Analyze and Mitigate Risks

JWI 515 Managerial Economics, Week9 Summary, 12/10/12

This week we learned about the many types of risks firms can face and what a CEO can do to prepare and come out on top. This is one of the most exciting weeks of learning for me as the insights are worth their weight in pure gold. The lessons learned here will help me guide my organization and firm to safe waters through careful research and considered judgment. I can apply these principles practically every day as I take high stakes decisions all the time in technology development. By going through the checklist below, I can immunize myself from making careless errors in risk evaluation and judgment.

Special thanks to Lemma for connecting risk analysis with the Art of War. This is brilliant !

The discussions with classmates have helped me grow and widen my mind set.

Dr DP

JWI 515 Managerial Economics, Week9 Summary, 12/10/12

Types of Risk

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(1) Economic Risk - chance of loss when all possible outcomes and their probabilities are not known

(2) Managerial Risk - chance of loss stemming from a managerial decision

(3) Market Risk - a portfolio of investments could lose money due to financial market swings, interest rate hike

(4) Inflation Risk - general rise of prices lower the value of investments

(5) Currency Risk - changes in domestic currency value of foreign profits

(6) Expropriation Risk - government abroad can seize firm's property

Risk Take Down options for a firm include:

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(1) Anticipate change in marketplace and guide the firm to adapt - lower business risk

(2) Use decision tree with risk probabilities - lower economic risk

(3) Beware the mind-traps (HBR, 1998) in decision making, estimating, forecasting from anchoring, over confidence, confirming evidence, status quo, sunk cost, framing, prudence, recallability - lower business risk

(4) Beware in-built biases from the DiSC types of the CEO, the leadership and the organization - lower business risk

(5) Train employees with business conduct guidelines (BCG) - lower business risk

(6) Tighten internal controls and compliance - lower business risk

(7) Insurance - lower market risk, credit risk

(8) Diversification - lower market risk, liquidity risk

(9) Speed (Sense and respond to changing environment quickly) - lower market risk through agility

(10) Know the strengths and weaknesses of rivals and also the firm - lower business risk

(11) Beware of 6 sins of M&A (Welch, 2005) - lower cultural risk

(12) Keep up with national and global trends - lower inflation risk, currency risk, derivative risk

(13) Watch influential people and government policies closely - lower government risk, expropriation risk

(14) Learn from thought leaders such as Sun Tzu (Art of War)