How Risky is

your
Company?
Hanindita Guritna
Hussein AMB
Felix Terahadi
Rini Amelia
Hidratul Fidic D

29114713
29114737
29114747
29114857
29114859

Introduction
In good times, managers need to increase
their level of internal risk exposure
How to pinpoint the areas of risk exposure?
Using risk exposure calculator
Two functions of risk exposure calculator:
Can be used by people from different level and
function
Can be compared between different timeline

RISK EXPOSURE CALCULATOR

Pressure Points due to

Growth

Pressure Points Due to

Culture
Risky deal
Information
Internal competition

Risky deal
Bankers Trust Company in early 1990s
Investment bank that issued innovative
financial instruments
In 1993, earning more than$1 billion on
revenue of$4.7 billion
1995, sued by several clients, including
Procter & Gamble
Misrepresenting the risks associated
Lost over$250 million

Risky deal-to calculate a

score
percentage of the business is based
on new products and services that
have been generated by creative,
risk-taking employees

Information
Executives running successful
organizations
Resistance to bad news
Kmart VS Walmart

Information-to calculate a
score
How much bad news do I actually
hear?
Have I surrounded myself with yes
men?

Internal competition

Horse race with their peers

Decrease in information sharing
Barings Bank in 1995, Nick Leeson
he was gambling company assets in
an attempt to cover ever-mounting
losses

Internal competition-to
calculate a score
Do we manage and motivate by
horse races here?
Are employees ranked and compared
with one another, or are they
evaluated on their own merits?
Do other people get firedor quickly
leaveat the same time?

Pressure Points Due to

Information Management insight

Success in the marketplace is

1.accompanied by increasingly
sophisticated products,
2.increase the volume of transactions
3.Increase the velocity of transactions

Impact
1.the increase in complexity of transaction.
2.Overload information systems.

Pressure Points Due to

Information Management
Determine score

To determine the score, managers

should:

1.Do a rough calculation of complexity,

volume and velocity of information.
2.Feel the frustration if there is a gaps in
diagnostics performance measures.
3.Examine the level of decentralized
decision making.

Pounding the Calculator

Keys at One Company
Kidder Peabody is and investment
Banking Company
Uncovered $350 million of false
profits in the Company
the parent company (General
Electric) dispose the Kidder
Peabodys assets.

The Risk Exposure

Calculator
Growth:
Pressures for Performance:
Acquisition heightened the demand for results

Rates of Expansion:
GEs Money is pouring for aggressive
expansion

Inexperience of key Employees:

GE Manager who lacks of understanding the
operation or nature of financial service
products.

The Risk Exposure

Calculator
Culture
Reward for entrepreneurial risk taking:
well compensate for who could exploit market
imperfection or create new financial products.

Executive resistance to bad news:

suspicious nature of profit generating is being
ignored

Level of internal competition:

traders and managers vied for promotion,
recognition and large bonuses

The Risk Exposure

Calculator
Information Management:
Transaction complexity and velocity
the trader orders to buy and sell billions of dollars
worth of bonds.

Gaps in diagnostic performance measures

diagnostic early warning systems were either
nonexistent or ignored.

Degree of decentralized decision making

major decisions is made by employees at the
trading desk without direct management
oversight.

RISK

AWARENE
SS
?

Questio
ns

CONTROL
?

REWARD

4 Lever
Controls

Belief
Syste
m

Diagno
stic
Control
System

How
communicat
e the value
of business

Bounda
ry
System

Identify the
actions and
behaviors
that off limit

Are
adequate to
monitoring
performance

Interact
ive
Control
System

Are
interactive
and
designed to
stimulate
learning

Internal
Control

Paying
attention

A Calculator and a
Magnifying Glass
Executives need their sunglasses and
a magnifying glass for the risks
within their organization
Sometimes risk creeps from the top
Risk exposure calculator will suggest
where risk is growing and how fast