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Managing Enterprise Risk
By:
Mr.Khurram Sultan
Cihan University – Business Administration Department
E-mail: k.sultan@msn.com
Dr. Nasrat Abdalraheem Madah
Cihan University – Business Administration Department
E-Mail: nasrat_a_rawi@yahoo.com
Abstract:
The aim of this research is the applications of Enterprise Risk Management (ERM) process
at United Grain Grower Enterprise in Canada as a case studied. Its problem is determined by
the following question: how can we describe the risk faced by UGG, and what are the applied
enterprise risk management processes used to deal with those risks?
Within this research we used a specific model represented by case study analysis to answer
the above question, which require many steps to cover the different meanings of risk and state
the basic theoretical sections related to Enterprise Risk Management process. As well as
analysis of the case studied and determining the ERM processes used, and comparing the
related results.
The main Conclusion of this research is: There are different alternatives that can be used by
any enterprise to manage its risks such as integrating enterprise risk management policies into
company's core values, performing risk analysis, and implementing various strategies to
minimize risk.
Introduction:
This research is divided into four chapters. In the first one, we discuss the research
methodology by showing the research problem and importance, its objectives and
hypotheses. In the second chapter, we study the theoretical section which explains the
concept of risk and different ERM processes and methods.
In chapter three, we introduced the empirical section of this research by stating data required
and its analysis in order to determine ERM tools used by UGG, and explain why it selected
such tools, as well as the data analysis and the results. In addition, we will summarize the
conclusion that can be drawn from the information presented in the previous chapters; this
will present the final chapter, the research conclusion.
Finally, we listed a group of references used to achieve the objectives of this research.
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Chapter 1: Research Methodology:
This chapter will summarize the general background of the research by stating the research
problem, importance, objectives, hypotheses, and model.
1.1 Research Problem and Importance:
1.1.1 Research Problem:
Today’s enterprises face many types of risks represented by uncertain events and situations
in business environment. Such events may effect positively or negatively the ability of these
organizations to achieve overall goals and objectives. These, effects may also become the
major reasons behind the survival of these organizations. That explains the necessity for any
enterprise risk management to deal with different methods to reduce the uncertainty levels by
reducing the frequency and severity of any possible risky event.
Thus, enterprise risk management methods will enable organizations to avoid or eliminate
their risks, and achieve superior position in marketplace by achieving satisfaction of all other
parties (employees, customers, suppliers, sister divisions, and so forth). That means we can
understand that risk can’t be totally eliminated but only minimized to some extent through the
utilization and implementation of the right tools, methods, and processes of enterprise risk
management.
According to the previous discussion we can demonstrate the problem of this research by the
following question:
How can enterprises manage their risk? In other words, what are available alternatives that
can be used by any enterprise to achieve best transactions with risky circumstances to obtain
better possible outcomes?
1.1.2 Research Importance:
We can easily introduce our answer to the question surrounding the importance of this
research according to the following points:
1. The importance of the subject studied, managing enterprise risks, since it discusses many
important issues which cover the basic techniques used in managing enterprise risks.
2. The importance of ideas included within the theoretical section of this research to others.
3. The outcomes and results that can be obtained from the subject studied.
1.1.3 Research Hypotheses:
We can present the following hypotheses as an answer to the previous question which was
shown in the research problem:
There are different alternatives that can be used by any enterprise to manage its risks such as:
1. Integrating enterprise risk management policies into the company’s core value.
2. Performing risk analysis.
3. Implementing various strategies that achieve marginal benefits more than marginal
cost to minimize risk.
The testing of the research hypotheses will be represented according to a certain model used
within the research that will be discussed in later paragraphs.
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1.1.4 Research Objectives:
The objectives of this research are demonstrated by the following points:
1. Presenting a thorough theoretical coverage to the subject studied (enterprise risk
management) by discussing the meaning , types of risk, methods and processes used
to deal with enterprise risk, as well as other related subjects.
2. Used case study about real enterprise (United Grain Grower) as a tool to answer
research problem question.
3. Determining the types and levels of risks faced by the enterprise represented in the
case studied, and the steps used to minimize the effects of these risks.
4. Obtaining satisfying results to the research in an appropriate manner that consists with
the problem studied and hypotheses of this research.
1.1.5 Research Model:
In order to achieve objectives of this research and test the validity of its hypotheses, we
depended on a certain model that includes the following steps:
1. Introducing theoretical sections required to cover the subject studied.
2. Selecting a case study about a real life enterprise, and introducing an overview of its
history and work.
3. Analysing the case studied and defining the implemented enterprise risk management
methods.
4. Analysing the outcomes of the methods and processes used.
5. Accepting or rejecting our research hypotheses according to special comparison
between actual practises of ERM and theories.
6. Summarizing the basic conclusion of this research.
Chapter 2: Theoretical Section:
This chapter summarizes the theoretical section in this research, which demonstrates the
various definitions of risk, the different processes and methods used in risk management, and
take an in-depth review of Enterprise Risk Management (ERM).
2.1 Overview of Risk and its Management:
2.1.1 Different Meanings of Risk:
The term risk has many meanings in our everyday life and business; generally it can be
described as any situation surrounded by uncertainty about what outcome will occur.
Financial and investment management describe risk as an indication to the possible
variability in outcomes around some expected value (Harrington and Niehaus; 2004; 1).
While in other cases risk can refers to the expected losses associated with specific events. It
can be defined as the combination of the probability of an event and its consequences
(http://www.theirm.org).
According to the above discussion, Figure (1) explains that the term risk can be used in
specific sense to describe the variability around the expected value and other times to
describe the expected losses.
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Risk
Uncertainty
The order or nature
of things is unknown
And / Or
Expected loss
The amount of loss
an average firm
reports annually
Figure (1): Two different meanings of risk.
