Flashcards in Module 8 Deck (44):
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Module 8
Organizational level risk
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What is expected to be learned from Module 8
Describe the categories of organizational risk
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Lots of ways to categorize the risk that organizations face
Hazard risk
Financial risk
Operational risk
Business risk
Strategic risk
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Why categorize
Expertise (Anna make sure its being addressed by good people), risk management technique, reports to stakeholders
Categories might be mutually exclusive
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Business Risk
Deviations in profitability
-Can be caused by many things, prices, regulation, competition
-operational, hazard, financial
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Operational Risk
Focus on BP case and analytics reading
Def- Potential losses from internal sources
-Manufacturing process
-Fraud (employee selling info)
-Mismanagement
-Employee mistake
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Hazard Risk
Very traditional risk management stuff
Defintion- potential losses that only have a down side ex- fire car accidents
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Financial Risk (Module 10A)
Potential variation due to financial causes
-Losses due to exchange rate, investment losses, credit risks, liquidity, risk, etc...
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Strategic Risk (Module 9)
Def- Potential losses (variation) from poor business decisions.
-Product mix
-Supplier Choice
Many decisions fall under "strategy" if any of the are wrong/faulty= strategic risk
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Reputational risk
-Strategic risk
Does the product sell individual or does its reputation also sell it.
Ex- Starbucks
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BP Case
Explain overriding themes
risk/reward trade-offs presented in the BP case
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Case Study Pt 2
-Focuses on BP, 2 safety issues in 2005-2006
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Overriding themes of case
Corporate strategy
Public relations
Corporate culture
Workplace safety
Process management
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BP works as a triangle
Vertically integrated firm
Top is exploration and extraction
Bottom is transport issue, and distributing
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1st Incidents
March 23, 2005
-Explosion at Texas City Refinery
15 dead
170 injured
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2nd Incident
March 2006
-Oil Spill at Prudhue Bay Alaska
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Result of two incidents
Jan. 2007
CEO Lord Browne Resigns
-widely recognized as one Britains greatest business men
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BP
British Petroleum
formed in1998
-Merger of British Petroleum and AMOCO
-Top 5 Global Oil Co
BP: over 100 years old
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Browne becomes CEO in 1995
Rebranding
-Environmentally friendly oil company
-HSE performance. Health, Safety and Environmental
-Growth through Merge and Acquisition (with Amaco)
-Green Company- Climate Change talk in 2002
Alternative Fuels: Solar
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Corporate strategy
Growth through MA
-Do more with less
-Cost cutting
or Cost conscious
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1st incident
Texas refinery
OSHA give 21.3M in fines
US Chemical Safety and Hazard Investigation Board
-BP endangered workers to cut costs
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Baker Report
Former secretary of state does a safety report on Texas
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2nd Incident
Leak discovered in Prudhoe Alaska
-Largest oilfield in US
Corroded Pipe
BP shuts down old fields
16 of 22 miles of pipe needs to be replaced
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Baker Report
BP did a horrible job at process safety
-Fact that you shouldn't have leaks etc.
-Personel safety is fine
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Followup
BP keeps fucking up and getting fined
-Market Exon mobile surpasses BP because they don't suck shit
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Overriding themes
-Corporate Strategy
-Public Relations
-Corporate Culture
-Workplace safety
-Process Management
What is the risk/reward
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Big Data Pt 3
Big Data and Black Swan
Explain the role of behavioral analytics in risk management
Explain how to manage the risks of data driven decision making
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Big Data
We create so much data, how can organizations use it
-Data mining
-Buying trends (FB ad)
-Targeted marketing
-Mitigate risky business
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Big Data pt 2
-Mitigate risky business practices, employee fraud (operational risk), and Black Swan -rare event-
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Most Risk Management
Predict whats going to happen by looking at past data
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Most Risk Management pt 2
Article is presented as a Q and A
-Business risk, operational risk, black swans, and behavioral analytics
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Q & A
What are the diff types of risk organizations need to think about from operational risk to the so-called black swans
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Operational risk
the people, processes, and systems in place to produce the company's product/service
-Ex: internal fraud, employment practices (sexual misconduct), etc
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Black Swan
Extreme outlier: hard to predict, rare event that generally people don't expect
-Ex- Mortgage crisis, 9/11
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How has risk changed ins recent years
-Globalization, cascading network effect
-Think dominos
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Where does data analytics fit in?
Tools to predict areas of vulnerability in organization to black swans
Look for factors of human behavior
-Laziness, fatigue, moral or ethical "opportunities", stressors
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Could data analytics have helped BP (Gulf Oil Spill)
-Reports that on-site employees were worried about such an event, but no channel to communicate
-BP didn't monitor system closely, costly to do so, cut corners
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Behavior Analytics
Uses big data to predict future individuals actions Ex- Drug test
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Data Driven Decision Making
-Base decisions on data analysis rather than intuition
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Whats new about Data Driven decision making
Predictive analytics and AI
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What are the risks of DDDM
Poorly designed or incorrect models
Poorly though out goals
Protection against privacy
Poor communication of results
Statistical anomalies
Inappropriate criteria
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Poorly designed or incorrect models
-Ex: Housing prices always increase
-Wrong assumptions
-Poor proxies
-Algorithms that don't account for source (i.e. "fake news")
-No fact checking
-No results
-Poor data sources
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Inappropriate criteria
-Race
-Religion
-Gender
-Age (too old)
-Credit score
+Insurance pricing and insurance score (credit score). Trying to discriminate against their customers. Proxy by race
-Zip code
+Banking and redlining
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