Lecture 2 part 1 Flashcards
(25 cards)
Risk is…
an undesirable possible consequence of uncertainty
A key distinction from the common interpretation of risk is…
the absence of “danger” or an “adverse event.”
risk is also …
any uncertainty in outcomes, whether favourable or not.
Risk is a combination of two factors:
- The probability that an adverse event or hazard will occur.
2.The consequences of the adverse event.
Describe the diagram in which we position risk.
On the vertical you have the risk probability, with high and low, up and down. On the horizontal you have consequences, whit light and severe right to left.
Birgeet al. (2007) refers to operations-finance interface as…
“research that shows conditions under which a tighter integration of both functions within and across enterprises leads to higher value creation”
According to ChatGPT, operations-finance interface refers to …
to the collaboration and alignment between a company’s operations (the processes involved in producing goods or services) and its finance (managing resources, budgets, and investments).
According to ChatGPT, operations-finance interface is about what?
Simply put, it’s about ensuring that operational activities are cost-effective and financially sustainable, while financial strategies support efficient operations.
Cash Conversion Cycle (CCC) measures…
duration between purchase of inventory and collection of accounts receivable.
CCC =
DIO+DSO−DPO
DIO:
Inventory processing period (days)
DSO:
Days to Collect Accounts Receivable or Days sales outstanding
DPO:
Days to Pay Accounts Payable
Small number of CCC means what?
That the CCC is short and it indicates a fast cash recovery.
Integrated Risk Management refers to:
joint assessment, synchronization and optimization of operational and financial risk management across functional units in an enterprise (ERM) and business partners in a supply chain (SCRM).
Integration in risk managament means:
(i) joint identification/analysis of operational and financial risks;
(ii) synchronization of operations strategy and financial control;
(iii) unification of value-based management (flexibility/growth) and risk management (hedging/mitigation).
Simple memorization of the integrated risk management framework, 1-10 :
1) Identify risk
2) Interdependent assessment
3) Integrate
4) Categorize
5) Relationship analysis
6) Optimize
7) Implement
8) Monitor and review
9) Continuous improvement
10) Back to identifying risks
Operational risk Includes …
supply, processing and demand risk.
Financial risk includes …
endogenous and exogenous financial risk.
Endogenous:
Internal, Originates within the system
Exogenous:
External, Originates outside the system
How are operations and finance linked?
Financial constraints on operations, Correlation between operational and financial risks, and Alternative risk mitigation
Financial constraints on operations -
Real investment (financial flow demand to material flow supply), and Bankruptcy risk (based on integrated loan finance & production decisions)
Correlation between operational and financial risks -
Revenue management (material flow demand to financial flow supply), and Joint procurement & financial hedging