Source: Created by the researcher according to references used in this research.
Regardless of the different meanings of risk, it is closely tied with cost and higher expected
losses that can be found in two different forms; direct and indirect expected losses. For
example, if a factory’s warehouse is burned by a fire, the direct loss should be equal to the
value of destroyed facilities and goods. While, indirect losses arise as a consequences of the
direct loss, such as delays in production because of the lack of storage facilities, or the cost of
renting another warehouse instead of the destroyed one (Booth, 2000, 44).
In general, we can determine the different types of indirect losses according to figure (2).
Loss of normal profit
(net cash flow)
Extra operating expenses
Higher cost of funds and
forgone investment
Bankruptcy costs
(legal fees)
Figure (2): Types of indirect and direct losses.
Source: Harrington and Niehaus; 2004; 3.
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Finally, we can look about risk management cycle and process according to the following
steps and we reveal these steps and relationship between them in figure (3):
1. Establish a risk management group and set goals.
2. Identify risk areas.
3. Understand and asses the scale of risk.
4. Develop risk response strategy.
5. Implement strategy and allocate responsibility.
6. Implementation and monitoring of controls.
7. Review and refine processes if needed.
Establish risk
management
group and set
goals
Identify risk
areas
Review and
refine processes
Understand and
asses scale of risk
Information for
decision making
Implementation
and monitoring
controls
Develop risk
response strategy
Implement
strategy and
allocate
responsibilities
Figure (3): The risk management steps and relations between them.
Source: Collier; 2009; 58.
2.1.2 Risk Management Methods and Costs:
2.1.2.1 Risk Management Methods:
According to the risk management literatures, we can define three major methods used
when managing risks as below:
1. Loss Control: Concerned with reducing the level of risky activity, and increased
precautions, is also known as risk control, and defined as actions that aim to reduce
the frequency and severity of losses. Risk management activities which reduce the
frequency of losses is labelled as loss prevention. For example the inspection of the
train rails form time to time that could significantly reduce the frequency of train
accidents. On the other hand, risk management activities that affect the severity of
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losses are called loss reduction. Such as installation of a sprinkler system in an office
can reduce the damage caused by a fire breakout. Generally, many types of loss
control methods influence both the severity and frequency of losses.
2. Loss Financing: A way of getting funds to finance and pay for losses that could
occur, including retention, insurance, hedging, and other contractual risk transfer.
Retention means that a company holds the responsibility to pay for all or part of the
losses; retention is also known as self insurance. Insurance is a contract between two
parties where the insurer promises to pay for a specified loss, in exchange for
receiving a premium from the insured. Insurance contracts can reduce risk for the
insured, by transferring the cost of risk to the insurance company. While, we use
hedging to manage price risk by using financial derivatives such as forward, swaps
and options. It is mainly used to deal with losses that occur as a result of changes in
interest rates, and commodity prices. Finally, other contractual risk transfers allow
businesses to transfer risk to another party. Like insurance contracts and derivatives,
the use of these contracts also is pervasive in risk management. for example,
businesses that engage independent contractors to perform some task routinely enter
into contracts, commonly known as hold harmless and indemnity agreements, that
require the contractor to protect the business from losing money from lawsuits that
night arise if persons are injured by the contractor (Venette, 2003, 56).
3. Internal Risk Reduction: refers to diversification, and investment in information.
Diversification refers to reducing risks by diversifying activities, for example a
person should invest his money in more than one place, to avoid the risk of losing it
all. The second method of reducing risk internally is through investment in
information,
more
information
leads
to
more
accurate
forecasts.
(http://www.crra.org).
2.1.2.2 Risk Management Cost:
Regardless of the type of risk being considered, the cost of risk has five main
components, expected cost of losses, cost of loss control, cost of loss financing, cost of
internal risk reduction, and the cost of residual uncertainty. Table (1) illustrates these five
types of cost in more details.
There are three major types of tradeoffs exist among components of risk cost, which are those
between the expected cost direct/indirect losses and loss control losses, the cost of loss
financing/internal risk reduction and the expected cost of indirect losses, and finally the cost
of loss financing/internal risk reduction and the cost of residual uncertainty.
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Table (1): The five types of cost of risk management.
Types of Cost
Expected cost of losses
Cost of loss control
Cost of loss financing
Cost of internal risk reduction
Cost of residual uncertainty
Description
Includes both the expected cost of both direct (cost of repairing)
and indirect losses (loss of profits from forgone investment), that
occur as consequence of direct losses.
Refers to the extra limitations on risky activities and precautions
taken to minimize the frequency and severity (which will be later
discussed) of accidents. For example the cost of testing a
consumable product for safety prior to its release into the market,
in addition to any loss in profit from decreasing the distribution of
the product to reduce the probability of liability law suits.
Includes the cost of self insurance, the loading in insurance
premiums, and the transaction costs in arranging, negotiation and
enforcing hedging arrangements and other contractual risk
transfers. The cost of self insurance includes reserving funds to pay
for losses; this cost includes return on income from investing these
funds. Also the cost of lost opportunity that can occur if
maintaining reserve funds reduces the ability of investing in
profitable ventures.
Includes transaction cost associated with achieving diversification
and the cost of managing a diverse set of activities that aim to
reduce the risk exposure. It also includes the cost of obtaining and
analyzing data and other types of information to obtain more
accurate cost forecasts.
This cost arises because ambiguous and uncertain situations are
generally costly to risk adverse individuals and inventors, also
known as risk avoiders. For example residual uncertainty might
reduce the price cautious customers are willing to pay for the
firm’s products.
Source: Created by the researcher according to the references used in this research.
