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BUS404: Risk Management

Unit 4: Risk Management: Fundamental Tools   *In the prior units, we discussed risks at length from a variety of angles. With this unit, we finally begin the discussion of risk management methods.  The first step to understanding risk management is to learn the basics of the fundamental risk management processes.  In a broad sense, these include the processes of identifying, assessing, measuring, and evaluating alternative ways to mitigate risks.

Fortunately, the importance of this topic (considered by some as THE most important) has resulted in the development of several risk management standards from highly respected organizations such as the Project Management Institute, the National Institute of Science and Technology, actuarial societies, and ISO.*

Unit 4 Time Advisory
This unit should take you approximately 17 hours to complete.

    Subunit 4.1: 2 hours
    Subunit 4.2: 2 hours
    Subunit 4.3: 5 hours
    Subunit 4.4: 6 hours     Reading: 2 hours
    Activity: 4 hours

    Subunit 4.5: 2 hours

Unit4 Learning Outcomes
Upon completion of this unit, students will be able to:
- List the risk management steps. - Identify risks and create a risk map to communicate the importance of each risk on a severity and frequency grid. - Compute the frequency and severity of losses. - Conduct a cost-benefit analysis for loss control. - Consider alternatives available for managing risks based on the frequency and severity of the risks—transferring the risk, avoiding it, and managing it internally with loss controls.

4.1 The Risk Management Function and Process   - Reading: Risk Management for Enterprises and Individuals: “Chapter 4: Evolving Risk Management: Fundamental Tools:” “Section 4.1: The Risk Management Function” Link: Risk Management for Enterprises and Individuals: “Chapter 4: Evolving Risk Management: Fundamental Tools:” “Section 4.1: The Risk Management Function” (HTML)
 
Instructions: Please click on the link above, and read Section 4.1 in its entirety. Also, complete the Discussion questions at the end of the reading.  This reading discusses the role of chief risk officers (CROs) and the risk management process.
 
Reading, note-taking, and answering the discussion questions should take approximately 2 hours to complete.
 
Terms of Use: Please respect the copyright and terms of use on the webpage displayed above.

4.2 Beginning Steps: Communication and Identification   - Reading: Risk Management for Enterprises and Individuals: “Chapter 4: Evolving Risk Management: Fundamental Tools:” “Section 4.2: Beginning Steps: Communication and Identification” Link: Risk Management for Enterprises and Individuals: “Chapter 4: Evolving Risk Management: Fundamental Tools:” "Section 4.2: Beginning Steps: Communication and Identification" (HTML)
 
Instructions: Please click on the link above, and read Section 4.2 in its entirety.  Also, complete the discussion questions at the end of the reading.  This reading discusses how to identify risks using risk profiling or risk mapping techniques.  Carefully study Figure 4.2 in this section.  Note that this reading also covers the information outlined in sub-subunits 4.2.1 through 4.2.4.
 
Reading, note-taking, and answering the discussion questions should take approximately 2 hours to complete.
 
Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

4.2.1 Identifying Risks   Note: This topic is covered by the reading assigned below subunit 4.2.  Focus on the text below the heading “Identifying Risks.”

4.2.2 Risk Profiling   Note: This topic is covered by the reading assigned below subunit 4.2.  Focus on the text below the heading “Risk Profiling.”

4.2.3 Risk Mapping: Creating the Model   Note: This topic is covered by the reading assigned below subunit 4.2.  Focus on the text below the heading “Risk Mapping: Creating the Model.”

4.2.4 Risk Identification and Estimates of Frequency and Severity   Note: This topic is covered by the reading assigned below subunit 4.2.  Focus on the text below the heading “Risk Identification and Estimates of Frequency and Severity.”

4.2.5 Plotting the Risk Map   Note: This topic is covered by the reading assigned below subunit 4.2.  Focus on the text below the heading “Plotting the Risk Map.”

4.3 Projected Frequency and Severity and Cost-Benefit Analysis—Capital Budgeting   - Reading: Risk Management for Enterprises and Individuals: “Chapter 4: Evolving Risk Management: Fundamental Tools:” “Section 4.3: Projected Frequency and Severity and Cost-Benefit Analysis—Capital Budgeting” Link: Risk Management for Enterprises and Individuals: “Chapter 4: Evolving Risk Management: Fundamental Tools:” “Section 4.3: Projected Frequency and Severity and Cost-Benefit Analysis—Capital Budgeting” (HTML)
 
Instructions: Please click on the link above, and read Section 4.3 in its entirety for an introduction to the basic tools for risk-based capital budgeting, including cost-benefit analysis as well as projected frequency and severity.  You will also learn about the Risk Management Information System (RMIS), used to quantify the loss history of an organization and assist risk managers in conducting trend analyses.  Remember to complete the discussion questions at the end of the reading. 
 
Reading, note-taking, and answering the discussion questions should take approximately 2 hours to complete.
 
Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • Assignment: Murray State University: Dr. Larry Guin’s “Capital Budgeting Techniques,” “Managing Risk of the Cash Flow Estimates,” and “The Hurdle Rate” Link: Murray State University: Dr. Larry Guin’s “Capital Budgeting Techniques” (HTML), “Managing Risk of the Cash Flow Estimates” (HTML), and “The Hurdle Rate” (HTML)
     
    Instructions: For this activity, you will be asked to perform several capital budgeting analyses.  To prepare for the assignment, click on the first link above, and read the entire webpage for an overview of capital budgeting techniques.  Then, click on the second link above, and read the entire webpage on “Managing Risk of the Cash Flow Estimates.”  Optionally, you may also decide to read the webpage about “hurdle rate.”
     
    After reviewing all of the resources linked above, revisit the first resource, the “Capital Budgeting Techniques” webpage.  Under the section “A Capital Budgeting Spreadsheet,” make sure to click on the link to download the Excel file, “Capital Budgeting.xls.”  Scroll down to the section titled “Some Sample Capital Budgeting Problems,” and click on the “Shenandoah” link to download the PDF file.  Read the problem statement on the first page of the PDF file.  Answer the questions using the “Capital Budgeting.xls” spreadsheet that you also downloaded.  After you finish, check your answers against the solutions on pages 2-5 of the PDF file.
     
    Return to the “Capital Budgeting Techniques” webpage.  Scroll down to the section titled “Some Sample Capital Budgeting Problems,” and click on “Seal-A-Deal” to download the PDF file.  Read the problem statement on the first page of the PDF file.  Answer the questions using the “Capital Budgeting.xls” that you previously downloaded.  After you finish, check your answers against the solutions on pages 2-5 of the PDF file.
     
    Return to the “Capital Budgeting Techniques” webpage.  Scroll down to the section titled “Some Sample Capital Budgeting Problems,” and click on the “Princess Cruise Lines” link to download the PDF file.  Read the problem statement on the first page of the PDF file.  Answer the questions using the “Capital Budgeting.xls” that you previously downloaded.  After you finish, check your answers against the solutions on pages 2-6 of the PDF file.
     
    This assignment will take you approximately 4 hours to complete.
     
    Terms of Use: Please respect the copyright and terms of use on the webpages displayed above.

4.4 Risk Management Alternatives: The Risk Management Matrix   - Reading: Risk Management for Enterprises and Individuals: “Chapter 4: Evolving Risk Management: Fundamental Tools:” “Section 4.4: Risk Management Alternatives: The Risk Management Matrix” Link: Risk Management for Enterprises and Individuals:“Chapter 4: Evolving Risk Management: Fundamental Tools:” “Section 4.4: Risk Management Alternatives: The Risk Management Matrix” (HTML)
 
Instructions: Please click on the link above, and read Section 4.4 in its entirety to learn about the risk management matrix, which classifies risks based on high and low levels of frequency and severity.  The risk management matrix is a tool frequently used by risk managers in order to identify appropriate management strategies for certain types of risks.  Note that managers should try to avoid high-frequency, high-severity situations.  Remember to complete the Discussion questions at the end of the reading. 
 
Reading, note-taking, and answering the Discussion questions should take approximately 2 hours to complete.
 
Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • Assignment: Mitre’s “Risk Management Toolkit” Link: Mitre’s “Risk Management Toolkit” (HTML)

    Instructions: Please click on the link above, scroll down to the bottom of the webpage, and select the link to download "Risk Matrix 2.20 Software"to your computer.  This is an Excel add-in that allows you to identify, prioritize, and manage risks.  You will need to have Excel installed on your computer and enable macros.  Also, click on the link on the webpage to download the PDF file titled "Risk Matrix 2.20 User's Guide" to learn how to use the software.  After you complete going through the user's guide, use the tool to construct a risk matrix for an activity that you are engaging in currently or in the near future.  Examples include applying to graduate school, organizing a party, and working on a class project.

    This activity should take approximately 4 hours to complete.

    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

4.5 Comparisons to Current Risk-Handling Methods   - Reading: Risk Management for Enterprises and Individuals: “Chapter 4: Evolving Risk Management: Fundamental Tools:” “Section 4.5: Comparisons to Current Risk-Handling Methods” Link: Risk Management for Enterprises and Individuals: “Chapter 4: Evolving Risk Management: Fundamental Tools:” “Section 4.5: Comparisons to Current Risk-Handling Methods” (HTML)
 
Instructions: Please click on the link above, and read Section 4.5 in its entirety for an overview of current risk-handling methods.  Also, complete the Discussion questions at the end of the reading. 
 
Reading, note-taking, and answering the Discussion questions should take approximately 2 hours to complete.
 
Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

Unit 4 Assessments   - Assessment: Pearson Education: George E. Rejda's Principles of Risk Management and Insurance: “Chapter 3: Introduction to Risk Management:” “Self-Assessment Quiz” The Saylor Foundation does not yet have materials for this portion of the course. If you are interested in contributing your content to fill this gap or aware of a resource that could be used here, please submit it here.

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  • Assessment: The Saylor Foundation’s “Assessment for Unit 4” Link: The Saylor Foundation’s “Assessment for Unit 4” (PDF) and “Unit 4 Answer Key” (PDF).
     
    Instructions: Complete this assessment after you finish the readings of Unit 4. Write down your answers before checking with the Answer Key.