Table of Contents

Chapter 1 - Risk Management Overview.. 1

Benefits of Risk Management 1

The Interrelationship between Risk and Strategy. 2

Risk Retention Strategy. 2

Risk Analysis as an Opportunity. 3

Special Risk Situations. 4

Risk Management for the Enterprise. 4

The Chief Risk Officer. 5

Risk Management Committee. 6

Responsibility for Risk. 7

Risk Management by the Individual Employee. 7

Types of Risks. 8

The Risk Management Process Flow.. 10

Risk Rankings. 11

Risk Quantification Issues. 13

The Risk Profile. 14

Special Risk Situations. 15

Risk Planning Timeline. 16

Risk Management Best Practices. 16

Risk Management Themes. 17

Biases in Risk Management 20

Chapter 2 - Treasury Risk Management 23

Funding Risk. 23

Investment Risk. 24

Liquidity Risk. 25

Credit Policy Risk. 26

Credit Exposure Risk. 26

Internal Credit Rating System.. 27

Third Party Credit Ratings. 29

Credit Insurance. 29

Terms Alterations. 30

Receivables Financing. 30

Outside Financing. 31

Portfolio Approach to Risk. 31

Cross-Selling Credit Exposure Risk. 32

Credit Concentration Risk. 32

Foreign Exchange Risk Overview.. 33

Foreign Exchange Risk Management 34

Take No Action. 34

Avoid Risk. 34

Shift Risk. 35

Time Compression. 36

Payment Leading and Lagging. 36

Build Reserves. 36

Maintain Local Reserves. 36

Hedging. 36

Types of Foreign Exchange Hedges. 37

Loan Denominated in a Foreign Currency. 38

The Forward Contract 38

The Futures Contract 39

The Currency Option. 40

The Cylinder Option. 41

Swaps. 41

Netting. 42

Interest Risk Overview.. 43

Interest Rate Risk Management 43

Take No Action. 43

Avoid Risk. 43

Asset and Liability Matching. 44

Hedging. 44

Types of Interest Rate Hedges. 44

The Forward Rate Agreement 44

The Futures Contract 46

The Interest Rate Swap. 48

Interest Rate Options. 49

Interest Rate Swaptions. 52

Chapter 3 - Sales and Marketing Risk Management 55

Marketing Governance Risk. 55

Brand Repositioning Risk. 55

Celebrity Spokesperson Risk. 56

False Marketing Claims Risk. 56

Advertising Reduction Risk. 56

Increased Marketing Cost Risk. 57

Socioeconomic Change Risk. 57

Product Recall Risk. 58

Incorrect Forecasting Risk. 58

Customer Loss Risk. 59

Contracting Economy Risk. 59

Chapter 4 - Supply Chain Risk Management 61

Supply Chain Risk. 61

Cross-Firm Effects of Supply Chain Disruptions. 62

Supply Chain Risk Mitigation Techniques. 62

Project Completion Risk. 63

Shifting Risk into the Supply Chain. 64

Chapter 5 - Production and Distribution Risk Management 66

Capacity Failure Risk. 66

Defective Product Risk. 66

Loss of Distributor Risk. 67

Chapter 6 - Human Resources Risk Management 70

Recruitment Risk. 70

Incorrect Hire Risk. 71

Downsizing Risk. 71

Worsening Employee Morale Risk. 72

Discrimination Risk. 72

Position Misclassification Risk. 73

Inflated Benefits Cost Risk. 73

Increased Unemployment Rate Risk. 75

Performance Incentive Plan Risk. 76

Accidents Risk. 76

OSHA Violations Risk. 77

Human Resources Activities to Mitigate Risk. 77

Chapter 7 - Accounting Risk Management 79

Financial Statement Error Risk. 79

Tax Return Error Risk. 79

Budgeting Error Risk. 80

Overpayment Risk. 81

Overspending Risk. 81

Use Tax Risk. 82

Due Diligence Error Risk. 82

Fraud Risk. 83

Public-Company Risks. 83

Chapter 8 - Information Technology and Systems Risk Management 88

Data Security Risk. 88

IT System Failure Risk. 89

Loss of Expertise Risk. 89

Incompatible Systems Risk. 90

Changing Technology Risk. 90

