Using Riskope’s Economic
                  Downturn Magnitude and
                    Duration Forecast to
               ...
Because we know this       is manageable
 we made it our mission to build the most
 effective approach.
                  ...
Our Lives, Corporations,
                                       Projects
          Can be seen as a never ending successio...
Generic Phased Crisis Model
                                                                               Phase 3
       ...
Each point of the “crisis trajectory”
                      has:
  • A probability of occurrence
  • An associated cost (l...
It is in the Latency Phase that the
          best returns are to be expected
                         from:
     • Analyz...
ERM excellence criteria:
  •Risk/reward optimization
  •Enterprise wide view of risks
  •Control processes for risks
     ...
The future lies in
      using Risk to weigh
     decisions, rather than
    just guiding mitigation.




Riskope Internat...
Scenarios can be prioritized by their intolerable part of risk. A clear
       road-map becomes available for rational and...
Bar graph for the Intolerable portion of
         the scenarios




                                                      ...
Case Study
               Several mid-sized companies face
                the present economic downturn




Riskope Inter...
Hazard Analysis

     Let’s define probability and “magnitude” of
       the hazard of this “economic downturn”.




Risko...
Crisis Forecast, November 2008

  Duration Probabilities :
    •30% less than 1.5 years Spring 2010
    •80% less than 3 y...
Measure of the Depth of Recession: “loss of service
  and control” in the country system, for which we can
  build a scale...
Significant Worsening, i.e. Level 2 & 3.

   Level 2:Generalized Poverty, unemployment up to
   12%, vanishing maintenance...
Significant Worsening, i.e. Level 2 & 3. (cont'd)

Level 3:Severe Impoverishment unemployment over
12%, severe reductions ...
Level 4:Critical evolution of disservice
       (Disruption of Order and Quality of Life),
       generalized rioting, wid...
Apparently some countries in the G20 group have
    already passed the Status Quo level, but as we are
    developing this...
Crisis Forecast,
                                                      November 2008




Riskope International SA ©, 2008-...
Consequence Definition

      These will be different for every
       client/industry or organization



Riskope Internat...
Example 1: a company that builds
      specialty motor vehicles could have:
     • Reduction of 20% of routine paying serv...
Sometimes a risk assessment
             P
                                                 confirms intuitive “feelings”!...
a company building special motor
           vehicles will focus it efforts to
               mitigate in this order:
     ...
Example 2: a Discount Retailer
    • Reduction of 60% of routine services if the
      downturn is persistent, i.e. 6 M/yr...
P
                                                   Persistent state may mean, quite
                                    ...
a Discount Retailer will have the
            focus it efforts to mitigate in a
                    different order:
     ...
Example 3: a company that
     services motor vehicles could have:
     • Reduction of 40% of routine services if the
    ...
Highest risk does not
             P
                                                 necessarily mean highest
           ...
a company that services motor
        vehicles will have the focus in this
                       order :
     1) Signific...
Scenarios will be prioritized by their
               intolerable part of risk.
        Therefore a clear road-map becomes...
Details available upon request via
    contact page at
    http://www.riskope.com

    These results can help building
   ...
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Using Economic Downturn Magnitude And Duration Forecast To Manage Your Future

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This presentation shows how a forecast of the present economic downturn (depth and duration) can be used to support alternative selection and managerial choices to enhance the outcomes of any entreprise, project, industry or institution. http://www.riskope.com

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Using Economic Downturn Magnitude And Duration Forecast To Manage Your Future