2.2 Enterprise Risk Management:
Most corporate risk managers believe that pure risk, such as liability suits, property
damages, and worker injuries which are usually managed by loss control, and loss financing
methods, is the essence of risk management. but financial managers refers to risk as price risk
such as interest rate risk, and exchanging rate risk, which are usually managed by derivative
contracts (bonds, options, futures, and swaps).
In all cases, to manage corporations risk we have two basic alternatives; aggregate and
disaggregate approaches. Thus, by using disaggregate approach we manage risks or
exposures separately. While we bundle sum of exposures when we manage our corporations
risk according to aggregate approach. Traditionally, risk management has taken a
disaggregated approach. Pure risk managers focused their attention on individual sources of
risk. Financial risk managers focused their attention on other sources of risk. The respective
managers would attempt to reduce risk from individual exposures without considering the
interactions among the various sources of risk. But many of the arguments for why firms
should reduce risk suggest a more aggregate focus. For example, the progressive tax rate
argument implies that firms should focus on taxable income, which depends on many sources
of risk, including property losses, exchange rates, and so on. This means that with aggregate
approach firms need to consider interactions between the various sources of risk. Then, the
aggregate approach was developed into what is known as Enterprise Risk Management
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(ERM), which we will cover in the following paragraphs by discussing, the essentials and
structure of ERM, components and levels of Enterprise Risk and modern ERM to achieve a
clear understanding which will be used in the analysis of the case studied within the next
chapter.
2.2.1 Essentials of Enterprise Risk Management:
The Casual Actuarial Society (CAS) committee on Enterprise Risk Management has
adopted the following definition of ERM: it’s a discipline by which an organization in any
industry, assesses, controls, exploits, finances, and monitors risk from all sources for the
purpose of increasing the organization’s short and long term value to its stakeholders
(http://www.casact.org).
ERM is a risk-based approach for managing an enterprise, integrating concepts of Strategic
planning, operations and performance management as well as internal control. it is
continually evolving to address the needs of various stakeholders, who want to understand the
broad spectrum of risks facing complex organizations, to ensure they managed and monitored
there risk appropriately. is an approach that is equally important to the board of directors and
to operational managers linking together risk management with business strategy and embeds
a risk management culture into business operations, and encompasses the whole organization
and seeks to foster a change in the culture of the organization towards one where risks are
considered as a normal part of the management process (Chong; 2004; 49, and Morley, 2002,
78).
World-class ERM includes a framework of the following components:
1. Risk management structure: to facilitate the identification and measurement of risk.
2. Resources: to support effective risk management.
3. Risk culture: to strengthen decision-making processes by management.
4. Tools and techniques: to enable the efficient and consistent management of risks
throughout the organization.
The structure of Enterprise Risk Management processes comprises five steps, they are:
1. Establish the goals and context for ERM.
2. Identify risks.
3. Analyse risks in terms of likelihood and estimate the level of risk faced.
4. Evaluate risks.
5. Treat risks with the most suitable options (Saunders and Cornet; 2006; 179).
Figure (4) demonstrates that risk management process is ongoing process depending on
continuous communication, monitoring and the review which are inter-related operations
with all five steps included within risk management process.
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Figure (4): The risk management process.
Source: www.ncsi.com.au.
2.2.2 Components of Enterprise Risk:
Enterprise risk varies according to the type, nature, and entity of the business in addition
to other factors it consists of three main components:
1. Business risk: refers to failures faced by an organization to compete and operate
successfully in its environment, such risk can suddenly occur or arise over time. There
are many factors that can cause business risk. For example, failure to update a product
or service, inability to keep up with technological advances, and customer preferences
may change over time. For more detailed example1, we will introduce the case of
Daimler and Chrysler which is a company that suffered a business risk loss: In 1998
Daimler exchanged stock worth $38 billion to merge with Chrysler Corporation. After
investing billions of dollars in Chrysler over a 10-year period, it sold the bulk of the
firm to Cerberus for less than $8 billion. It is likely that it used a thorough acquisition
analysis that considered the possibility of such debacle. Thus, the synergies and
shared technologies between Daimler and Chrysler did not materialize, and the clash
of culture proved to be disastrous. Daimler failed to merge the distinct German
corporate culture with the proud but troubled executives and workers in Detroit.
2. Financial risk: it refers to the lacks of required and adequate funds that organizations
need to perform their operations. The problem can be caused by inadequate initial
1
For more details about this and following examples see: Hampton; 2009; 6-8.
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capitalization or from cash flow operations, in addition customers may fall short in
paying their bills or creditors can tighten lending requirements. An organization may
have excessive debt obligations relative to its assets values and cash flows and high
interest costs. We can state the following case which compares between Webvan and
Amazon Company for more details on financial risk. In the 1990s, the two company
entered the online area for consumer products. Amazon.com started operations in
1995, selling books via the internet, and then diversified to sell other products.
Webvan was an online food business that accepted internet orders and delivered
grocery products to customers. Amazon succeeded in its venture and became the
largest online retailer in the world. Webvan ran out of money and filed for bankruptcy
in 2001. ERM analysis shows key differences: both companies needed considerable
capital, but the financial risk was much greater for Webvan. one part of the exposure
was of its own making, Webvan signed a one billion dollar contract with Bachtel to
build warehouses, purchased a fleet of vehicles, and spent a large sum of money on
computer equipment. While, the second part was the difference in markets between
Amazon and Webvan. The expensive delivery of Webvan squeezed the profits from
the grocery business. Webvan was doomed by a combination of tight cash flow
accompanied by capital inadequacy. That is the fact that financial risk can cause many
complications and lead to financial distresses and may be bankruptcy.
