ITS 835 Chapter 22 JAA Inc. – A Case Study in CreatingValue from Uncertainty Enterprise Risk Management Professor Miguel Buleje Introduction • Business background • Initial steps • Evolution of Risk Management • Introduction of ISO 31000 and HB 436 to JAA • Bringing everything together Business Background • JSS is a clothing wholesaler and retailer • Founded in 1972 • Went public in 1998 • Three operating segments • U.S. wholesale • U.S. retail • International (wholesale and retail) • 57 retail stores in 10 countries Initial Steps • Strategic objectives • Maintain market leadership • Sustain technology leadership • Strengthen global presence • Deliver quality service • A leader in compliance with all laws and regulations • Establish a governance system • Multiple committees, each with specific responsibilities Governance Framework Evolution of Risk Management • Lack of strategic risk management led to many problems • Communication • Missed/lost opportunities • Lack of commitment to objectives • Declining quality • Identified gaps in risk management • Engaged in aggressive internal training • Soft skills • Team building • Management planning Introductions of ISO 31000 and HB 436 • JAA adopted ISO 31000 • HB 436 provided extensive implementation guidance • ISO 31000 was basically an upgrade of the framework JAA was already using • ISO 31000 framework formalized JAA’s ERM • Defined organization and process Using Context for Risk Criteria Bringing Everything Together Risk Map Risk Atitude ITS 835 Chapter 25 Uses of Efficient Frontier Analysis in Strategic Risk Management Enterprise Risk Management Professor Miguel Buleje Introduction • Strategic risk management framework • Modern portfolio theory • Practical application of risk measurement for insurance • Sample case study • Intended uses Strategic Risk Management Framework • Enables organization to discover risks • Across organizational boundaries • Continuous cycle • Considers interactions of multiple risks • Combines risk appetite and risk tolerance • Defines exploitable risks Strategic Risk Management Modern Portfolio Theory • Mathematical model – from 1950s • Risk is standard deviation • When portfolio is weighted combination of assets • Rp – return of portfolio • Ri – return of asset i • Wi – weighting of asset i Practical Application of Risk Measurement for Insurance • Purpose is to optimize insurance placements • And risk limits • Tail value at risk of loss – TVaRL • Expected value of loss, given that an event has occurred Sample Case Study • Three basic risks • Earthquake exposure to buildings • Workers’ compensation insurance • General liability insurance Portfolio Options Earthquake Options Workers’ Compensation Options General Liability Options Combined Portfolio Options Intended Uses • Help large organizations • Risk management • Portfolio management • Insuran ...

1. ITS 835
Chapter 22
JAA Inc. – A Case Study in CreatingValue from Uncertainty
Enterprise Risk Management
Professor Miguel Buleje
Introduction
• Business background
• Initial steps
• Evolution of Risk Management
• Introduction of ISO 31000 and HB 436 to JAA
• Bringing everything together
Business Background
• JSS is a clothing wholesaler and retailer
• Founded in 1972
• Went public in 1998

2. • Three operating segments
• U.S. wholesale
• U.S. retail
• International (wholesale and retail)
• 57 retail stores in 10 countries
Initial Steps
• Strategic objectives
• Maintain market leadership
• Sustain technology leadership
• Strengthen global presence
• Deliver quality service
• A leader in compliance with all laws and regulations
• Establish a governance system
• Multiple committees, each with specific responsibilities
Governance Framework
Evolution of Risk Management
• Lack of strategic risk management led to many problems

3. • Communication
• Missed/lost opportunities
• Lack of commitment to objectives
• Declining quality
• Identified gaps in risk management
• Engaged in aggressive internal training
• Soft skills
• Team building
• Management planning
Introductions of ISO 31000 and HB 436
• JAA adopted ISO 31000
• HB 436 provided extensive implementation guidance
• ISO 31000 was basically an upgrade of the framework
JAA was already using
• ISO 31000 framework formalized JAA’s ERM
• Defined organization and process
Using Context for Risk Criteria
Bringing Everything Together
Risk Map

4. Risk Atitude
ITS 835
Chapter 25
Uses of Efficient Frontier Analysis in Strategic Risk
Management
Enterprise Risk Management
Professor Miguel Buleje
Introduction
• Strategic risk management framework
• Modern portfolio theory
• Practical application of risk measurement for insurance
• Sample case study
• Intended uses
Strategic Risk Management Framework

5. • Enables organization to discover risks
• Across organizational boundaries
• Continuous cycle
• Considers interactions of multiple risks
• Combines risk appetite and risk tolerance
• Defines exploitable risks
Strategic Risk Management
Modern Portfolio Theory
• Mathematical model – from 1950s
• Risk is standard deviation
• When portfolio is weighted combination of assets
• Rp – return of portfolio
• Ri – return of asset i
• Wi – weighting of asset i
Practical Application of Risk
Measurement for Insurance
• Purpose is to optimize insurance placements

6. • And risk limits
• Tail value at risk of loss – TVaRL
• Expected value of loss, given that an event has occurred
Sample Case Study
• Three basic risks
• Earthquake exposure to buildings
• Workers’ compensation insurance
• General liability insurance
Portfolio Options
Earthquake Options
Workers’ Compensation Options
General Liability Options
Combined Portfolio Options

7. Intended Uses
• Help large organizations
• Risk management
• Portfolio management
• Insurance and non-insurance risks
• Best fit
• Established ERM
Chapter 25 - Uses of Efficient Frontier Analysis in Strategic
Risk Management
1. How does efficient frontier analysis (EFA) differ from other
forms of complex risk assessment techniques?
2. What limitations might an analyst encounter through the use
of EFA?
3. How can efficient frontier analysis results be communicated
and utilized with nonmathematical decision makers?
300 to 350 words.
Chapter 22 PPT - JAA Inc.–A Case Study in Creating Value
from Uncertainty
1. How high do you assess the knowledge level of the business
strategy throughout the company by the average employee? Is it
your assessment that there is a robust understanding of JAA’s
business strategy? Support your position with examples.
2. As you are aware, effective implementation of ISO 31000

8. involves effective design and implementation of a risk
management framework and effective implementation of the risk
management processes. This will be verified by incorporation of
11 key principles. Find an example in the case for each of the
11 principles in action.
3. If you compare the internal audit department at JAA to
several that you know of currently in the marketplace, what are
some of the major differences that you see at JAA that
obviously have contributed to superior performance? What is
unique and refreshing about the approach to the external audit
as compared to what you have seen in industry?
300 to 350 Words.