  1. 1. Using Riskope’s Economic Downturn Magnitude and Duration Forecast to Manage your Future (Based on Nov. 2008 Forecast by Riskope) Franco & Cesar Oboni Riskope International Rational and sustainable risk management requires quantitative understanding of scenarios Riskope International SA ©, 2008-*, www.riskope.com 1
  2. 2. Because we know this is manageable we made it our mission to build the most effective approach. Months if not Years... 25 minutes Riskope International SA ©, 2008-*, www.riskope.com 2
  3. 3. Our Lives, Corporations, Projects Can be seen as a never ending succession of cycles of growth, peace, turmoil, i.e. cycles of great changes we call crises. Fast growth can be seen as a positive crisis: in some cases it can, however, suddenly turn into a negative crisis. A crisis is a decisive moment, particularly in times of danger or difficulty. Riskope International SA ©, 2008-*, www.riskope.com 3
  4. 4. Generic Phased Crisis Model Phase 3 Phase 1 Phase 2 Phase 4 Phase 1 Acute Potential Latent Return Potential Emergency that Event Intensity : from Desired Level of Service does not evolve into emergency to crisis a crisis Triggering Tolerated level of disservice (minor emergency) point for the emergency plan Max tolerated disservice limit (max emergency) Controlled crisis Crisis Uncontrolled crisis…may evolve to catastrophic consequences Catastrophic crisis One crisis cycle (time) Riskope International SA ©, 2008-*, www.riskope.com 4
  5. 5. Each point of the “crisis trajectory” has: • A probability of occurrence • An associated cost (loss, consequence…could be positive or negative, but let’s focus on the negatives for the moment…) 0.2 Probability per Annum • …thus a Risk, as 0.1 Risk=probability x cost of consequence. 0 0 10 20 Million $ Riskope International SA ©, 2008-*, www.riskope.com 5
  6. 6. It is in the Latency Phase that the best returns are to be expected from: • Analyzing what could go wrong, and how much it would “cost” the company: Risk Assessments • Analyzing the means to bring the risks towards a tolerable level in a sustainable way: Risk Management • Analyzing how to behave when a residual risk hits, i.e. Crisis Management Riskope International SA ©, 2008-*, www.riskope.com 6
  7. 7. ERM excellence criteria: •Risk/reward optimization •Enterprise wide view of risks •Control processes for risks including: •Hazard identification •Risk evaluation •Risk management and loss control •Benchmarking against predefined risk tolerability criteria Riskope International SA ©, 2008-*, www.riskope.com 7
  8. 8. The future lies in using Risk to weigh decisions, rather than just guiding mitigation. Riskope International SA ©, 2008-*, www.riskope.com 8
  9. 9. Scenarios can be prioritized by their intolerable part of risk. A clear road-map becomes available for rational and sustainable RM/ERM. Riskope International SA ©, 2008-*, www.riskope.com 9
  10. 10. Bar graph for the Intolerable portion of the scenarios * A mathematical model is used Of the 14 initial scenarios, seven are above tolerability, but only three are top attention priority. Riskope International SA ©, 2008-*, www.riskope.com 10
  11. 11. Case Study Several mid-sized companies face the present economic downturn Riskope International SA ©, 2008-*, www.riskope.com 11
  12. 12. Hazard Analysis Let’s define probability and “magnitude” of the hazard of this “economic downturn”. Riskope International SA ©, 2008-*, www.riskope.com 12
  13. 13. Crisis Forecast, November 2008 Duration Probabilities : •30% less than 1.5 years Spring 2010 •80% less than 3 years Fall 2011 •10% longer than 6 years past 2014 Magnitude Probabilities: •20% present situation will persist •25% significant worsening •55% critical evolution of disservice Riskope International SA ©, 2008-*, www.riskope.com 13
  14. 14. Measure of the Depth of Recession: “loss of service and control” in the country system, for which we can build a scale as follows, by drawing examples from the past: Level 1:Persistance, or Status Quo, i.e. generalized budget cuts in the non- key services, for example starting with culture, arts, then going to education[1]; some protests[2]. [1] cuts are already being performed in various countries, France, Italy etc. [2] also in act, Russia, Japan, etc Riskope International SA ©, 2008-*, www.riskope.com 14
  15. 15. Significant Worsening, i.e. Level 2 & 3. Level 2:Generalized Poverty, unemployment up to 12%, vanishing maintenance of civil systems, reduced health programs, salaries of public officers in decline, protests, criminality, and some violence[3]. [3] already reported in some G20 countries including recent riots in Greece etc. Riskope International SA ©, 2008-*, www.riskope.com 15