3. Hazard risk: is exposure to risk resulting in loss without the possibility of gain. This
type of risk is insurable. For example, damaged assets such as destroyed buildings or
warehouses caused by a fire, physical injury to employees, or even customers and
unrelated third parties resulting in law suits and liability claims. Note that hazard risk
is related to both business and financial risk, because its occurrence can cause both
business and financial damage. Again we selected special example to explain the
concept of hazard risk, it is the case of Philips, Nokia, and Ericsson . Lightning struck
a Philips Electronics N.V. Semiconductor fabrication plant in New Mexico in March
2000, starting a small fire that was quickly extinguished. Nobody was hurt, and
damage was minor. The plant was the only source of microscopic circuits for cell
phones. Forty percent of production went to Nokia and I.M. Ericsson. In addition to
the trays of wafers that were destroyed in the fire, production was interrupted. After
the fire, Philips alerted 30 customers that a fire had taken place and that production
had been stopped. Philips also estimated the time delay prior to restarting production,
telling customers that a one-week delay was expected. The actual delay turned out to
be much greater. In response to the news, Nokia behaved in accordance with the
individualistic and aggressive culture of Finland. It demanded to know all details of
Philips’ operations so that other factories could be used to supply microchips. It put
the search for microchips into a critical-risk category. The result was almost no
disruption of deliveries to customers. Ericsson was a different story. It behaved more
in accordance with the consensual and laid-back culture of Sweden. Lower-level
employees did not tell the head of production about the delay for several weeks.
When Ericsson finally requested help from Philips and other suppliers of microchips,
it learned that Nokia had locked up all spare capacity. For Philips, the losses were in
the range of $1 million to $3 million after $40 million in lost sales were offset by
business interruption insurance. For Nokia, some additional costs were offset by a 3
percent rise in market share as it replaced Ericsson in some markets. Ericsson was the
big loser, suffering a $2.3billion loss in its mobile phone division in 2000,
accompanied by a withdrawal from the market, in April 2001. Finally, this case
indicates that no loss is small when an organization does not understand the
relationships among risks.
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Thus, we can easily agree that ERM recognizes that some risks are serious and some are not.
A large loss involves the destruction of a majority of assets, an unbearable financial loss, and
an inability to continue operation. It produces a near-term, if not immediate, bankruptcy and
dissolution of the enterprise. A critical or major loss seriously hampers a company’s ability to
do business. An example is the collapse of a major operating unit or product line, followed by
a substantial financial distress that could lead to bankruptcy. Lesser losses might be
significant reducing current year earnings or minor hurting an operating unit but not
impacting financial statements
In order to complete the above discussion we need to mention that we can achieve risk
reduction by reducing the severity and/or frequency of losses. Severity resembles the
magnitude and size of the loss or damage, a medium-high or high severity loss can cause
many damages and business disruption, to people, assets and reputation. While, a mediumlow or low severity will usually cause less damage, which can be dealt with in most cases
easily. Frequency refers to likelihood of the occurrence of a loss and how many times it
occurs. Some losses, like vehicle accidents, are fairly frequent and predictable. Some
potential losses are so remote that we cannot imagine how they would happen.
(http://www.businessdictionary.com).
Figure (5) shows a graph of frequency and severity. As we move up and to the right on the
graph, we increase the danger to the enterprise. Low-frequency and low-severity exposures
are not of much concern. High-frequency and high-severity exposures can produce disastrous
consequences.
High
Increasing risk
Severity
Low
Low
Frequency
High
Figure (5): The effect of Severity and Frequency on risk levels.
Source: Hampton; 2009; 10.
2.3 Modern Enterprise Risk Management:
Comparing to traditional risk management, enterprise risk management has transformed
into a broader more complicated concept by covering four main areas. According to (Moeller;
2009; 31-32). we can state the four main areas of modern enterprise risk management as
following;
1. Hazard risk management: to assess hazard risk managers follow a five step process
including: Identify the exposures, assess the frequency and severity of the exposure,
identifying alternatives, choosing the best option and implementing it, and monitor the
implemented options to perform adjustments when needed. Note that this process sets up both
preventive and crisis risk management (Coombs, 2004, 98).
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2. Internal Control: all companies have processes called internal control that make sure
policies are being followed effectively. It helps in improving efficiency and effectiveness,
make financial reporting more reliable, and ensure the compliance with laws and regulations.
Internal control systems are common among most organizations, particularly, in industries
regulated and controlled by government agencies.
3. Internal Audit: it adds further cover that internal controls are working. This approach is
not risk management; it focuses on the effectiveness and efficiency of all internal processes
including risk management. From a risk manager’s perspective, internal audit is a process
that focuses on whether risk is being actually avoided, reduced or transferred. The internal
audit team monitor and examine operating activities, insure consistency of procedures and
compliance with regulations. Finally, the audit team present a report to management
determining any weaknesses and failures to meet and comply with policies.
4. Regularity Compliance: This refers to efforts to ensure conformity with official
requirements imposed by statutes, public agencies, or the courts. Such as rules governing
plant safety, environment, reliable financial reporting, and compliance with social and
economic conditions. Many organizations have a single compliance unit or officer who
interprets directives, laws and regulations, offers education and training, and recommends
processes to conform to regulations.
Finally, modern risk management is extended from traditional risk management, and built
upon its solid foundation, which provides organizations by a number of tools and procedures
to use when dealing with enterprise risk.
2.4 Risk Retention and Reduction Decisions:
Risk retention is a risk management strategy under which a decision maker assumes all or
part of a risk, instead of buying partial or full insurance or transferring risk by hedging. It’s a
method of self-insurance whereby the organization retains a reserve fund for the purpose of
offsetting unexpected financial claims (http://www.businessdictionary.com).
