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Managing international risk Navigating in dangerous waters.

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Presentation on theme: "Managing international risk Navigating in dangerous waters."— Presentation transcript:

1 Managing international risk Navigating in dangerous waters

2 TM Ch 6-2 The impact of risk on corporate goals Governance Corporate Culture Infrastructure Assets & Resources Governance Corporate Culture Infrastructure Assets & Resources Suppliers & Partners Economic Climate Country Characteristics Political Environment Suppliers & Partners Economic Climate Country Characteristics Political Environment Products Goals Internal Risks Corporate controls Information quality Compliance Privacy Communications Security Reputation Ethical Behaviour Internal Risks Corporate controls Information quality Compliance Privacy Communications Security Reputation Ethical Behaviour External Risks Market failures Economic volatility Regulatory climate Accidents Disasters Environmental hazards Cyber attacks Political instability External Risks Market failures Economic volatility Regulatory climate Accidents Disasters Environmental hazards Cyber attacks Political instability Processes Customers Intra-corporate External Environment

3 TM Ch 6-3 A comprehensive view of risk

4 TM Ch 6-4 The risk management cycle

5 TM Ch 6-5 Early warning signs of risk Venture is very different from previous ventures Scope, objectives and deliverables not understood Technology is unproven or immature Expectations for performance are unrealistic Costs, schedules, metrics are absolute or ranges too wide Venture depends on a high R&D component Permits not understood or applied for No contingencies built into planning Participants hedging their bets or not devoting full time and attention

6 TM Ch 6-6 Risk checklist 1 External (unpredictable and uncontrollable) Regulatory Natural hazards Accident, vandalism or sabotage Unanticipated environmental or social impacts as a result of the venture Failure in infrastructure, design, financing or planning Political unrest Threats to health from contamination or disease

7 TM Ch 6-7 Risk checklist 2 External (predictable but uncontrollable) Market risks Operational Environmental or societal impacts Currency fluctuations

8 TM Ch 6-8 Risk checklist 3 Internal (Non-technical but controllable) Management Excessive reliance on one individual Human error Delays due to regulatory approvals, labour shortages, material shortages, unforeseen conditions, accidents, sabotage Cost overruns due to delays Cash flow squeezes Loss of profits or other benefits arising from other risks

9 TM Ch 6-9 Risk checklist 4 Internal (Technical but controllable) Changes in technology, new technologies are too complex Technology does not perform Technology is not able to fulfill the role expected of it Design problems arise Overall complexity is beyond management capabilities

10 TM Ch 6-10 Risk checklist 5 Legal (generally controllable) Licenses Patent rights Contractual difficulties Outsider or insider suits Suits against competitive practices or monopolies Force majeure

11 TM Ch 6-11 Template for charting risks Type of risk Resources at risk Threats Modifying Factors Consequences (to be avoided)

12 TM Ch 6-12 Example of a management dashboard

13 TM Ch 6-13 Main risks faced in developing countries Corruption Inadequate protection of intellectual property Protectionism through tariff and non-tariff- barriers Infrastructure failures Cultural misunderstandings

14 TM Ch 6-14 Managing currency risks Forward contract Futures contract Money market hedge Contractual risk shifting and sharing Pricing adjustments Exposure netting Foreign currency options

15 TM Ch 6-15 Managing country risks Research and planning Foreign financial involvement Risk sharing Planned domestication Good corporate citizenship

16 TM Ch 6-16 Managing commercial risks Evaluation of foreign firm Use of irrevocable letters of credit Payment in advance

17 TM Ch 6-17 Typical risk management strategies Type of riskKey concernsManagers response Currency Unfavourable shifts in value of currencies prior to final settlement Changes in value of foreign assets Unfavourable changes in value of revenue stream Hedging Forward contracts Country Expropriation Discriminatory treatment Market analysis Prior government guarantees Recourse to treaties Commercial Non payment Association with poor reputation Commercial disputes Intelligence gathering Credit checks Seek out references Contract provisions Legal recourse (arbitration, suit in courts) Credit insurance Project risk Cost overruns Delays Implement project management systems Demand performance bonds from suppliers Personnel Security Health Security training Contingency plans Hiring security consultants Medivac and hostage insurance Acts of God (force majeure) Weather damage (storms, sudden changes in climatic conditions, etc.) Environmental damage (earthquakes etc.) Insurance

18 TM Ch 6-18 International assets: a checklist for managers Type of assetKey concernsManagers response Capital Repatriation of profits Repatriation of capital Get special prior government assurances Rely on international treaties and agreements Real estate (land, buildings) Ability to purchase or lease Security against expropriation Valuation Ability to sell freely Buy insurance Get special government guarantees Rely on treaties and agreements Human resources Mobility Physical safety (e.g. against terrorism) Leaks of information Ability to retain Incentives Security measures Intellectual property Unauthorized appropriation (imitation and use without compensation) Unauthorized disclosure Security measures Monitoring marketplace Partnerships What resources to commit to the relationship Unauthorized disclosure Pay close attention to partners Manage the relationship Moveable property and equipment Theft Damage Insurance Security measures


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