  16. 16. Significant Worsening, i.e. Level 2 & 3. (cont'd) Level 3:Severe Impoverishment unemployment over 12%, severe reductions of public transportation offer[4], gradual replacement of police forces with armed forces[5], reduction of retirement plans, protests and criminality, high violence. [4] example: reduction of RR network and service [5] examples in Italy, US, under the “war on terrorism”, or “war on violent crime” cover Riskope International SA ©, 2008-*, www.riskope.com 16
  17. 17. Level 4:Critical evolution of disservice (Disruption of Order and Quality of Life), generalized rioting, wide spread criminality and sacking, and total loss of control. Riskope International SA ©, 2008-*, www.riskope.com 17
  18. 18. Apparently some countries in the G20 group have already passed the Status Quo level, but as we are developing this study for a “theoretical” country within the group, we will not bother with these particular cases here. Riskope International SA ©, 2008-*, www.riskope.com 18
  19. 19. Crisis Forecast, November 2008 Riskope International SA ©, 2008-*, www.riskope.com 19
  20. 20. Consequence Definition These will be different for every client/industry or organization Riskope International SA ©, 2008-*, www.riskope.com 20
  21. 21. Example 1: a company that builds specialty motor vehicles could have: • Reduction of 20% of routine paying services revenues, if the downturn is persistent, i.e. 2 M/yr • Reduction of 50% of overall sales if downturn worsens significantly, i.e. 5 M/yr • Reduction of 70% of overall sales if downturn has critical evolution, i.e. 7 M/yr Riskope International SA ©, 2008-*, www.riskope.com 21
  22. 22. Sometimes a risk assessment P confirms intuitive “feelings”! Intolerable Critical Evolution 0.55 Risk: 3.85 Intolerable: 1.53 Tolerable 0.25 Significant Worsening 0.20 Persistent Risk: 1.25 Risk: 0.4 Intolerable: 0.07 Intolerable: 0 C 2 M/years 5 M/years 7 M/years Riskope International SA ©, 2008-*, www.riskope.com 22
  23. 23. a company building special motor vehicles will focus it efforts to mitigate in this order: 1) Critical evolution 2) Significant worsening 3) Persistent Mitigative scenarios, possibly including diversifying etc. will have to be studied Riskope International SA ©, 2008-*, www.riskope.com 23
  24. 24. Example 2: a Discount Retailer • Reduction of 60% of routine services if the downturn is persistent, i.e. 6 M/yr • Reduction of 30% of overall billable if downturn worsens significantly, i.e. 3 M/yr • Reduction of 10% of overall billable if downturn has critical evolution, i.e. 1 M/yr Riskope International SA ©, 2008-*, www.riskope.com 24
  25. 25. P Persistent state may mean, quite surprisingly, highest priority! Intolerable Critical Evolution Risk: 0.55 0.55 Intolerable: 0 Significant Worsening 0.25 Persistent 0.20 Risk: 0.75 Tolerable Risk: 1.2 Intolerable: 0 Intolerable: 0.16 C 1 M/years 3 M/years 6 M/years Riskope International SA ©, 2008-*, www.riskope.com 25
  26. 26. a Discount Retailer will have the focus it efforts to mitigate in a different order: 1) Persistent 2) Significant worsening 3) Critical evolution Mitigative scenarios, possibly including a line of top quality items etc. will have to be studied Riskope International SA ©, 2008-*, www.riskope.com 26
  27. 27. Example 3: a company that services motor vehicles could have: • Reduction of 40% of routine services if the downturn is persistent, i.e. 4 M/yr • Reduction of 60% of overall billable if downturn worsens significantly, i.e. 6 M/yr • Reduction of 30% of overall billable if donwturn has critical evolution, i.e. 3 M/yr Riskope International SA ©, 2008-*, www.riskope.com 27
  28. 28. Highest risk does not P necessarily mean highest priority! Critical Evolution Intolerable Risk: 1.65 0.55 Intolerable: 0.01 Tolerable 0.25 Significant Worsening 0.20 Risk: 1.5 Persistent Intolerable: 0.24 Risk: 0.8 Intolerable: 0 C 3 M/years 4 M/years 6 M/years Riskope International SA ©, 2008-*, www.riskope.com 28
  29. 29. a company that services motor vehicles will have the focus in this order : 1) Significant worsening 2) Critical evolution 3) Persistent Even thus the risk of the critical evolution is higher, the intolerable part of the significant worsening is more critical. Possible mitigation: advertisement and lowered prices right now! Riskope International SA ©, 2008-*, www.riskope.com 29
  30. 30. Scenarios will be prioritized by their intolerable part of risk. Therefore a clear road-map becomes available. Transparent decision can be taken leading to a rational and sustainable RM/ERM. Riskope International SA ©, 2008-*, www.riskope.com 30
  31. 31. Details available upon request via contact page at http://www.riskope.com These results can help building rational risk management strategies. Contact us, Franco & Cesar Oboni Riskope International Riskope International SA ©, 2008-*, www.riskope.com 31

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