Table (2): summarize the potential savings from increasing retention to a firm and how to
achieve each one of these benefits.
Table (2): Potential savings from increasing retention.
Possible benefits
How to achieve
Additional retention enables is the ability to
1. Savings on premium loadings.
save on some of the administrative expenses and
profit loadings in insurance premiums, thus
reducing the expected cash outflows for these
loadings. Specific sources of savings include
lower commissions to insurance brokers,
possible savings in underwriting expenses and
administrative costs of claim settlements, and
savings in state premium taxes.
2. Reducing exposure to insurance Further motivation to increase risk retention has
been the desire to reduce their vulnerability to
market volatility.
annual swings in insurance prices due to the
effects of shocks to insurer capital on the supply
of insurance or the insurance underwriting
cycle. Loss financing is part of a long term
business strategy. Once a firm decides to insure
a particular exposure, it may be costly to change
its strategy in response to an insurance price
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3. Reducing moral hazard.
increase. As a consequence, the purchase of
insurance can lead to the perverse result, even
though the purpose of purchasing insurance
generally is to reduce uncertainty in cash flows,
the volatility in insurance prices can cause
uncertainty to the firm.
Deductibles reduce moral hazard, without these
contractual provisions, expected claim costs
would be higher and therefore so would
insurance premiums. Consequently, when moral
hazard is more of a potential problem, firms
tend to retain more risk.
4. Avoiding high premiums caused The insurers find difficulties in precisely
estimating claim costs for all potential buyers,
by asymmetric information.
which causes some buyers to face prices
relatively high compared to their true expected
claim costs. These buyers have further incentive
to retain more risk.
It is often argued that another advantage of
5. Maintaining the use of funds.
retention is that the firm gets to maintain use of
the funds that otherwise would be paid in
premiums until claims costs are paid, given that
competitive insurance premiums will reflect the
present value of expected claims costs.
Source: Harrington and Niehaus; 2004; 456.
While, increasing risk retention obviously exposes the firm to greater risk; the greater risk
from increased retention increases the probability of financial cost distress with associated
adverse effects on lenders, employees, suppliers, and customers, which causes them to
contract with the firm at less favourable terms. Increased retention may require the firm to
raise costly external capital and miss some profitable opportunities (Regester, 2002, 65).
In all cases, the level of retention/reduction depends on the following firm characteristics:
1. Closely held firms versus publicly held firms: the owners of closely held firms
typically have a significant proportion of their own wealth invested in the firm and
thus are undiversified compared to shareholder of publicly traded firms with widely
traded stock. Because owners of closely held firms are less diversified, they have
incentive to retain less risk. Similarly, firms that have managers who own large
amount of stock and therefore are undiversified are more likely to reduce risk.
2. Firm size and correlation among losses: if a firm has a large number of independent
exposures, then the law of large numbers operates at the firm level, allowing the firm
to predict its average loss per exposure more accurately. Consequently, one more
major benefit of insurance, larger firms with their generally large cash flows also are
better able to readily finance losses of any given size out of cash flow than are smaller
firms, and they often are able to raise external funds at lower cost. Each of these
influences reduces the demand for insurance by large firms (Jaques, 2007, 244).
3. Investment opportunities: firms that are likely to have investment opportunities will
need funds to finance them. These firms will be more likely to reduce risk because an
unexpected loss will force the firm to abandon the investment project or raise costly
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external capital. Firms that operate in the growth industries and firms that require
continual investment in research and development are likely to benefit from risk
reduction (Dowling, 2001, 36, and Venette, 2003, 114).
On the other hand, risk reduction refers to the decision to reduce uncertainty (variability) by
using two approaches; disaggregate or micro approach and aggregate or macro approach.
Disaggregate approach means hedging or insuring each individual risk separately. While,
aggregate or macro approach refers to hedging their risk exposures under one unified frame
work. Traditionally, risk management has taken a disaggregated approach. Pure risk
managers focus their attention on individual sources of risk.
The basic guidelines for optimal retention/reduction decisions, in view of the trade-off
between the benefits of increased retention, through saving on explicit and implicit loadings
in insurance premiums and the costs of increased uncertainty is: retain reasonable predictable
losses and insure potentially large, disruptive losses (Regester, 2002, 245).
Thus, for individual firms, application of the guideline that firms should retain predictable
losses but insure large and unpredictable losses depends on specific magnitude of the benefits
and costs of increased retention, but the point at which losses can be classified as predictable
or disruptive, also depends on firm size, the cost of raising external funds, and the expected
value of cash flows. Due to special circumstances, retention strategies adopted by a particular
firm may vary and differ from the basic guideline (www.mccombs.utexas.edu).
Chapter 3: Overview of the Case Studied:
The objectives of this chapter are represented in introducing an overview of the United
Grain Grower (UGG) enterprise and explain how it implemented an enterprise risk
management process, which will lead to obtaining clear ideas for analysis of the case studied
and testing the hypothesis of this research.
3.1 Overview of United Grain Grower (UGG)2:
United Grain grower formed in Winnipeg, Manitoba. This provides commercial services
to farmers and markets agricultural products worldwide. It was founded in 1906 as a farmer
owner cooperative and became a public owned company on the Toronto and Winnipeg stock
exchange in 1993 its comprised from four main segments: Grain handling service, crop
production service, livestock service, and business communication.
The farming industry in Canada is regulated by several government agencies like the
Canadian Wheat Board (CWB) which markets grains for human consumption on behalf of
farmers. About 85% of wheat and 45% of the barley produced in Canada is sold through the
CWB and about 60% of UGG’s grain handling is on the behalf of the CWB, which
determines the prices paid to farmer’s storage and transportation of grains.
