Copyright © Texas Education Agency, All rights reserved. Risk Management Fundamentals Statistics & Risk Management 1

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Copyright © Texas Education Agency, All rights reserved. Financial Risk Management The practice of creating economic value in a firm by using financial instruments to manage exposure to: The practice of creating economic value in a firm by using financial instruments to manage exposure to: Credit Risk Credit Risk Market Risk Market Risk 3

Copyright © Texas Education Agency, All rights reserved. Organizational Context What is the Organization's Mission? What is the Organization's Mission? – Must address the problem of protecting itself against changes that can place the pursuit of this fundamental objective “at risk”. 4

Copyright © Texas Education Agency, All rights reserved. Identify Weaknesses Do you have Specific Weaknesses? Do you have Specific Weaknesses? – Weak Management team – Cash Flow Issues – Over Budgeted Expenses – Work Force Shortages – Intense Competition 5

Copyright © Texas Education Agency, All rights reserved. Risks Inherent To: External Context External Context – Laws and regulations – Markets and competition Operative Management Operative Management – Contract compliance – Market share – Labor, skills, and personnel losses – Environmental factors Financial Management Financial Management – Account collections – Exchange Rates – Liquidity f fundamentals-of-risk-management.pdf f fundamentals-of-risk-management.pdf 6

Copyright © Texas Education Agency, All rights reserved. Identify Change What is driving the change? What is driving the change? – Opportunity – Government – Economy – Marketing – Financing 7

Copyright © Texas Education Agency, All rights reserved. Risks Consequences 8 Why Money Loss? Why Money Loss? Revenue Falls Short Revenue Falls Short Escalating Expenses Escalating Expenses Judgments, Fines, and Penalties Judgments, Fines, and Penalties Security Breaches Security Breaches Why Time Loss? Why Time Loss? Limited Human Resources Limited Human Resources Limited Expertise Limited Expertise Why Money Loss? Why Money Loss? Revenue Falls Short Revenue Falls Short Escalating Expenses Escalating Expenses Judgments, Fines, and Penalties Judgments, Fines, and Penalties Security Breaches Security Breaches Why Time Loss? Why Time Loss? Limited Human Resources Limited Human Resources Limited Expertise Limited Expertise

Copyright © Texas Education Agency, All rights reserved. Calculate Probabilities Comparison within Organization Comparison within Organization Comparison within Industry Comparison within Industry 9

Copyright © Texas Education Agency, All rights reserved. Calculate Risk Seriousness of Consequences Likelihood of Change 10