1. Professor David Hillier
MDP Risky Business
Professor David Hillier

2. What is Risk?
Overview of Lecture

3. Dimensions of Risk Outcomes Range Probability Nature of Risk
Narrow/Broad
Limited/Unknown
Probability
Easy to Predict
Hard to Predict
Nature of Risk
Qualitative
Quantitative

4. Making Risk Decisions Priority for Action High
Put in Place a Contingency Plan
Put in Place Controls to Minimise Exposure
Probability
No Action Required
Low
Low
High
Impact

5. The Risk Model of a Business
Economic Environment
Domestic
Global
Physical Resources
Market
Opportunities
Political Climate
Social Factors
Business
Model

6. What are the risks a business could face?
Business Risks
What are the risks a business could face?

7. Business Risks Economic Environment Domestic Global Political Climate
Credit
Market
Liquidity
Systemic
Domestic
Global
Country
Political
Legal/Regulatory
Accounting
Political Climate
Physical Resources
Market
Opportunities
Environmental
Operational-Technology
Social Factors
Business Risk
sourcing, production, selling, competition
Industry Risk
Business
Model
Operational- people
Corporate Governance
Reputational

8. Market Risk
Interest Rate
Commodities
Foreign Exchange
Equities

9. Credit Risk
The risk that a counterparty may not pay amounts owed when they fall due

10. Liquidity Risk
The risk that amounts due for payment cannot be paid due to a lack of available funds

11. Operational Risk
The risk of loss due to action on or by people, processes, infrastructure or technology or similar which have an operational impact including fraudulent activities

12. Legal/Regulatory Risk
The risk of non-compliance with legal or regulatory requirements

13. The risk that the reputation of a business will be seriously affected.
Reputation Risk
The risk that the reputation of a business will be seriously affected.

14. Interconnected Risks Changes in FX, interest rates, funding Credit
Market
Funding Requirements
Corporate Governance
Resource Availability
Documentation

15. The Risk Process in Business
Stage 1
Identify
Stage 2
Measure
Stage 3
Manage

16. Risk and Banking Go over risk and return and managerial objectives
Upside Risk
Risk
Downside Risk
Return
Go over risk and return and managerial objectives