UGG must obtain an operating licence from the commission, because the Canadian grain
commission regulates and maintains quality standards. Table (3) provides data on grain
shipments and deliveries for the industry and for UGG from 1981 up to 1993. Then, UGG has
a market share of 15% as the third largest provider of grain handling service in western
Canada.
Table (4) provides information on the volume of UGG grain shipments, as well as its gross
margin and earnings, which illustrates that UGG achieved the highest level of grain shipped
2
For more details about the case studied see : Harrington and Niehaus, 2004, 591-603. Also for more
information about UGG enterprise visit : www.Unitedgraingrower.ca.
15
in 1997 with 5.591 tonnes and the highest gross margin and earnings in 1998 (21.8C$ per
tonne and 5.8C$ per tonne accordingly).
Table (3): Grain shipments and deliveries for UGG and its industry.
Year
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
Tonnes
Industry
shipment
26,871
30,392
33,142
33,905
27,183
27,443
33,322
33,435
23,364
29,682
33,376
34,374
30,989
UGG shipment
Crop yields
Weighted Average
4,298
4,842
5,367
5,320
4,020
4,394
5,368
5,072
3,928
4,954
5,498
5,720
5,125
30.9
34.7
37.4
33.3
28.6
32.5
40.0
36.3
26.3
31.3
38.4
37.3
37.0
Table (4): Earnings for grain handling segment.
For years ended July 31
1997
Grain shipment (tonnes)
5.591
Gross margin (thousands of C$)
113.013
Expenses excluding depreciation
73,108
Depreciation
11.502
Earnings before interest and taxes
28.403
Per tonne of grain shipped:
Gross margin
20.2
Earnings before interest and taxes
5.1
1998
5.170
112.459
72.886
9.763
29.810
1999
4.328
93.542
69.140
10.082
14.320
21.8
5.8
21.6
3.3
The crop production services unit (second UGG segment) provides inputs such as seed,
fertilizer, and crop production products to farmers. In addition, through its farm sales and
services division, it provides a range of consulting, agronomic, and financial services to
farmers. UGG’s livestock services (third UGG segment) provide inputs to producers of cattle,
hogs, and poultry. This particular unit faces tough competition from a number of other grain
and feed companies. UGG’s smallest business unit (fourth UGG segment) farm business
communications provides information needed to run a profitable agribusiness. In addition to
publishing periodicals, it has developed a web-based information on weather market prices
and agribusiness news.
UGG differentiate itself from competition through distinctive products and superior services
to farmers . Figure (6) illustrates earnings before interest and taxes (EBIT) for each of UGG’s
business units overtime, grain handling service and crop production service, account for more
than 80% of UGG’s earnings in most years.
16
Figure (6): Earnings before and taxes over time for UGG’s business segmants.
3.2 UGG Enterprise Risk Management Process:
3.2.1 Types of UGG Risk Exposures:
UGG began its enterprise risk management process by forming a risk management
committee consisting of Chief executive officer (CEO), Chief financial officer (CFO), risk
manager, treasure manager, compliance manager, and manager of corporate audit services.
The committee along with a number of UGG employees identified and ranked the risks of 47
exposure areas, from which six major risks were chosen for further investigation, they are:
1. Environmental liability (obligation based on the principle that a polluting party should
pay for any and all damage caused to the environment by its activities).
2. The effect of weather on grain volume.
3. Counterparty risk (The risk to each party of a contract that the counterparty will not
live up to its contractual obligations).
4. Credit risk (probability of loss from a debtor’s default).
5. Commodity price and basis risk (the possibility that a commodity contract's basis will
move against the investor).
6. Inventory risk (The possibility that something such as a price change will cause any
reduction in the value of inventory).
Therefore, Willis group Ltd., took the task of gathering data and estimating the probability
distribution of losses from each of the above major six risk exposures. it used probability
distributions to quantify the impact of each source of risk on several measures of UGG’s
performance, including return on equity and earnings before interest and taxes (EBIT).
Figure (7-9) demonstrates analysis conducted by Willis risk solutions based on counterparty
risk of UGG.
17
Figure (7): Frequency of losses from counterparty risk.
Figure (8): Severity of losses from counterparty risk.
Figure (9): Total losses from counterparty risk.
Based on data provided by UGG and discussions with UGG employees, Willis estimated
that the number of counterparty losses per year could be described by a Poisson distribution
as explained in Figure (7), and that the loss severity on any given loss - Figure (8) - could be
described by a lognormal distribution. Then, by using the probability distribution for the
number of losses and for the loss per event, they can estimate the annual loss distribution
from counterparty risk according to Figure (9) above. Finally, the impact of counterparty
risk on the probability distribution of various performance measures such as (EBIT) could
be estimated based on the assumptions that all other risk factors took on a specific value.
The analysis conducted by Willis risk solutions led to the conclusion that, out of the six risk
exposures, UGG’s main source of unmanaged risk was from the weather. Therefore, the
parties focused their energies on understanding how the weather affected UGG’s
performance. Willis risk solutions conducted an in depth regression analysis of how crop
yields in three provinces in western Canada were influenced by the weather.
Table (5) reflects the results of regression analysis of crop yields (bushel per acre) and
weather conditions in the three Canadian provinces using data from 1960 to 1992.
Temperature is measured in fahrenheit and preception in inches. The time trend variable
equals (year - 1960); thus, for year 2000 the time trend equals 40.
18
Table (5): Results of regression analysis of crop yields and weather conditions in three
Canadian provinces.
