Project #90471 - Identifying and Managing Risk

In this assignment, you will compare and evaluate risk management techniques from experts in the field. Find one article by Dr. James Kallman. Dr. Kallman, an expert in the field of risk management, has written many articles on managing financial risk. Find a second article from another credible author of your choice who also provides recommendations for risk management. Develop a three- to four-page analysis (excluding the title and reference pages), of the techniques Dr. Kallman has identified for managing risks. In this analysis, compare Dr.Kallman techniques to the techniques recommended in the second article you researched. Explain why you agree or disagree with each authors recommendations. Describe other factors you believe should be considered in risk management. The assignment should be comprehensive and include specific examples. The paper should be formatted according to APA. Article One is mandatory. This is article from Dr. Kallman. If Article Two is optional. You may be able to find a better article to compare. Article One Risk Management Solutions For many, the purpose of risk management is to help others create value. Some risk managers achieve this goal by purchasing insurance to finance losses; others initiate safety projects to save lives. Both solutions are but a small sample of risk management techniques. In this article, first the authors examine the set of risk management solutions; second, they review the pure risk management solution of prevention -- arguably the most important of all their tools. A convenient way to see the portfolio of all risk management solutions is to examine the risk management solution tree. Operations management is one of the risk manager's most powerful prevention tools. When risks are accepted then the risk manager must decide whether to spend scarce resources on controlling the risk's parameters of probability, impact and timing. For many, the purpose of risk management is to help others create value. Some risk managers achieve this goal by purchasing insurance to finance losses; others initiate safety projects to save lives. Both solutions are but a small sample of risk management techniques. In this article, first we examine the set of risk management solutions; second, we review the pure risk management solution of prevention-arguably the most important of all our tools. A convenient way to see the portfolio of all risk management solutions is to examine the risk management solution tree. This is a visual representation of the options available to create value. The tree also shows how the various solutions can be combined into a portfolio of solutions. In this simplified tree only the basic solutions are shown. In subsequent articles we will discuss other risk control and risk financing solutions. Whatever the organization's goals, there will be opportunities and threats to those goals. Recall that opportunities are causes of speculative gains; threats are perils that may cause pure risk losses. For both opportunities and threats, the first decision is whether to accept or avoid the situation. Avoidance results in the organization not having the chance of any gains or losses. If a cost-benefit analysis shows the down side is just too large for the organization's risk tolerance then avoidance is a wise choice. If the situation falls within the organization's risk appetite or tolerance, however, then acceptance is the appropriate choice. Once the subject is accepted the next decision is whether to spend scarce resources on controlling the risk or accepting the situation as it is. If the risk's probability, variance, impact and timing are all within the organization's acceptable ranges then "do not control" is the correct decision (a risk map can help in analyzing the risk's characteristics). For example, if the probability of loss is low, the standard deviation is small, the impact of a loss is small, and the duration of the loss is short, then it is prudent to accept the risk "as is" and not expending resources on controlling these four characteristics. Frequently one of these parameters is not within the desired range. Then it is probably wise to spend scarce resources to get the parameter into that range. For example, in speculative risk management, if the probability of a gain is too low then it is a good idea to spend money on an enabling project such as advertising to increase the likelihood of the desired outcome. Likewise, if the impact of the gain is too small then spend resources on a gain enhancement project-perhaps adding profitable options to the product may enhance the desired revenues. In contrast, in a pure risk situation, if the probability of a loss is too high, then it is prudent to spend resources on a loss prevention project. Alternatively, if the severity of loss is too great, then one should spend resources on a loss reduction project. Finally, because of-or even despite-our best efforts at creating the desired probability, outcome and timing, the managing of risk must somehow be financed. There are three basic costs of risk to be financed: risk management administration, risk control and loss financing. Administrative costs include the overhead for running the risk management department, including salaries, rent, consulting fees and supplies. Risk control costs include promotions, advertising, prevention and reduction projects. Loss financing costs include retention and transfer programs, including insurance. In this article, we focus on loss prevention projects. Some argue that this is the most valuable use of the risk management budget. By decreasing the likelihood that losses will occur, the cost of administration and loss financing are reduced, desired outcomes are more