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Integrating

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Submitted By nostradamus
Words 575
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Integra(ng)Risk)Management) into)Strategy)&)Corp)Governance)
Peter%Verhezen% Principal)Verhezen)&)Associates)) Fellow)Harvard)Kennedy)School) Adjunct)Professor)Melbourne)Business)School) ) ) This)slide)presenta(on)has)been)prepared)for)and)in)collabora(on)with) Pri)Notowidigdo)

Risk = effect of uncertainty on objectives
Scenarios / Probabilities

Positive deviation

Opportunities
Upside

Risk has a positive side

Target
Negative deviation from target
Downside

Future: probabilities

Negative deviation
Today’s Value
(mark-to-market)

Threats
As management projects into the future, the value of the firm will be affected by many different market and business variables – i.e. risk factors.

Tomorrow’s Possible Values
(mark-to-future) 2

Mortgage Crisis => Global Financ Crisis hKp://www.youtube.com/watch?v=KaqvwOJx2eQ) Scenarios / Probabilities )

Positive deviation

Opportunities
Upside

Risk has a positive side

Target

Risk Appetite

Future: probabilities

But usually perceived as negative
Downside

Negative deviation
Today’s Value
(mark-to-market)

Threats
As management projects into the future, the value of the firm will be affected by many different market and business variables – i.e. risk factors.

Tomorrow’s Possible Values
(mark-to-future) 3

Within boundaries & above average
High Moral & Social Norms / Higher than Average Value +

+ Risk

Opportunity

Value at Risk (1)
Enrich Shareholders & Serve Stakeholders

) )

Innovative Strategies
Best"GCG"

Probability

σ"

Volatility (2) = proxy for uncertainty
“Risk” Management

Inferior Moral & Social Norms / Lower than Average Value

- Risk

Regret (3)
4

Impact
Within boundaries & above average
Higher than Average Value

+ Risk

Opportunity

+

Value at Risk (1)
Enrich Shareholders & Serve Stakeholders

) )

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