Slajd 1

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MINIMALIZING THE RISK
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OUTLINE

• Definition of risk
• Different types of risk
• Minimalising the risk diversification
• Steps in the risk management
• ALARP systems
• Financial risk

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RISK - definition
RISK a chance that an investments actual
return will be different than expected, including
the possibility of losing some or even all of the
original investment.
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Attitudes towards risk

• risk averse people
• risk- neutral people
• risk lover people

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Basic types of risk
Systematic risk
Unsystematic risk

• influences a large number of assets

• affects a very small number of assets

• impossible to protect yourself against it

• you can protect yourself by diversification

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Types of risk

• Credit risk
• Country risk
• Foreign-Exchange risk
• Interest rate risk
• Political risk
• Market risk

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The risk-return tradeoff
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Diversification

• Diversification involves spreading investments
  around into many types of investments, including
  stocks,mutual funds, bonds, and cash
• Diversification reduces the risk of a portfolio.
  It does not necessarily reduce the returns.

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How can you diversify your portfolio?

• Your securities
• should be spread among many different investment
  vehicles such as cash, stocks, bonds, mutual
  funds
• should vary in risk
• should vary by industry

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Steps in the risk management process

• Establish the context
• Identification
• Assesment
• Potential risk treatments
• Create a mitigation plan
• Implementation
• Review and evaluation of the plan

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Establish the context

• Identificaation of risk in a selected domain of
  interest
• Planning the remainder of the process
• Mapping out the social scope of risk management,
  the identity and objectives of stakeholders, and
  the basis upon which risks will be evaluated,
  constraints.
• Defining a framework for the activity and an
  agenda for identification.
• Developing an analysis of risks involved in the
  process.
• Mitigation of risks using available
  technological, human and organizational resources.

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Identification
Source analysis Risk source may be internal or
externa to the system that is the target of risk
management. Examples of risk sourcs are stake
holders of a project, employees of a company or
the weather over an airport
Problem analysis Risks are related to
identified threats. For example the threat of
losing money, the threat of abuse of privacy
information or the threat of accidents and
casualities. The threts may exists with various
entities, most important with shareholders,
customers and legislative bodies such as the
goverment.
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Assesment
RISK RATE OF OCCURENCE x IMPACT OF THE EVENT
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Potential risk treatments

• Risk avoidance
• Risk reduction
• Risk retention
• Risk transfer

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Creation a risk mitigation plan

• Appropriate level of management
• Schedue for control implementation
• Person responsible

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Implementation
Follow all the planned methods for mitigating the
effect of the risks. Purchase insurance policies
for the risks that have been decided to be
transferred to an insurer, avoid all risks that
can be avoided without sacrificing the entitys
goals, reduce others, and retain the rest.
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Review and evaluation of the plan

• to evaluate whether the previously selected
  security controls are still applicable and
  effective
• to evaluate the possible risk level changes in
  the business environment. For instance,
  information risks are a good example of rapidly
  changing business environment.

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ALARP

• As
• Low
• As
• Reasonably
• Practicable

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Financial risk

• Ron Dembo theory
• Disclosure
• Valuation
• Transparency

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Hedging

• Hedging is a strategy designed to minimize
  exposure to an unwanted business risk, while
  still allowing the business to profit from an
  investment activity.

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• A fundamental idea in finance is the
  relationship between risk and return. The greater
  the amount of risk that an investor is willing to
  take on, the greater the potential return. The
  reason for this is that investors need to be
  compensated for taking on additional risk.

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