Catastrophic Damage Risk. 90

GRC Software. 91

The Use of Procedures. 91

The Need for Procedures. 92

The Number of Procedures to Develop. 92

Deviations from Procedures. 93

The Use of Controls. 93

Chapter 9 - Other Risk Management Topics. 97

Investor Risk. 97

Sole Proprietorship. 97

Partnership. 98

Corporation. 99

Limited Liability Company. 100

Political Risk. 100

Alliance Risk. 101

Reputation Risk. 101

Chapter 10 - Contingency Planning. 104

Contingency Planning. 104

Disaster Communications. 104

Disaster Drills. 104

Safety Procedures Training. 105

Emergency Response Team.. 105

Worker Flexibility. 105

Automatic Detection Systems. 105

Preventive Maintenance. 105

Boiler-Related Activities. 105

Hazardous Materials. 106

Mechanical Drawings. 106

Equipment Positioning. 106

Safe Room.. 106

Flood Mitigation Activities. 106

Hurricane Mitigation Activities. 106

Replacement Facilities. 106

Chapter 11 - Insurance. 109

Insurance Policy Terms and Conditions. 109

Deductibles. 109

Limit of Insurance. 109

Co-Insurance. 110

Exclusions. 110

Insurance Riders. 111

Perils. 111

Boiler and Machinery Insurance. 111

Business Interruption Insurance. 111

Policy Inclusions. 112

Additional Coverages. 112

Management Actions. 113

Commercial Automobile Insurance. 113

Commercial Crime Insurance. 114

Commercial General Liability Insurance. 114

Credit Insurance. 115

Cyber Risk Insurance. 116

Management Actions. 116

Directors and Officers Liability Insurance. 116

Management Actions. 117

Additional Coverages. 117

Fidelity Bonds. 117

Inland Marine Insurance. 117

Life Insurance. 118

Political Risk Insurance. 118

Professional Liability Insurance. 118

Property Insurance. 118

Types of Property. 119

Policy Inclusions. 119

Policy Exclusions. 119

Additional Coverages. 119

Management Actions. 120

Surplus Lines Insurance. 120

Workers’ Compensation Insurance. 121

Management Actions. 121

Insurance Distribution. 121

Insurance Company Analysis. 121

Insurance Pricing. 122

Managing the Cost of Insurance. 122

Insurer Messaging. 122

Covered Items Analysis. 123

Double Coverage Analysis. 123

Unlikely Payouts. 123

Non-Comparability. 123

Deductibles Analysis. 123

Job Classification Analysis. 124

Delayed Payments. 124

Self-Funded Insurance. 124

Captive Insurance Company. 124

Insurance Claims Administration. 125

Chapter 12 – Risk in Financial Analysis. 127

Price Setting. 127

Dividend Analysis. 128

Capital Budgeting. 128

Research and Development Funding Analysis. 129

Financial Leverage. 130

Chapter 13 - Risk Measurement and Reports. 137

Core Reports. 137

Losses Report 137

Incidents Report 137

External Risk Indicators Report 138

Insurance Claims Report 138

Cash Basis and Accrual Basis Reporting Variance. 139

Third Party Credit Ratings. 139

Aggregate Counterparty Exposure Report 140

Staff Turnover. 140

Alliance-Related Staff Turnover. 141

Compensation versus Benchmarks. 141

Duration of System Downtime. 141

Security Breaches Report 142

Error Rates Report 142

Number of Regulator Warning Letters. 142

Customer Complaints Report 142

Credit Limit to Credit Usage Variance. 143

Volume of Derivatives Trades. 143

Bottleneck Utilization. 143

Reporting Thresholds. 144

Cash Forecasting. 145

Answers to Chapter Questions. 147

Glossary. 163

Index. 165

 

Final Examination.....................................................................................................................................................170