24 September 2016
1. Standardized approach
2.
3. Advanced IRB – Banks can use scorecards, more tailor fitted than the previous approach since it
takes into consideration idiosyncratic variables on the bank.
Facility scheduling (takes into consideration manpower issues, e.g. why hire 70 people when 50
people can already be efficient) vs. Capacity scheduling (Why use all 5 machines when you can
have optimum production at 3?)
Value Chain analysis: the better relationship you have with your suppliers and customers, the
lesser risks that there will be. Having a value chain analysis approach is most useful.
Formula for Value Chain analysis: Divide your company’s operations between the primary
activities and support activities. Then BENCHMARK with companies with the similar industries.
Risk Assessment
This is important since a company is always fraught with risk. However, there must be a clear
delineation on whether or not these risks are material or not.
Also the company’s hands are tied down due to budgets, so it wouldn’t exactly want to waste
money on risks that aren’t that important.
Prioritization is a condition sine qua non. Take note however, that this isn’t arbitrary. These risks
have to be ultimately measured.
Risk assessment allows companies to gain on how much they can invest in the future.
TREC – not emanating from a singular risk, but interrelated (Starting Point)
MORE – there is a rippling effect (Contagion)
N.B. If you are into risk management, do not only look at the problem head on. Look at all angles for
this is how you prepare for the materiality of your risk.
Severity (S) does not only cover potential losses. You must also determine cleanup costs and contagion
(C) with the total loss (E). Add these two factors with the potential losses and you will have the full
amount of your severity.
S=E+C–R
R = Recovery since after all, you are a company and you can definitely recover through insurance,
mitigation processes and the filing of suits. (Take not of the other formulas that you can use in the
handouts.
Not enough to solving shiz. You must also do your best to correlate the data that you have and solve for
the distribution of the losses.
Distribution, i.e. normal and beta distribution, which dwells on the frequency of the event. Most useful
of course to correlate the frequency and the impact.
Learn to avoid black boxes and make all processes transparent. Also, heavy emphasis on
documentation so that you can come back to stuff should you want to have a take on the risks
that you have encountered in the past.