Risk Management

Course Objectives Effective risk management is an integral part of an efficient and successful organization. Risk Management cuts across all disciplines within an organization. It does not take place at the functional level, or the business unit level, but throughout the organization. For a firm to be successful in today's global economy, risk management must be tightly tied to firm strategy.

Enterprise risk management identifies and treats all serious risks across an organization in a coordinated way. Risk Management allows the firm to achieve its strategic objectives, and is focused on maximizing the firm’s value, rather than avoiding adverse consequences. Risk Management requires the firm to identify opportunities for gain and exposures to unexpected loss. The firm must then assess the potential consequences, and plan to finance the consequences of an adverse event if it happens.

This course is designed to introduce the risk management process in the context of general corporate management. Each step in the process will be reviewed in detail, including setting the risk management context, identification of risk, measurement and analysis of potential impact, and appropriate treatment techniques. Risk financing options will be discussed in the context of global insurance and alternative capital markets.

At the end of the course you will:

Understand the goals of risk management and international risk management standards Understand each step in the risk management process Identify the scope of risks facing firms, including strategic, hazard, and financial risks Understand the tools used to mitigate risk

Understand the role of insurance and global capital markets in risk management

Readings

A set of readings drawn from industry, public, and risk management consulting sources is required. Selected chapters from the Enterprise Risk Management Framework draft document are assigned, developed by COSO*, (*COSO = The committee of sponsoring organizations of the Treadway commission) There is one HBSP case as well as several mini-cases used to prompt class discussion. You are required to purchase a copy of the Harvard Business School case "Environmental Risk Management at Chevron Corporation". The case is available by going to the Harvard online bookstore located at http://hbr.org/store. Search for the case by title in the search box at the top center of the screen.

Course Requirements

Class participation: The course relies on lecture, class discussion and case analysis. Therefore, class participation is very important. You are expected to come to class on time and prepared to answer questions and offer insight into the issues under discussion. Cases /projects will be assigned in advance, and all students must be prepared to discuss them.

Grading: You will be assigned to teams for in-class case discussions. Each team will have an opportunity to present a brief analysis (ten minutes) of an in-class case that will lead to further class discussion. This will count as a separate component of your final course grade. Your course grade is based on your individual class participation, the quality of your group discussion, and a take-home exam. The breakdown for scoring is as follows:

Individual participation25% Group case discussion25% Individual Final exam 50%

Course Schedule and Readings

Articles in Red are posted to the “Course Documents” folder in the Blackboard site. Articles in Blue are links to websites. Articles marked "Browse" are for your further information only and are not required. Please have all readings done before class.

Day 1 Morning

Module 1: Motives for Risk Management, ERM and Corporate Governance

Read: The COSO ERM Framework: Executive Summary What is Risk Chapter 1 The Year in Risk: 2013: Risk Management Magazine

Prepare In-Class Case Penn State University Chevron Part 1

Day 1 Afternoon

Module 1: Specific Exposures: Catastrophes, Liability, Political Risk, Supply Chain Catastrophes: Preliminary estimates for H1 2013: SwissRe The New Supply Chain Challenge: Risk Management in a Global Economy COSO Chapter 5: Event Identification

Prepare In-Class Case SHS Exposure Identification Textron Supply Chain Risk

______________________________________________________________________________ Day 2 Morning

Module 1: Step 3: Assessment Qualitative and Quantitative Methods and Risk Mapping

Read: COSO Chapter 6: Risk Assessment

In class case: Chevron Part 2

Module 2: Loss Control and Crisis Management

Read: Respond to Crises before They Arise Integrating Reputation Risk Into the Enterprise Risk Management Framework (Start at page 189-end only)

Prepare In-Class Cases Quality Cut Steakhouse Crisis Snow Milk Crisis in Japan

Day 2: Afternoon

Module 1: The ERM Process summary

Prepare In-Class Case BP and the Deepwater Horizon Disaster

Module 2: Risk Financing

Read: Captives Overview Catastrophe Bond Overview

Prepare In-Class Case Earthquake Losses, Insurability, and Financial Markets

Wrap-up

Review for Take Home ______________________________________________________________________________