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Flashcards in Module 8 Deck (44):
1

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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How do you manage the risks?

Oversight/regulation
-Laws
-Auditors
Embedded morality
Data models are inputs to decision makers, not the decision makers themsleves