stable, and the organization is more assured of reaching the desired goals. This should help increase value, whether value is defined as economic performance, social justice or environmental stewardship. Prevention is a powerful risk management tool. But how does a risk manager modify a probability distribution? There are five general methods which can be remembered with the acronym GEICO. Now you may not appreciate using an insurance lizard, but this should help you remember the risk prevention techniques: * Government mandates * Education * Information management * Contractual transfer * Operations management Government mandates, such as regulations, statutes, and court orders are intended to create more fair and safe social and economic systems. For example, workers compensation statutes decrease the probability that injured employees will sue employers. Likewise, the Sarbanes-Oxley Act is intended to decrease the likelihood of shareholder derivative lawsuits. Education and training are vital to teach managers and employees how to act safely. Safety is not a matter of common sense-it is a learned skill. For example, the likelihood of injuries is greatly decreased by learning how to safely handle hazardous materials. Information management includes packaging, promotions, warning labels, instructions, signs and other materials to help people understand hazardous situations. For example, aerosol paint cans have warning labels cautioning the user to not use near an open flame. While some of these warnings can seem amusing ("Do not use your lawn mower to trim hedges"), they are usually the result of someone using the product in an unintended way-and the subsequent lawsuit. Contractual transfers, such as hold harmless and exculpatory agreements, decrease the likelihood that a third party will sue. For example, purchase and shipping agreements often specify when ownership transfers from the seller to the buyer. This decreases the likelihood that one party will sustain a loss. Operations management is one of the risk managers most powerful prevention tools. For example, properly engineered systems with ergonomie and human factors designs can greatly decrease the likelihood of losses. Moreover, experience proves that proper maintenance is highly correlated with fewer losses. Keeping assets in optimal operating condition not only improves productivity, it lowers the chance of loss. As mom said, an ounce of prevention is worth a pound of insurance (mom was an insurance agent). But when prevention leads to fewer losses then the cost of insurance goes way down. So prevention loss control projects not only preserve assets and save lives, they also save risk financing costs. You can see why some suggest prevention is the most powerful solution to controlling risks. When risks are accepted then the risk manager must decide whether to spend scarce resources on controlling the risk's parameters of probability, impact and timing. Controlling the likelihood of losses is an important step in created the desired value and achieving goals. Article Two The risk analysis specific to any entity is a complex, dynamic process, interconnected to the economic and social processes and activities of the organization. From the simulation’s perspective, the risk management process must integrate all variables and features of the key factors acting simultaneously on economic processes, in order to exhibit as realistically as possible the impact that these risk factors could generate. The contribution of the research is focused on two dimensions: one theoretical and one practical. At a theoretical level we achieved an analysis of the state of knowledge in the field of simulation for the specific risks of the financial-economic activity of any organization. Based on the literature review characteristics that define the notion of simulation are specified and justified and also examples of implementation of Monte Carlo simulation method in the economic-financial (profit maximization model simulation, model uncertainty analysis investments, dividend valuation model, etc.) are given. On a practical level, research has focused on the design of two simulation models, one associated with the financial sector and the second to the IT field, in order to analyze the impact of inherent risk factors. The first simulation model aims at analyzing net profit by simulating key factors: turnover, raw material costs, staff costs, other operating expenses and interest income. The model is completed by the impact that risk factors could generate: the loss of major customers, a drop in selling prices, the decrease in sales volume, the departure of key personnel, the refurbishment, the increase in prices from suppliers and the hiring of qualified personnel, over the final outcome. The final results of the simulation provide valuable information for the decision factors, in order for them to adopt relevant strategies. The second simulation model is based on analyzing 10 types of informatics threats in order to examine the financial loss that could occur, in the likelihood of these threats and the impact value. The research does not offer an exhaustive approach of the field, so that future interest will continue this work started with the purpose of defining simulation models associated to the risk management concerning project development, information security risk management, risk management and so on. The simulation offers the decision factors a support and an instrument of analysis for the prediction of the examined risk factors, their cost and their impact over the financial results of the organization.

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Due By (Pacific Time) 11/02/2015 06:00 pm
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