Riskopecredience 10 05 Final_Version

1 1 1Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com

http://www.riskope.com/

http://www.credience.com/


Because we know this is manageable wemade it our mission to build the most effective approach.

25 minutesMonths or Years vs.




Two Companies in a JV, and one identical annoucement: the prepared company suffers very little, the other endures

catastrophic losses!

Sha

res

rela

tive

valu

e




What does it take to be Proactive?

It does not require to plan for every specific potential disaster.

It does require a well balanced look into the likelihood of general scenarios, their potential consequences.

It does require to plan and act well in advance.




Case Study: a well managed crisis

Loss of Share value: almost

nil because crisis was perfectly

contained.

Latency is not applicable in

this case

Everything was finished in 25 minutes!




It is in the Latency Phase that the best returns are to be

expected from the analysis:-of what could go wrong, and how much it

would “cost” the company: Risk Assessments

-of the means to bring the risks towards a tolerable level in a sustainable way: Risk Management

-of how to behave when a residual risk hits, i.e. Crisis Management




Nowadays media/informationhazards are becoming extremely acute (image damage).

Potential to worsendue to a crisis




“Acceptable”Mitigative Threshold

Zero Risk

ALARAALARPBACT

RISK

This is how Operational RM should perform

Mitigative

Investment

Costs to Attain

AcceptableResidual

Risk

AcceptableResidual Risk




In other words

And we invest in order to get to thisExamples:Buses escort in mountainous private roads for mine accessCheckin procedure for executives at hotelsBehavioral recommendation for people

traveling with sensitive dataDifferent type of monitoringTransportation network modificationsImplementing proper crisis communication procedures

For example: we start from




Crisis Forecast, November 2008

Duration Probabilities : 30% less than 1.5 years Spring 201080% less than 3 years Fall 201110% longer than 6 years past 2014

Magnitude Probabilities:20% present situation will persist25% significant worsening55% critical evolution of disservice




Crisis Forecast, November 2008

0.2

0.25

0.55

Crisis' Magnitude ProbabilitiesPersistance of Present SituationSignificant Worsening

Critical Evolution of Disservice

Less than 1.5 yrs36 yrs

0.3

0.5

0.1 0.1

Crisis' Duration Probabilities




Consequences DefinitionTThese will be different for

every client/industry or organization




Example: a company that services motor vehicles could

have:-Reduction of 40% of routine services if

the downturn is persistent, i.e. 4 M/yr-Reduction of 60% of overall billable if

downturn worsens significantly, i.e. 6 M/yr

-Reduction of 30% of overall billable if downturn has critical evolution, i.e. 3 M/yr




P

C4 M/years

0.200.25

0.55

Tolerable

Intolerable

Persistent

Significant Worsening

Critical Evolution

6 M/years3 M/years

Intolerable: 0

Risk: 1.5

Intolerable: 0.01 Risk: 1.65

Risk: 0.8 Intolerable: 0.24

The result: Highest risk does not necessarily mean highest priority!




So, a company that services motor vehicles will have the

focus in this order:1) Significant worsening2) Critical evolution3) PersistentEven thus the risk of the critical evolution is higher, the intolerable part of the significant worsening is more critical. Possible mitigation: advertisement and lowered prices right now!




Scenarios will be prioritized by their intolerable part of risk.

Thus a clear roadmap becomes available.

Transparent decision can be taken leading to a rational and sustainable

RM/ERM.




Terrorism risks are dealt in the same manner.

(the hazard already exist but the probability changes

because of terrorism!)



05/11/09 1905/11/09 1905/11/09 19Riskope International SA © 2009 www.riskope.com | Credience Group © 2009 www.credience.com

The same can be performed for Financial Institutions

Financial risks linked to debt and investment management (market & liquidity)Credit risks: linked to the insolvency of debtorsOperational risks: generated by internal isuues,fraud, tecnologic mistakes, But alsoearthquakes, fires, flooding, criminal/terrorist attacks, electric black-outs and brownouts...




Quantitative ERM with well defined Tolerability criteria

constitutes the key to an equilibrated “renaissance” in the aftermath of the recent economic turmoil.

The next step in evolution is to use risk as a key decision parameter and to

evaluate long term “risk inclusive”costs of alternatives




Over the years we have identified a list of project/alternative potential risks as follows:




3 phases and a total of five steps in the life of a project/alternative:

Design/Implementation/ConstructionInfrastructure (setting the bases…)Superstructure (implementing…)Life/ServiceService (using, developing, …)Maintenance (repairing, adapting…)Disposal/demolition (ending, releasing…)

Each step has its own hazards

and related risks…




Each parameter contributes to the risks of an alternative from cradle to grave.




NPV's are plain inadequate when integrating alternatives’ specific risks in the comparison

process.

RBDM enables users to compare

and evaluate projects in a

transparent and objective way.




Riskope & Credience Allow their client's risk awareness to increase, meanwhile risks scenarios are evaluated in a

transparent and quantitative way againstclients' own tolerability criteria.

The resulting mitigative recommendationare clear, sustainable, and easy to communicate

Now more than ever, analytical insight of enterprise wide risk management is necessary

for any CRO and their company.




This is why Riskope started a strategic alliance with Credience.

• No other Basel II vendor has built an interface to automate PD, LGD and EAD modelling.

• Automated Regulatory Capturing (ARC) tool quickly converts each countries regulations into a hierarchical tree that is used for treatment of all exposures.

• Rather than just providing a good model, Credience provide an array of optimised models for greater peace of mind and accuracy.




-Tools exist and do work-Experience is eloquent-We all prefer to succeed rather than fail-Thinking and fixing before it happens is way

cheaper than fixing afterwards-Thanks to specific techniques each decision

you make can be supported by transparent and rational evaluations

-ERM will not eliminate losses but reduce them and allow for quicker rebound




What can we accomplish?By using a transparent and sound quantitative

approach we can:

-scientifically select the most significant risks, -draw attention to the objective highest exposures

(filtering emotional perceptions), and-prioritize them to allow reasonable mitigation in a very

focused way.

We clearly enhance the ability to prioritize risks for a rational and sustainable development.




BUT, more importantly

Create the basis to avoid a slide into

a crisis, by proactively

controlling the situation.




The most logical approach is Risk Based Decision Making because

Operational risks impact decisions and Operating

means deciding.



Riskopecredience 10 05 Final_Version

Economy & Finance

Transcript of Riskopecredience 10 05 Final_Version