equity-based Compensation, Working Paper, Ohio State University
  • 26. THE SEQUENCES: RISK MANAGEMENT INSIGHT
    THE EDGE OF OPPORTUNITY OR CATASTROPHIC
    ASSESS THE RISK AND TAKE THE OPPORTUNITY: PRACTICAL GUIDELINE
    BE THE WINNER: BEYOND SUSTAINABLE IN BUSINESS OF UNCERTAINTY
    GREEN YOUR LIFE: IMPLEMENT ENERGY RISK MANAGEMENT
    Diane Christina | me@dianechristina.com | 2010

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