Presented by: Erike Young, MPPA, CSP, ARM 1 I would like to thank the following organizations for sponsoring the course, which allows their employees/members to have the registration fee waived: University of California, ERM University Golden Gate RIMS Sacramento RIMS Alaska RIMS Sacramento ASSE Alliant Bickmore Risk Services Montana Municipal Insurance Association 2 1
Instructor: Erike Young Participants 130 participants Higher Education Hospitals State/local government Risk Pools Insurance Consulting Manufacturing Real estate Locations Majority from California/west coast Alaska to Maine Foreign participants Denmark and Morraco 3 Course Schedule 3/14 Introduction and Chapter 1 3/21 Chapter 2 and 3 3/28 No Class 4/4 Chapter 4 4/11 Chapter 5 4/18 Chapter 6 4/25 No Class 5/2 Chapter 7 5/9 Chapter 8 and 9 5/16 Chapter 10 5/23 Chapter 11 5/30 Course Review 2
Recordings For those who cannot attend the live presentations, each webinar will be recorded and typically posted for viewing within 24 hours. I know that due to the different time zones, these recordings are important will get them posted as soon as possible. In some cases, it could be within several hours. The recordings will be made available both on a secured YouTube channel and available for download. Please note that if downloading, the recordings are approximately 60 mbs each. https://sites.google.com/site/armstudygroup/new-arm-54- course-material Scheduling the Exam 85 Multiple Choice Questions 2 Hours 74.55% pass ratio 3
Structured Review How to make the most of this review: Mute the phones Take notes in course guide, but don t waste effort copying slides. (Slides will be available for download) Questions are important. Yet time is limited to cover all of the material. Goal is to cover all chapters in 10 weeks average of 2 chapters per meeting The primary purpose is to pass national exam. Studying the Material SUGGESTION: Read the Educational Objectives in the course guide BEFORE reading the text. Educational Objectives Terms and Phrases Text Exhibits Chapter Summary Optional Course Guide Review Questions Course Guide Application Questions 4
Studying the Material SUGGESTION: Divide material in the text and course guide into units for EVERY Educational Objectives. Have an answer for ALL Educational Objectives Review all exhibits Use same terms and phrases (EX: The text has 4 Pre-Loss Goals and 6 Post-Loss Goals; then so do you!) This course requires memorizing content, not creating NEW examples. Use acronyms to keep the lists separate. Test questions frequently interchange information. KNOW ARM-54 the best the other courses build off concepts delivered in 54. ARM-54 Course Outline ASSIGNMENT TITLE Week 1 - Introduction to Risk Management Week 2 - Risk Management Standards and Guidelines Week 2 - Hazard Risk Week 3 - Operational, Financial, and Strategic Risk Week 4 - Risk Management Framework and Process Week 5 - Risk Identification Week 6 - Risk Analysis Week 7 - Risk Treatment Week 7 - Financial Statement Risk Analysis Week 8 - Capital Investment and Financial Risk Week 9 - Monitoring and Reporting Risk Week 10 Course Review 5
Chapter 1 Introduction to Risk Management 11 6
The Risk Management Environment Traditional Risk Management Associated with accidental losses and/or insurable risk Enterprise Risk Management A holistic view of risk that is much broader and includes all potential risks both internal and external Risk definition for exam uncertainty about outcomes that can be either negative or positive. Page 1.4 7
Role of organization mission and strategic planning in risk management is essential. Page 1.5 Definition of Risk Management The process of making and implementing decisions that enable an organization to optimize its level of risk Can you over control/treat a certain risk? Examples Can you under control/treat a certain risk? Examples Page 1.4 8
Six Step Risk Management Process from old ARM course 1. Identify loss exposures 2. Analyzing loss exposures 3. Examine feasibility of RM techniques 4. Select appropriate RM techniques 5. Implement selected RM techniques 6. Monitor results and revise program I Am Extremely Savvy In Money 17 Categories of Risk Hazard (pure) Risks Operational Risk Financial Risks Strategic Risks Risk Profile A set of characteristics common to all risks in a portfolio 9
The Expanding Risk Universe While reducing the Cost of Risk is one of our primary goals, we are also charged with ensuring that University faculty, staff, students, guests, operations, and assets are appropriately provided proper protection in case of an adverse event. Our development of programs to provide this protection is as diverse as the University itself, and changes and grows as the University does. Recreation & Club Sports* Threat & Security (Enhanced) Threat & Security (Special Risk) Foreign Liability (Enhanced) Environmental Pollution Liability Fiduciary Human Subject Injury Marine Fine Arts Crime Mortgage Impairment Cargo General Liability Licensing Board Representation Registered Student Organizations* Directors & Officers Foundations, Alumni, & Support Groups Workers Compensation Property Employment Practices Marine Pollution Library Builders Risk Auto (Bodily Injury) Professional Liability Terrorism Property Recognized Sports Club* Terrorism GL & PL Indentured Property Aviation Boiler & Machine Camps & Clinics* Vendors & Contractors* University Controlled Insurance Program (Construction) Travel (Enhanced Program) Be Smart About Safety (WC) 2004 2010 Auto (First Party) Be Smart About Safety (GL, Prop, Auto) Cyber & Privacy Liability Tenant Users Event Liability* *Part of CampusConnexions Causes of Evolution of Risk Management High-profile failures Enron and Arthur Anderson Led to Sarbanes-Oxley Act Mortgage underwriting Consumer protection bureau BP and Deepwater Horizon oil spill European failures/response Solvency II Basel III Technology, Globalization and Finance 10
