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INSEAD

MBA Programme

MANAGING RISKS
Instructor: Ayse nler
Office: CII 0.03
Ext: 4511
E-mail: ayse.onculer@insead.edu

Course Description
Managing risks has become a key challenge facing todays managers in business
settings. This course is designed to explore effective risk management tools for
different kinds of business risks. The course consists of three parts: In the first part,
we will talk about identifying and evaluating risks. Various techniques will be
discussed, including decision analysis, fault trees and simulation. In the second part of
the course, we will introduce some concepts in risk management, including risk
communication, negotiations, insurance and the role of financial markets for effective
risk management. The third part of the course will focus on different types of business
risks, namely financial risk, strategic risk, operational risk, management risk and
political risk. Several real-world examples, case studies and simulations will be used
throughout the course to illustrate different applications.

Who should take the course?


The course is intended for those students who want to learn more about different types
of business risks and alternative ways to manage these risks. It is particularly suitable
for those interested in obtaining an overview of different tools for risk management,
without getting into too much technical detail.

Course Requirements
The grades will be based on class participation, two individual case write-ups, a case
presentation and a final project. A breakdown of grading is given below:
Case Presentation (group)
Case Write-Up (individual)
Class Participation
Final Project (group)

20%
20%
20%
40%

Case Presentation (group)


There will be several case studies related to the topics discussed in class. A set of
questions will be provided for these cases. For each case analysis, one or two groups
will be expected to lead the discussion in class. Each student will participate in one
case presentation. No written report is required.

Case Write-Up (individual)


Apart from a case presentation as a group, each participant will choose two other
cases and turn in an individual report (no more than 3 pages long). The report will be
based on the case questions provided beforehand.

Class Participation (individual)


The class sessions will involve a mix of lectures and case discussions. Students are
expected to do the pre-assigned readings and to participate in class discussions.
Absences and nonparticipation in class discussion will be reflected in the class
participation grade.

Final Project (group or individual)


A final project will enable the participants to apply the concepts learned in the class to
a specific problem. The project topic and the methodology is very flexible: You may
examine a problem faced by a specific business, review the current risk management
practices within an industry, design your own case study, compare the analytical tools
with the real-life behavior, etc. A list of previous project topics will be given for
guidance. It is more important to be genuinely interested in the project than whether it
fits into any particular category. The groups will give a brief oral presentation of their
work at the end of the course.

Readings
There is one required textbook, which is assigned as a background reading:
N.N. Taleb, Fooled by Randomness (Texere, 2001)
We will not directly discuss the material in the book during our lectures. Rather, it is
assigned as a text that gives a good background for the material we will cover in class.
It is an easy reading and provides some interesting examples on the role of uncertainty
and risk in business settings.
The required readings for the course are provided in the coursepack.

SCHEDULE OF CLASSES
PART I: RISK ASSESSMENT
Session 1

Defining Risk

Read:

Risk Role Grows to Enterprise Scale, G. Dickinson, 2001.


Back to Basics: Risk Management, Peter Hunt, 2000.
Preparing Managers for Stormy Weather, International
Herald Tribune, May 2002.

Session 2

Quantifying Risk

Read:

A Little Probability Theory, R. Clemen, 1996.


Why Both Bulls and Bears Can Act So Bird-Brained, J.
Fuerbringer, New York Times, 1997.
Pitfalls: Heuristics and Biases, R. Clemen, 1996.
New Computer Tools Apply Numbers to Risk, Herald
Tribune, 2003.

Session 3

Evaluating Risk I

Read:

Decision Analysis, B. Jackson, 1974.


Tooling up for Risk Decisions by K. Vlahos, 2000.

Session 4

Evaluating Risk II

Read:

Decision Analysis Comes of Age, Ulvila and Brown, 1982.


Disciplined Decisions, M. Amram and N. Kulatilaka, 1999.

Case #1:

Mikes Self-Service

Session 5

Evaluation Risk III

Read:
Software:

Simulation as a Decision Aid, 1997.


Crystal Ball

Assignment:

Piedmont Airlines (no written report required)

PART II: RISK MANAGEMENT


Session 6

Risk Communication

Read:

Rx for Risk Communication, S.D. Perry, Civil Engineering,


1996.
Analyzing the Daily Risks of Life, R. Wilson, Technology
Review, 1979.

Case #2:

In the Valley of the Shadow: Responsible-Case and WorstCase Scenarios in the Kanawha Valley, Virginia

Presentation:

Videotape related to the case

Session 7

The Role of Insurance in Risk Management

Read:

Nature of Insurance, Pritchett et al, 1996.


Unprofitable Policies, The Economist, August 2001.
A Fine Romance, The Economist, March 2001.

Case #3:

Bentz-Smith Case

Session 8

The Role of Financial Markets in Risk Management

Read:

Converging Markets & Integrated Solutions, P. Shimpi, 2001.


Special Interests, Erisk OWC, April 2001.

Case #4:

Mid Ocean Limited- Trading Catastrophic Index Options

Hand-in:

Project Proposal ( max. 1 page outline)

PART III: BUSINESS RISKS


Session 9

Operational Risk

Read:

Managing Risk Before It Manages You, K.J. Crocker, 2000.


Managing Operational Risk, Crouhy et al, 2000.

Case #5:

Environmental Risk Management at Chevron Corporation

Session 10

Financial Risk

Read:

The Quest for Precision through VaR, Glasserman, 2000.


Hedging Credit Risk, Crouhy et al, 2000.

Case #6:

Risk Management at Apache

Session 11

Management Risk

Guest Speaker (to be announced)

Session 12

Strategic Risk

Read:

A Note on Identifying Strategic Risk by R.L. Simons, 1998.


Gauging the Power Play in the New Economy,Clemmons, 2000.

Case #7:

Hamilton Financial Investments: A Franchise Built on Trust

Session 13

Corporate Risk Management

Read:

ERM for Financial Institutions, S. Rouyer


Enterprise-wide Risk Management and The Role of the Chief
Risk Officer, J. Lam

Case #8:

Honeywell Inc. and Integrated Risk Management

Session 14

Political Risk

Read:

Note on Political Risk Analysis, Deringer & Wang, 1997


Risky Returns, The Economist, May 20, 2000.

In-Class Exercise:

Delphi Method

Case#9:

Financing the Mozal Project

Session 15&16

Summary of the Course and Class Presentations

Read:

Prospects and Challenges D. Durbin, 2001.


Ten to Watch in 2003, Editorial, erisk.com.

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