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    Tech 638 Homework 1 F14 Solutions

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    ShafiMohd
    This document provides a summary of the key points from the first two chapters of the textbook for the TECH 638 Risk Management course. It includes 10 questions covering topics such as the differences between enterprise risk management and traditional corporate risk management, pure and speculative risks, risk diversification, the risk management process, types of risks across industries, examples of internal and external risks for an automaker, tangible and intangible property, price risk and input/output costs, and how failures of accounting systems can represent financial or operational risks depending on the organization.

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    Tech 638 Homework 1 F14 Solutions

    Uploaded by

    ShafiMohd
    302 views2 pages
    This document provides a summary of the key points from the first two chapters of the textbook for the TECH 638 Risk Management course. It includes 10 questions covering topics such as the differences between enterprise risk management and traditional corporate risk management, pure and speculative risks, risk diversification, the risk management process, types of risks across industries, examples of internal and external risks for an automaker, tangible and intangible property, price risk and input/output costs, and how failures of accounting systems can represent financial or operational risks depending on the organization.

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    Risk management

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    This document provides a summary of the key points from the first two chapters of the textbook for the TECH 638 Risk Management course. It includes 10 questions covering topics such as the differences between enterprise risk management and traditional corporate risk management, pure and speculative risks, risk diversification, the risk management process, types of risks across industries, examples of internal and external risks for an automaker, tangible and intangible property, price risk and input/output costs, and how failures of accounting systems can represent financial or operational risks depending on the organization.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    302 views2 pages

    Tech 638 Homework 1 F14 Solutions

    Uploaded by

    ShafiMohd
    This document provides a summary of the key points from the first two chapters of the textbook for the TECH 638 Risk Management course. It includes 10 questions covering topics such as the differences between enterprise risk management and traditional corporate risk management, pure and speculative risks, risk diversification, the risk management process, types of risks across industries, examples of internal and external risks for an automaker, tangible and intangible property, price risk and input/output costs, and how failures of accounting systems can represent financial or operational risks depending on the organization.

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    © All Rights Reserved
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    of 2

    Homework 1

    TECH 638 Risk Management

    50 points

    Due on 14th of September 2014


    Chapter 1: Page 13
    1. Describe how the scope of risks encompassed in enterprise risk management differs from those
    of traditional corporate risk management.
    Traditional corporate risk management had a focus on pure risks only, mainly those things that
    could be insured. Enterprise risk management has a broader scope, taking into consideration
    financial risks, operational risks, and strategic risks.
    2. Describe the difference between pure and speculative risks. Provide an example of each.
    Pure risks involve only the possibility of loss. Examples are loss of a building to fire or the
    premature death of a family head. Speculative risks involve the possibility of gain as well as loss.
    Examples are gambling, investing in the stock market, and starting a business.
    3. Describe the process of risk diversification, noting the two conditions that must exist for
    diversification to be effective.
    Risk diversification involves spreading the losses in a group among all the members of the
    group. There must be a large number of members, and the potential that a loss will affect more
    than a few members of the group at one time must be small.
    4. List and briefly describe the five steps in the risk management process.
    1) Formulate risk management objectives. What do you want to achieve through risk
    management efforts?
    2) Identify loss exposures. What is at risk, and what perils and hazards are related?
    3) Measure potential loss severity. Most risk-management efforts, and dollars, are
    going to be directed to the exposures with the greatest potential severity.
    4) Choose risk-handling techniques. What strategies will be best to deal with the
    identified exposures?
    5) Implement techniques and monitor their effectiveness. Did what we chose work as
    we expected? Was it cost effective?
    5. Describe four different types of risk that need to be addressed by the risk manager in a typical
    corporation. Discuss whether each of these four types of risk are equally important across
    different industries.
    1) Pure risksthose where only loss is possible
    2) Financial riskssuch as currency exchange risk
    3) Operational riskssuch as supply chain exposures or critical dependencies
    4) Strategic riskssuch as product development and construction delays
    No, these are not equally important across different industries. For an importer, currency
    exchange risk might be the most significant exposure. For a local restaurant, this is unlikely to
    be a problem.

    Chapter 2: Page 28
    6. Provide an example of an internal and external risk for a large automaker.
    An internal risk for the automaker is possible damage to, or destruction of, their
    production facilities. An external risk is possible problems with their various parts
    suppliers. The Japanese tsunami of 2011 caused production delays at the U.S. plants of
    Japanese automakers because parts could not be shipped from Japan.

    7. Provide two examples of situations in which risk managers are concerned


    about damage to the property of others. A firm might be a bailee, holding the
    property of others in the course of their business, e.g., a storage warehouse, or the firm
    might lease property, such as computers and copiers, and be required by contract to
    insure that property.
    8. Define and provide two examples of tangible and intangible property.
    Tangible property includes all things with a physical presence, such as buildings and
    personal property. Intangible property does not have a physical presence. Examples
    include trademarks and patents, and in an ERM context, supply chains.
    9. What is price risk? In your answer, describe the difference between input
    costs and output costs. Price risk involves changes in the costs of inputs or the price
    at which a firm can sell its products. Input costs are the costs of raw materials and
    other production inputs. Output costs are the prices at which a firm can sell its goods
    or services.
    10. Explain why failures of accounting systems can be considered a financial
    risk or an operational risk in two different organizations. A failure of
    accounting systems might be considered a financial risk in a situation where a firm
    failed to account carefully for its input costs, leading to faulty pricing decisions. A
    failure of accounting systems might be considered an operational exposure when
    failure to detect business crime, e.g., embezzlement, hampered the firms operations.

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