Dependent Variable
Province Crop
Intercept
Alberta
Manitoba
Saskatchewan
Alberta
Manitoba
Saskatchewan
Wheat Ceof:
Stat:
Wheat Ceof:
Stat:
Wheat Ceof:
Stat:
Oats Ceof:
Stat:
Oats Ceof:
Stat:
Oats Ceof:
Stat:
59,88
4,49
79,34
5,70
55,60
4,02
43,53
1,89
121,02
4,89
74,07
2,93
Explanatory Variable
Time trend Average June
Average July
temperature
Temperature
0,33
-0,76
2,70
6,19
-3,19
2,63
0,42
-0,98
1,00
5,94
-4,38
0,98
0,19
-0,93
4,80
2,65
-3.01
4,44
0,69
-0,17
4,70
7,59
-0,41
2,71
0,65
-1,50
5,30
5,16
-3,77
2,96
0,24
-0,76
9,30
1,91
-1,82
4,70
RSquared
0,68
0,65
0,61
0,72
0,64
0,56
From the first row of the above table, the positive cofficient (0.33) on the time trend variable
indicates that alberta’s wheat yeilds have increased over time. On average, wheat yields have
increased about 0.33 bushel/acre each year since 1960. The negative cofficient (-0.76) on the
average June temprature variables indicates that wheat yields in Alberta are negativly related
to the average June temperature. Finally, the positive cofficient (2.7) on the average July
precipitation variable indicates that crop yields increase on average with rainfall in July. The
R-sqaured indicates that about 68 percent of the annual variation in alberta wheat yeilds is
explained by these three variables.
The remainder of table (5) indicates that, in general, crop yields for wheat and oats have
increased over time, are negatively related to average June Temperature, and are positively
related to average July precipitation.
Table (6) discribe the statistics for variables used in regression analysis. The regression
results can be used to assess how expected crop yields would be affected by deviations from
normal weather conditions. For example, if temperature and precipitation were expected to
take on their historical average values as presented in table 6. Then, the predicted wheat crop
yield for 2000 would be:
Yield = 59.88 + 0.33(40) – 0.76(56.6) + 2.7(2.06) = 35.6 bushels per acre.
If instead the average June temperature was higher than the mean value by one standard
deviation (2.2) degrees from table (5), the Alberta wheat crop yields would be:
Yield = 59.88 + 0.33(40) – 0.76(58.8) + 2.7(2.06) = 34.0 bushels per acre
Thus, an increase of 2.2 degrees from normal reduces crop yields on average by about 1.6
bushels per acre.
19
Table (6): Statistics for variables used in regression analysis.
1960-1992
Average June Temperature
Mean Value
Standard Deviation
Alberta
Manitoba
Saskatchewan
Average July Temperature
Mean
Standard
Value
Deviation
(inches)
(inches)
2.06
0.51
1.83
0.67
1.55
0.61
56.6
61.7
60.4
2.2
3.0
2.8
Correlation coefficient:
For June average temperature
For July average temperature
Alberta Manitoba Saskatchewan Alberta Manitoba Saskatchewan
Alberta
1.00
0.41
0.69
1.00
0.51
0.74
Manitoba
1.00
0.87
1.00
0.55
Saskatchewan
1.00
1.00
Having established a relationship between crop yields and weather, Willis then estimated the
realtionship between crop yields and UGG’s grain volume. They first calculated a weighted
average crop yield for Western Canda using crop yeilds by grain/seed and by province and
the proprotions of total production of each grain/seed in each province. The values for this
wieghted average crop yield are reported in Table (3) stated in paragraph 3.1. They found
that UGG’s grain volume in year t was highly correlated with overall crop yields in year t-1.
The next step in Willis analysis was to relate UGG's grain volume to UGG’s financial results
using the information in table (4). To summerize, Wellis established a relationship between
weather and UGG’s gross profit using the following steps:
Weather
Crop yields
Table (4)
UGG’s grain volume
Table (2)
UGG’s profit
Table (3)
The results of this analysis are summarized in Figure (10), which illustrates how weather
influences UGG’s gross profit. The relatively volatile curve indicates UGG’s actual gross
profit during 1980-1992 period and the less volatile curve indicates what UGG’s gross profit
would have been if weather was constant over the period.
Figure (10): Influences of Weather on UGG’s profit.
20
3.2.2 Alternatives for Managing UGG's Exposures:
Having quantified their exposure to weather risk, UGG managers explored several
options, Retention, weather derivatives, and an insurance contract. The retention approach
meant continuing operations as they had been and not trying to reduce the weather exposures,
its exposed the enterprise profitability to large changes due to weather variations. There were
three disadvantages of such volatility. First, UGG had been planning to continue to make
large investments in storage facilities (grain elevators). The ability to finance these capital
expenditures from internally generated funds would allow the firm to avoid the costs
associated with raising external capital. And, to the extent external capital would be needed,
the rate that the firm would have to pay on borrowed funds would likely be higher if they
retained the weather risk. Second, the variability in its cash flow caused UGG to hold extra
equity capital as a cushion against unexpected low cash flows in any given year. If the firm
could reduce its weather risk, it could increase the proportion of the firm financed with dept
without paying higher yields, which in turn would allow it to gain additional interest tax
shields. Third, although much of UGG’s current business could be characterized as a
commodity business, UGG tried to distinguish itself from competitors by creating products
with brand names and by providing ongoing services to customers. Stability in the firm’s
cash flows would help the firm characterize itself as a company that suppliers and customers
could rely on for many years. The main advantage of retaining the weather risk was the cost
associated with shifting it to someone else.
