Riskopecredience 10 05 Final_Version

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Quantitative risk and crisis management are key to a renaissance of industries and financial institutions after the economic downturn.
Riskope is partnering with Credience to bring to clients world-wide a one stop solution to all the problems related to the implementation of a sensible risk management structure.

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Riskopecredience 10 05 Final_Version

  1. 1. Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 1    
  2. 2. Because we know this      is manageable we made it our mission to  build the most  effective approach.  25 minutes Months or Years         vs. Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 2    
  3. 3. Two Companies in a JV, and one identical annoucement: the prepared company suffers very little, the other endures catastrophic losses! Shares relative value Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 3    
  4. 4. What does it take to be Proactive? It does not require to plan for every specific potential disaster. It does require a well balanced look into the likelihood of general scenarios, their potential consequences. It does require to plan and act well in advance. Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 4    
  5. 5. Case Study: a well managed crisis Loss of Share value: almost  nil because crisis was perfectly contained.  Latency is not applicable in  this case Everything was  finished  in 25 minutes! Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 5    
  6. 6. It is in the Latency Phase that the best returns are to be expected from the analysis: -of what could go wrong, and how much it would “cost” the company: Risk Assessments -of the means to bring the risks towards a tolerable level in a sustainable way: Risk Management -of how to behave when a residual risk hits, i.e. Crisis Management Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 6    
  7. 7. Nowadays media/information hazards are becoming extremely  acute (image damage). Potential to worsen due to a crisis Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 7    
  8. 8. This is how Operational RM should perform RISK Mitigative  “Acceptable” Mitigative  Investment Threshold ALARA ALARP BACT Costs to  Zero Risk Attain Acceptable Acceptable Residual  Residual  Risk Risk Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 8    
  9. 9. In other words For example: we start from  And we invest in order to get to this Examples: Buses escort in mountainous private roads for mine access Check­in procedure for executives at hotels Behavioral recommendation for people  traveling with sensitive data Different type of monitoring Transportation network modifications Implementing proper crisis communication procedures Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 9    
  10. 10. 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 © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 10    
  11. 11. Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 11    
  12. 12. Crisis Forecast, November 2008 Crisis' Duration Probabilities Crisis' Magnitude Probabilities 0.5 Persista Critical  nce of  Evolutio Present  n of  0.2 Situatio Disservi 0.3 n ce Signific ant  Worseni0.55 0.1 0.1 ng 0.25 3­6 yrs Less than 1.5 yrs Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 12    
  13. 13. Consequences Definition TThese will be different for every client/industry or organization Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 13    
  14. 14. Example: 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 downturn has critical evolution, i.e. 3 M/yr Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 14    
  15. 15. The result: Highest risk does not necessarily mean highest priority! P 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 © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 15    
  16. 16. So, 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 © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 16    
  17. 17. Scenarios will be prioritized  by their intolerable part of risk.  Thus a clear road­map becomes available. Transparent decision can be taken  leading to a rational and sustainable  RM/ERM. Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 17    
  18. 18. Terrorism risks are dealt in the same manner.  (the hazard already exist but the probability changes  because of terrorism!) Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 18    
  19. 19. The same can be performed for Financial Institutions Financial risks linked to debt and investment management (market & liquidity) Credit risks: linked to the insolvency of debtors Operational risks: generated by internal isuues, fraud, tecnologic mistakes, But also earthquakes, fires, flooding, criminal/terrorist attacks, electric black-outs and brownouts... Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 19 05/11/09  
  20. 20. Quantitative ERM with well defined Tolerability criteria constitutes the key to an equilibrated “renaissance” in the aftermath of the recent economic turmoil. The next step in evolution is to use risk as a key decision parameter and to evaluate long term “risk inclusive” costs of alternatives Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 20 05/11/09  
  21. 21. Over the years we have identified  a list of project/alternative  potential risks as follows: Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 21    
  22. 22. 3 phases and a total of five steps  in the life of a project/alternative: Design/Implementation/Construction Infrastructure (setting the bases…) Superstructure (implementing…) Life/Service Service (using, developing, …) Maintenance (repairing, adapting…) Disposal/demolition (ending, releasing…) Each step has its own hazards and related risks… Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 22    
  23. 23. Each parameter contributes to the risks of an alternative from cradle to grave. Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 23    
  24. 24. NPV's are plain inadequate when integrating alternatives’ specific risks in the comparison process. RBDM enables  users to compare  and evaluate  projects in a  transparent and  objective way. Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 24    
  25. 25. Riskope & Credience Allow their client's risk awareness to increase, meanwhile risks scenarios are evaluated in a transparent and quantitative way against clients' own tolerability criteria. The resulting mitigative recommendation are clear, sustainable, and easy to communicate Now more than ever, analytical insight of enterprise wide risk management is necessary  for any CRO and their company. Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 25 05/11/09  
  26. 26. Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 26    
  27. 27.   This is why Riskope started a strategic alliance  with Credience. • No other Basel II vendor has built an interface to automate PD,  LGD and EAD modelling. • Automated Regulatory Capturing (ARC) tool quickly converts  each countries regulations into a hierarchical tree that is used for  treatment of all exposures. • Rather than just providing a good model, Credience provide  an array of optimised models for greater peace of mind and  accuracy. Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 27    
  28. 28. Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 28    
  29. 29. -Tools exist and do work -Experience is eloquent -We all prefer to succeed rather than fail -Thinking and fixing before it happens is way cheaper than fixing afterwards -Thanks to specific techniques each decision you make can be supported by transparent and rational evaluations -ERM will not eliminate losses but reduce them and allow for quicker rebound Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 29    
  30. 30. What can we accomplish? By using a transparent and sound quantitative approach we can: -scientifically select the most significant risks, -draw attention to the objective highest exposures (filtering emotional perceptions), and -prioritize them to allow reasonable mitigation in a very focused way. We clearly enhance the ability to prioritize risks for a rational and sustainable development. Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 30    
  31. 31. BUT, more importantly Create the basis to avoid a slide into a crisis, by proactively controlling the situation. Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 31    
  32. 32. The most logical approach is Risk Based Decision Making because Operational risks impact decisions and Operating means deciding. Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com 32    

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