Managing Over-the-Horizon Risk “There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don 't know. But there are also unknown unknowns. There are things we don 't know we don 't know” – Donald Rumsfeld As the financial crisis seems largely behind us and the worldwide economy continues to improve, people are getting excited; looking away from the latest disaster to the next big thing. Businesses are successful once again and unemployment is hitting new lows. When people get this excited, it is time to think about risks. When asked what could possibly go wrong now, most people think of scary low-probability events (Black swan) like an Ebola pandemic or a …show more content…
Many days out those in the weather business were warning that conditions may be right for a winter storm - that is out on the horizon. A couple of days ahead of time the same people were saying that it was probably going to hit the North Georgia - that is an emerging threat. And then it was real but little had been done to mediate its effects ahead of time. Another example would be the 2008 global financial crisis for which there were plenty of warning signs such as the subprime lending meltdown in 2007. A great example of preparedness can be seen in the way LA is planning to tackle the next big earthquake with a 126-page package of earthquake safety recommendations focuses on fixing the three weakest elements of L.A. 's urban infrastructure: its pre-1980 buildings, its creaky, convoluted water system and its vulnerable telecommunications network. Executives face an ever-increasing portfolio of risks that is broader and more complex. The world is getting more volatile as it gets more connected, while external and geopolitical "over-the-horizon" risks are becoming both more relevant and tougher to manage with globalization. Due to this all organizations need a unique way of thinking about OTH and emerging risks, and in many cases a dedicated process to manage these risks. It is imperative for organizations to have a structured approach to tracking over-the-horizon events that could negatively impact company performance or potentially bring
Speaker's notes: Risk is an everyday part of financial life. There are few decisions we can make which do not come with some degree of risk. However, it is important to understand and distinguish between different types of risks so we can better 'hedge' against potential unforeseen events and minimize our institution's exposure to financial dangers.
The idea of “risk” is used in many fields and industries. There has been large efforts made towards the understanding of risk. Since, risk varies so much depending on the field of study, the need for learning about it is warranted. As can be imagined, the importance of risk in a market economy is crucial. In the 1990s, JP Morgan made the Value at Risk (VaR) a central component of its work efforts (Cecilia-Nicoleta, Anne-Marie, & Carmen-Maria, 2011).
For many people risk is an accepted part of everyday life. Every day activities such as catching the bus, travelling on holiday, playing football, setting up home and starting a family all carry some element of risk.
* There are three (3) schools of thought regarding risk. The first considers the positive and negative aspects of risk, but sees them as separate. The second group believes that there are benefits from treating threats and opportunities together, while the third school does not label uncertainties, but addresses uncertainty as part of “doing the job.” Argue the value of having a risk strategy despite the cost associated with it. Include an example to support
a deep dive into critical risks and determine the likelihood and consequence of that risk
For example, if people assume that the earthquake is over after the first few waves, primary and secondary, they could put themselves in danger when the more powerful surface wave hits. If people knew of ideas, such as adding plastic to windows and securing shelves and items on walls they could protect their family and potentially save themselves money from decreases in damages. I am sure that most people want to protect themselves and their family from preventable harm. If people secured computers, televisions and other valuables, they could save themselves money and reduce stress that could surface after an
A risk is an event or condition that, if it occurs, could have a positive or negative effect on a project’s objectives. Risk Management is the process of identifying, assessing, responding to, monitoring, and reporting risks. This Risk Management Plan defines how risks associated with the Charming Café project will be identified, analyzed, and managed. It outlines how risk management activities will be performed, recorded, and monitored throughout the lifecycle of the project. It details how risk are prioritized. The Risk Management Plan is created by the project manager in the planning phase and is monitored and updated throughout the project.
The impact of the risks on global business it is dramatic in our days, changing the entire look of the industries and financial services. Some risks could be anticipated and identified but some could not. Companies now are using more and more key steps and principles to better manage the risks by;
Our failure to recognize fallacy in our judgement and decision, our failure to recognize potential risk, and our failure to mitigate risk make our future more unpredictable and inevitable. However, the majority of seemingly unpredictable Black Swan events are in fact within the realm of control. Although psychological bias in human nature is unlikely to eradicate, there are still several methods help us to be prepare when dealing with unexpected black swan events. To start, people could actively engage in learning and evaluation of potential black swan events even thought their probabilities of occurrence are at low level. Moreover, people could think critically and creatively, having the courage to question authoritative models and theories. Future is unpredictable, but by acknowledging potential risk and be preparing, we will be better able to anticipate black swan and thrive when it
“There are things known and there are things unknown, and in between are the doors.”
Plans are based on forecasts which in turn are based on assumptions about what is to be. Scanning the horizon of possibilities is a prudent measure that companies take in order to identify new developments that will test past assumptions or provide insight on new perspectives to possible future threats or opportunities (Gordon & Glen). A tool that helps recognize the ecological deviations and tendencies is known as scanning. “Through scanning, firms identify early signals of potential changes in the general environment and detect changes that are already underway” (Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2015).This is very important to companies because this is how they understand what is happening and how they should adapt to the environment. Scanning can potentially influence companies’ decision-making process and it can also help expose threats, which will help them make the appropriate changes.
We don't know if we live in a world any more risky than those of earlier generations. It is not the quantity of risk, but the quality of control or--to be more precise--the known
Along the lines of large-scale disasters, there are nearly infinite scenarios where things can go horribly wrong in a matter of minutes and hours, as opposed to months and years. Nuclear war lingers between the US and North Korea (McConnell/Todd), the tension between Russia and the US remains higher than ever (Khanal), and revived disputes between India and Pakistan threaten to ignite warfare
One well accepted description of risk management is the following: risk management is a systematic approach to setting the best course of action under uncertainty by identifying, assessing, understanding, acting on and communicating risk issues. In order to apply risk management effectively, it is vital that a risk management culture be developed. The risk management culture supports the overall vision, mission and objectives of an organization. Limits and boundaries are established and communicated concerning what are acceptable risk practices and outcomes. Since risk management is directed at uncertainty related to future events and outcomes, it is
In their research study, Souder & Myles (2010) identify that risk is chiefly fundamental to investing. Böhringer & Löschel (2008) further add that there is no discussion of returns or performance that is deemed meaningful in the absence of at least some mention of the involved risk. However, the trouble for investors, who have just entered into the marketplace, involves the process of figuring where risk really lies, as well as what the difference between the various levels of risks. Relating to the manner, in which risk is fundamental to investments, a significant number of new