1. Copyright © Texas Education Agency, 2012. All rights reserved. Risk Management Fundamentals Statistics & Risk Management 1

2. Copyright © 2012 Texas Education Agency. All rights reserved. “Copyright and Terms of Service Copyright © Texas Education Agency. The materials found on this website are copyrighted © and trademarked ™ as the property of the Texas Education Agency and may not be reproduced without the express written permission of the Texas Education Agency, except under the following conditions: 1)Texas public school districts, charter schools, and Education Service Centers may reproduce and use copies of the Materials and Related Materials for the districts’ and schools’ educational use without obtaining permission from the Texas Education Agency; 2) Residents of the state of Texas may reproduce and use copies of the Materials and Related Materials for individual personal use only without obtaining written permission of the Texas Education Agency; 3) Any portion reproduced must be reproduced in its entirety and remain unedited, unaltered and unchanged in any way; 4) No monetary charge can be made for the reproduced materials or any document containing them; however, a reasonable charge to cover only the cost of reproduction and distribution may be charged. Private entities or persons located in Texas that are not Texas public school districts or Texas charter schools or any entity, whether public or private, educational or non-educational, located outside the state of Texas MUST obtain written approval from the Texas Education Agency and will be required to enter into a license agreement that may involve the payment of a licensing fee or a royalty fee. Call TEA Copyrights with any questions you have.

3. Copyright © Texas Education Agency, 2012. All rights reserved. Financial Risk Management The practice of creating economic value in a firm by using financial instruments to manage exposure to: The practice of creating economic value in a firm by using financial instruments to manage exposure to: Credit Risk Credit Risk Market Risk Market Risk 3

4. Copyright © Texas Education Agency, 2012. All rights reserved. Organizational Context What is the Organization's Mission? What is the Organization's Mission? – Must address the problem of protecting itself against changes that can place the pursuit of this fundamental objective “at risk”. 4

5. Copyright © Texas Education Agency, 2012. All rights reserved. Identify Weaknesses Do you have Specific Weaknesses? Do you have Specific Weaknesses? – Weak Management team – Cash Flow Issues – Over Budgeted Expenses – Work Force Shortages – Intense Competition 5

6. Copyright © Texas Education Agency, 2012. All rights reserved. Risks Inherent To: External Context External Context – Laws and regulations – Markets and competition Operative Management Operative Management – Contract compliance – Market share – Labor, skills, and personnel losses – Environmental factors Financial Management Financial Management – Account collections – Exchange Rates – Liquidity http://www.ewf.be/media/documentosDocs/doc_16_ew f-644-08-fundamentals-of-risk-management.pdf http://www.ewf.be/media/documentosDocs/doc_16_ew f-644-08-fundamentals-of-risk-management.pdf 6

7. Copyright © Texas Education Agency, 2012. All rights reserved. Identify Change What is driving the change? What is driving the change? – Opportunity – Government – Economy – Marketing – Financing 7

8. Copyright © Texas Education Agency, 2012. All rights reserved. Risks Consequences 8 Why Money Loss? Why Money Loss? Revenue Falls Short Revenue Falls Short Escalating Expenses Escalating Expenses Judgments, Fines, and Penalties Judgments, Fines, and Penalties Security Breaches Security Breaches Why Time Loss? Why Time Loss? Limited Human Resources Limited Human Resources Limited Expertise Limited Expertise Why Money Loss? Why Money Loss? Revenue Falls Short Revenue Falls Short Escalating Expenses Escalating Expenses Judgments, Fines, and Penalties Judgments, Fines, and Penalties Security Breaches Security Breaches Why Time Loss? Why Time Loss? Limited Human Resources Limited Human Resources Limited Expertise Limited Expertise

9. Copyright © Texas Education Agency, 2012. All rights reserved. Calculate Probabilities Comparison within Organization Comparison within Organization Comparison within Industry Comparison within Industry 9

10. Copyright © Texas Education Agency, 2012. All rights reserved. Calculate Risk Seriousness of Consequences Likelihood of Change 10