Risk Management
Strategic Management
Financial & Political Risk
David Warnock-Smith
Strategic Management
Programme
• • • • Introduction to “risk” and “risk management” Sources of risk Risk classification Overview and management of: – Financial risk – Political risk – (Business / operational risk)
Strategic Management
Risk - Definition “The fact that the results of any action are not certain, but may take more than one value. Risk is usually used to describe the form of uncertainty where, while the actual outcome of an action is not known, it is expected that it will be determined as the result of a random drawing from a set of possible outcomes whose distribution is known….”
"risk" A Dictionary of Economics. John Black. Oxford University Press, 2002
Strategic Management
Risk Examples • “You can make a million in the airline business ……….
……… but only if you start with a billion!”
• Identify examples of risks faced by an airline
Strategic Management
Risk Parameters
Probability of Occurrence
Susceptibility to Change
Risk
Severity of Impact
Risk interdependence
Risk parameters (Allen 1995)
Strategic Management
Sources of Risk (Examples) • • • • Political Environmental Market Financial • • • • Project Criminal Safety Legal
General increase in risk levels Many examples of companies that have failed to manage risk
Merna & Al-Thani, 2005 p15
Strategic Management
Risk Classification
• Business / Operational • Focuses on the risks a business takes to maximise shareholder wealth
• Financial
• “Unexpected changes in the value of the portfolio of assets / liabilities as a result of activities in financial markets or the value of financial instruments” • Concerns the fundamental changes in a country’s social, political or macroeconomic environment
• Political / Country
Strategic Management
Risk Management
• “a formal process that enables the identification, assessment, planning and management of risks” • Aim
Financial & Political Risk
David Warnock-Smith
Strategic Management
Programme
• • • • Introduction to “risk” and “risk management” Sources of risk Risk classification Overview and management of: – Financial risk – Political risk – (Business / operational risk)
Strategic Management
Risk - Definition “The fact that the results of any action are not certain, but may take more than one value. Risk is usually used to describe the form of uncertainty where, while the actual outcome of an action is not known, it is expected that it will be determined as the result of a random drawing from a set of possible outcomes whose distribution is known….”
"risk" A Dictionary of Economics. John Black. Oxford University Press, 2002
Strategic Management
Risk Examples • “You can make a million in the airline business ……….
……… but only if you start with a billion!”
• Identify examples of risks faced by an airline
Strategic Management
Risk Parameters
Probability of Occurrence
Susceptibility to Change
Risk
Severity of Impact
Risk interdependence
Risk parameters (Allen 1995)
Strategic Management
Sources of Risk (Examples) • • • • Political Environmental Market Financial • • • • Project Criminal Safety Legal
General increase in risk levels Many examples of companies that have failed to manage risk
Merna & Al-Thani, 2005 p15
Strategic Management
Risk Classification
• Business / Operational • Focuses on the risks a business takes to maximise shareholder wealth
• Financial
• “Unexpected changes in the value of the portfolio of assets / liabilities as a result of activities in financial markets or the value of financial instruments” • Concerns the fundamental changes in a country’s social, political or macroeconomic environment
• Political / Country
Strategic Management
Risk Management
• “a formal process that enables the identification, assessment, planning and management of risks” • Aim