Riskopecredience 10 05 Final_Version

Because we know this      is manageable we
made it our mission to  build the most
effective approach.
25 minutes
Months or Years         vs.


Two Companies in a JV, and one identical
annoucement: the prepared company
suffers very little, the other endures
catastrophic losses!
Shares relative value


What does it take to be
Proactive?
It does not require to plan for every
specific potential disaster.
It does require a well balanced look
into the likelihood of general
scenarios, their potential
consequences.
It does require to plan and act well in
advance.

Case Study: a well managed crisis

Loss of Share value: almost
nil because crisis was perfectly
contained.
Latency is not applicable in
this case

Everything was
finished
in 25 minutes!


It is in the Latency Phase that
the best returns are to be
expected from the analysis:
-of what could go wrong, and how much it
would “cost” the company: Risk
Assessments
-of the means to bring the risks towards a
tolerable level in a sustainable way: Risk
Management
-of how to behave when a residual risk hits,
i.e. Crisis Management

Nowadays media/information
hazards are becoming extremely
acute (image damage).

Potential to worsen
due to a crisis


This is how Operational RM should perform
RISK Mitigative
“Acceptable”
Mitigative
Investment
Threshold

ALARA
ALARP
BACT

Costs to
Zero Risk
Attain
Acceptable
Acceptable
Residual
Residual
Risk
Risk


In other words
For example: we start from

And we invest in order to get to this
Examples:
Buses escort in mountainous private roads for mine access
Checkin procedure for executives at hotels
Behavioral recommendation for people
traveling with sensitive data
Different type of monitoring
Transportation network modifications
Implementing proper crisis communication procedures


Crisis Forecast, November 2008

Duration Probabilities :
30% less than 1.5 years Spring 2010
80% less than 3 years Fall 2011
10% longer than 6 years past 2014

Magnitude Probabilities:
20% present situation will persist
25% significant worsening
55% critical evolution of disservice


Crisis Forecast, November 2008
Crisis' Duration Probabilities
Crisis' Magnitude Probabilities
0.5 Persista Critical
nce of Evolutio
Present n of
0.2 Situatio Disservi
0.3 n ce
Signific
ant
Worseni0.55
0.1 0.1 ng
0.25

36 yrs
Less than 1.5 yrs


Consequences Definition
TThese will be different for
every client/industry or
organization


Example: a company that
services motor vehicles could
have:
-Reduction of 40% of routine services if
the downturn is persistent, i.e. 4 M/yr
-Reduction of 60% of overall billable if
downturn worsens significantly, i.e. 6
M/yr
-Reduction of 30% of overall billable if
downturn has critical evolution, i.e. 3
M/yr

The result: Highest risk does not necessarily mean highest priority!
P

Critical Evolution
Intolerable
Risk: 1.65
0.55 Intolerable: 0.01

Tolerable
0.25 Significant Worsening
0.20
Risk: 1.5
  Persistent
Intolerable: 0.24
Risk: 0.8
Intolerable: 0
C
3  M/years 4 M/years 6 M/years


So, a company that services
motor vehicles will have the
focus in this order:
1) Significant worsening
2) Critical evolution
3) Persistent
Even thus the risk of the critical evolution is higher,
the intolerable part of the significant
worsening is more critical. Possible mitigation:
advertisement and lowered prices right now!

Scenarios will be prioritized
by their intolerable part of risk.

Thus a clear roadmap becomes available.

Transparent decision can be taken
leading to a rational and sustainable
RM/ERM.


Terrorism risks are dealt in the same manner.
(the hazard already exist but the probability changes
because of terrorism!)


The same can be performed
for Financial Institutions
Financial risks linked to debt and investment
management (market & liquidity)
Credit risks: linked to the insolvency of debtors
Operational risks: generated by internal isuues,
fraud, tecnologic mistakes,
But also
earthquakes, fires, flooding,
criminal/terrorist attacks,
electric black-outs and brownouts...

05/11/09

Quantitative ERM with well defined
Tolerability criteria
constitutes the key to an equilibrated
“renaissance” in the aftermath
of the recent economic turmoil.

The next step in evolution is to use
risk as a key decision parameter and to
evaluate long term “risk inclusive”
costs of alternatives

05/11/09

Over the years we have identified
a list of project/alternative
potential risks as follows:


3 phases and a total of five steps
in the life of a project/alternative:
Design/Implementation/Construction
Infrastructure (setting the bases…)
Superstructure (implementing…)
Life/Service
Service (using, developing, …)
Maintenance (repairing, adapting…)
Disposal/demolition (ending, releasing…)

Each step has its own hazards
and related risks…

Each parameter contributes
to the risks of an alternative from
cradle to grave.


NPV's are plain inadequate when integrating
alternatives’ specific risks in the comparison
process.

RBDM enables
users to compare
and evaluate
projects in a
transparent and
objective way.


Riskope & Credience
Allow their client's risk awareness to increase,
meanwhile risks scenarios are evaluated in a
transparent and quantitative way against
clients' own tolerability criteria.
The resulting mitigative recommendation
are clear, sustainable, and easy to communicate

Now more than ever, analytical insight of
enterprise wide risk management is necessary
for any CRO and their company.

05/11/09

This is why Riskope started a strategic alliance
with Credience.
• No other Basel II vendor has built an interface to automate PD,
LGD and EAD modelling.

• Automated Regulatory Capturing (ARC) tool quickly converts
each countries regulations into a hierarchical tree that is used for
treatment of all exposures.

• Rather than just providing a good model, Credience provide
an array of optimised models for greater peace of mind and
accuracy.


-Tools exist and do work
-Experience is eloquent
-We all prefer to succeed rather than fail
-Thinking and fixing before it happens is way
cheaper than fixing afterwards
-Thanks to specific techniques each decision
you make can be supported by
transparent and rational evaluations
-ERM will not eliminate losses but reduce
them and allow for quicker rebound


What can we accomplish?
By using a transparent and sound quantitative
approach we can:

-scientifically select the most significant risks,
-draw attention to the objective highest exposures
(filtering emotional perceptions), and
-prioritize them to allow reasonable mitigation in a very
focused way.

We clearly enhance the ability to prioritize risks
for a rational and sustainable development.

BUT, more
importantly
Create the basis to
avoid a slide into
a crisis, by
proactively
controlling the
situation.


The most logical approach is Risk
Based Decision Making because

Operational risks impact
decisions and Operating
means deciding.


Riskopecredience 10 05 Final_Version

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Riskopecredience 10 05 Final_Version