Benefits of Risk Management Addressing Systemic Risk Good example can be found in Peter Senge s book The Fifth Discipline, The Beer Game Systemic Risk The potential for a major disruption in the function of an entire market or financial system Examples sequester, oil prices, etc.. 11
Benefits of Risk Management for Organizations Reduce Cost of Hazard Risk Reduce Deterrence Effects of Hazard Risks Reduce Downside Risk Manage the Downside of Risk Intelligent Risk Taking Maximize Profitability Holistic Risk Management Legal and Regulatory Requirements Benefits of Risk Management for Organizations Reduce Cost of Hazard Risk Cost of Risk is The total cost incurred by an organization because of the possibility of accidental loss. 12
Benefits of Risk Management for Organizations Reduce Deterrence Effects of Hazard Risks Reduces the deterrence effects of uncertainty about potential future accidental losses by making losses less frequent, less severe, or more foreseeable. Reduce Downside Risk Use of stop-loss limits or triggers Manage the Downside of Risk Hedging or buying futures Benefits of Risk Management for the Economy Reduced waste of resources Economic impact of a fire or earthquake on loss of production Japan and impact of Tsunami Improved allocation of productive resources Organizations more likely to take risk to be innovators Reduced systemic risk 13
Risk Management Objectives 14
Risk Management Goals Tolerable Uncertainty Legal and Regulatory Compliance Survival Business Continuity Earnings Stability Profitability and Growth Social Responsibility Economy of Risk Management Operations Risk Management Goals Tolerable Uncertainty Aligning risks with an organization s risk appetite Value at Risk Threshold value such that the probability of loss on a portfolio over the given time horizon exceeds this value, assumes normal markets and no trading. Legal and Regulatory Compliance Standard of care owed to others Contracts entered into by the organization Federal, state, and local laws and regulations Survival Assisted by risk transfer (insurance) for hazard risks Competition, new technology, etc.. 15
Risk Management Goals Business Continuity Identify activities whose operations cannot be tolerated Identify types of accidents that could interrupt services Identification and availability of standby resources Earnings Stability Profitability and Growth Social Responsibility Economy of Risk Management Operations You can buy insurance for anything, issue is how much will it cost. Trade offs among goals can t do everything Measuring Risk 16
Measuring Risk Exposure Any condition that presents a possibility of a gain or loss whether or not an actual loss occurs Volatility Frequent fluctuations, such as in the price of an asset Likelihood Likelihood of an occurrence Can include mathematical probability based on the law of large numbers Consequences Degree to which an occurrence could positively or negatively affect an organization Time horizon Estimate duration Correlation Relationship between variables 17
Subjective and Objective Risk Subjective risk Perceived amount of risk based on an individual s or organization s opinion. Objective Risk The measurable variation in uncertain outcomes based on facts and data. The closer an organization s subjective interpretation of risk is to objective risk, the more effective its risk management plan will likely be. 18
Subjective and Objective Risk Reasons for difference in risks Familiarity and control Air travel vs driving cars Consequences over likelihood Zero probability vs. low probablity It can t happen to me Overstating low probability event Can be due to media event or knowing someone that it happened to Risk Awareness Ostrich defense Diversifiable and Nondiversifiable Risk Diversifiable Risk A risk that affects only some individuals, business, or small groups Building fire affects several buildings Nondiversifiable Risk A risk that affects a large segment of society at the same time Earthquake, hurricane, flood, mortgage industry 19
Focus on source of risk and who manages the risk Enterprise Risk Management Definition: An approach to managing all of an organization s key business risks and opportunities with the intent of maximizing shareholder value The new approach brings discussion about the risks to the board, council and policy decision makers BEFORE decisions are made and events occur. For more info: http://www.ucop.edu/riskmgt/erm/ 20
Page 1.30 Theoretical Pillars of ERM All ERM definitions include concept of managing organization s risk to help meet its objectives Everyone is a Risk Manager UC Irvine Risk Summit Video http://youtu.be/o_-gopfhycq 21
Theoretical Pillars of ERM Interdependency Traditional risk assumes risks are unrelated ERM tries to breakdown silos of management Correlation Correlation increases risks Location of suppliers (ie Japan) Portfolio Theory A portfolio is a combination of risks and their interactions with other risks 22
Must have Implementing ERM Senior leadership support Enterprise Risk Data Risk management process integrated Risk managers with authority to make and enforce changes Effective communication Challenges Technology to share date across system dashboards Blowing up silos Risk management buys insurance HR is responsible for benefits Finance manages investments Operations manages production Safety function focuses on compliance 23
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