1. THE INSIGHT OF RISK MANAGEMENT SEQUENCES THE EDGE OF OPPORTUNITY OR CATASTROPHIC Diane Christina | me@dianechristina.com | 2010

2. Risk vs Value Why would risk averse individuals or entities ever expose themselves intentionally to risk and increase their exposure over time?

3. Risk vs Value They achieve their success not by avoiding risk but seeking it out Google’s Risk Taking Deviation on its’ advertisement charge from industry practices Microsoft’s Risk Taking Designing an operation system for a a personal product Aqua’s Risk Taking Launching a new ‘cheap’ product and different package from industry practices (bottle) (AMDK: Air MinumDalamKemasan)

5. New MarketRisk vs Value TO BE A WINNER OR A LOSER To achieve success, a company must DEALING WITH RISK that give them an advantage over the competition

6. Risk vs Value Successful risk taking depend on HOW we could exploit our exposure on upside risk while managing downside risk PAYOFF TO RISK TAKING

7. Risk vs Value PAYOFF TO RISK TAKING Discounted Cash Flow Model The cash flow from existing investment reflect to the consequences of past decisions on how much risk to take and in what forms

8. Risk vs Value PAYOFF TO RISK TAKING Risk Taking as a Call Option Model Increasing the share of upside risk while restricting the exposure on downside risk Upside of Potential Risk Taking Cost of Taking Risk Risk Taking Downside Risk Taking Potential The Segment on which risk taking create value

9. Risk vs Value PAYOFF TO RISK TAKING Risk and Relative Return Model Calculate the optimal risk taking value and exploiting the risk below the optimal risk taking value Zone 1 Zone 2 Zone 3 Insufficient Risk Taking Excessive Risk Taking Optimal Risk Taking Risk-Adjusted Return Risk

10. Risk vs Value PAYOFF TO RISK TAKING Bowman Paradox (Discrepancy of risk/return trade off) Firms that earned below the target level became risk seekers and the relationship between risk and return was negative, whereas returns and risk were positive correlated for firms earnings above target level returns NEGATIVE

11. Risk vs Value PAYOFF TO RISK TAKING THE CONCLUSSION: Firms that are selective about the risks they take can exploit those risks to advantage, but firms that take risks without sufficiently preparing for their consequences can be hurt badly MEANS: Companies should assure that they develop a sensible risk assessment, where firms can pick and choose from across multiple risks those risks that they stand the best chance of exploiting for value creation

12. LINKAGE YOUR RISK AND STRATEGI DEVELOPMENT Achieving the optimum value with your risk management implementation

13. Fully integrated proactive risk management system approach STRATEGY PYRAMID

14. Fully integrated proactive risk management system approach * * * BUILDING SUCCESSFUL RISK TAKING ORGANIZATION * * *

17. Fully integrated proactive risk management system approach Risk Averse Too focus on firm’s specific risk More balanced risk taking Consider the right type of risks Decision Makers (Manager)”s Equity Owned Too little risk taking Ensure manageable downside risk Expose on the RIGHT risks for the RIGHT reason

19. Seek out Good Risk Taker who tend to be realistic in their assessment of success and failure and confident in their capacity to deal with the consequences Individuals often make bad decision when faced with risk because the possibility of losses SKEW their decision making process

22. Process

24. Conclusion The essence of risk management is deciding which risks to exploit -not avoiding or eliminating risk- To exploit risk, company need an edge over the competitors who are also exposed to same risk 5 scheme to exploit risk: Having timely and reliable information to mapping out the action plan in response to risk Using right speed of the response to risks Learning from past experience and knowledge on the response to risks Having adequate resources on capital, technology, personnel in response to risk Having a flexibility on operating, production, financial to build the action plan in response to risk Building a good risk taking organization align with their strategy

25. References New York University. Stern School of Business, Paper on Strategic RiskManagement Chen, M. and D.C. Hambrick, 1995, Speed, Stealth and Selective Attack: How Small Firms Differ from Large Firms in Competitive Behavior, The Academy of Management Journal Journal of Financial Economics, 1999. Cohen, R., B.J. Hall and L.M. Viceira, 2000, Do Executive Stock Options encourage Risk-taking? Working Paper, Harvard Business School Low, A., 2006, Managerial Risk-Taking Behavior and Equity-based Compensation, Working Paper, Ohio State University

26. THE SEQUENCES: RISK MANAGEMENT INSIGHT THE EDGE OF OPPORTUNITY OR CATASTROPHIC ASSESS THE RISK AND TAKE THE OPPORTUNITY: PRACTICAL GUIDELINE BE THE WINNER: BEYOND SUSTAINABLE IN BUSINESS OF UNCERTAINTY GREEN YOUR LIFE: IMPLEMENT ENERGY RISK MANAGEMENT Diane Christina | me@dianechristina.com | 2010