Weather derivatives are contracts that are sold in the over-the-counter (OTC) market by firms
such as Enron and Duke Energy. Such a contract could be tailored on a number of
dimensions to meet the specific needs of the buyer. For example, the underlying variable
determining the payoffs could be one or a combination of weather variables such as rainfall
and snowfall. The payoff structure could resemble put options, call options, swaps or
combination of these structures. Figure (11 A-C) provides an example how UGG could
potentially use a weather derivative. Suppose that based on Willis analysis of the sensitivity
of crop yields to weather and the sensitivity of gross profit to crop yields, UGG’s expected
gross profit exhibited the pattern depicted in Figure (11A). The vertical axis measures
expected gross profit, and the horizontal axis measures a weather index that equals a
weighted average of various temperatures in Western Canada. As the index increases,
expected gross profit increases. Assuming that the relationship between gross profit and the
weather index is linear. Since low weather values of weather index correspond with to low
expected profits for UGG a derivative contract that would pay UGG money when the index is
low would provide a hedge. For example, the put option structure illustrated in Figure (11B)
would help to hedge UGG’s risk. When the put option payoff from Figure (11B) is added to
expected gross profit from Figure (11A), UGG’s expected profit would vary with the weather
index as depicted in Figure (11C).
Figure (11A): Un-hedged profits.
21
Figure (11B): Payoff on a weather derivative.
Figure (11C): Hedged profits.
Hedging their weather risk with derivatives was feasible but entailed several difficulties.
Although Willis preformed sophisticated analysis of the effect of weather on UGG’s gross
profit, the results of this analysis had to be converted into a desired contract structure that was
extremely difficult.
Finally, UGG managers wondered whether they could construct an insurance contract that
would payoff UGG when its grain shipments were abnormally low. The problem with such a
contract is the moral hazard, because UGG’s pricing and service also influences its grain
shipments. One solution to this problem was to use industry wide grain shipments as a
variable that would trigger payments to UGG. Industry shipments would be highly tied with
UGG’s shipments. In addition, UGG’s own a relatively low market share, thus, it would have
minimal effect on the value of industry wide shipments, which would significantly reduce the
moral hazard problem.
3.3 Assessment of UGG’s Risk Management:
According to the previous discussion of the major factors included within the case
studied, we can ask some questions and answer them in order to accomplish better
assessment for UGG's risk management:
First, what were the types of exposures faced by UGG enterprise? And what was the most
important exposure and why?
Second, how can we describe the risk management process within UGG enterprise?
22
Third, what are the available alternatives that UGG risk managers can use in managing their
possible exposures?
Fourth, what was the selected alternative chosen by UGG risk mangers and why?
Finally, how can we evaluate the UGG risk management activities according to the depended
hypothesis of this research and its theoretical section?
Now, we will start our answers of each question to obtain a target results which we can rely
on to introduce the basic conclusions of this research as we will mention in chapter 4:
Conducted studies by UGG’s risk management committee pointed that UGG faced 47 risk
exposures, as mentioned in the case, six major risk exposure were identified including:
1. The environmental liability.
2. The effect of weather on grain volume.
3. Credit risk.
4. Counterparty risk.
5. Commodity price and basis risk.
6. Inventory risk.
Analysis showed that the effect of weather was the most important exposure faced by UGG,
because it was the main source of unmanaged risk. This was further emphasized by the
results of the regression analysis conducted by Willis group which concluded that even the
slightest change in the average temperature would severely affect UGG’s crop yields, thus
effecting UGG’s gross profit.
To manage its risk, UGG’s started with determining the context of risk. After that it dealt
with analysis of determined risk by depending on internal and external sources to identify
and evaluate the possible outcomes of each possible exposures. Internally they formed a risk
management committee, consisting of chief executive, chief financial officer, risk manager,
treasure manager, compliance manager, and manager of corporate audit service. Externally
they hired the services of Willis Risk Solutions, a unit of the Willis Group Ltd, a major
insurance broker that took on the task of gathering data and estimating the probability of
losses from the risk exposure faced by UGG. Finally they used available results to treat their
risks with continuous consulting and monitoring.
After completing the above risk management process and determining the weather risk as
main exposure, UGG’s managers were faced by three options to treat this risk:
1. Retention option: meant ignoring the exposure to weather an continue operations as
normal, this approach would cause large swings in UGG’s profits due to the
unpredictability of the weather. Also retention would force UGG to abandon their
plans to continue investment in storage facilities and any further development,
because it will lose the ability to generate internal funds to finance such
developments. As well as carrying the cost of obtaining external capital. In addition
to reduce necessary stability of UGG’s operations to maintain the trust and healthy
relations with both customers, suppliers and other parties.
2. Weather derivatives option: Since low weather values of weather index correspond
with to low expected profits for UGG. A derivative contracts would pay UGG money
when the index is low and provide a hedge against weather exposure. But making a
contract based on the effects of weather would be very difficult, because converting
the results of the analysis conducted by Willis into a desired contract structure would
be extremely difficult.
3. Insurance contract option: UGG’s managers wondered whether they could construct
an insurance contract that would pay UGG when grain shipments drop due to the
weather exposure. As mentioned before earlier, such an insurance contract faces
moral hazard.
23
From the researcher viewpoint, UGG managers needed to answer the following questions in
order to make such decisions depending on the above three alternatives:
1. Given that any method of reducing the weather exposure will be costly, what are the
benefits of UGG’s diversified owners from reducing the weather risk?
2. How could they structure a weather derivative to cover the exposure?
3. How could they structure an insurance contract to cover the grain volume exposure?
4. Are there any advantages of the insurance contract approach versus the use of the
weather derivatives?
The reason behind our viewpoint related to make a good an effective decision which
will lead to reducing possible exposures of losses with lower effect on UGG cash flows
or internal funds. This really supported by the selected option, UGG resorted to the third
choice, an insurance contract. Thus, we can easily agree with UGG risk mangers
decision because it consistent with the guideline of risk retention and reduction. They
selected insurance contract since weather risk is large or not reasonable, not predictable
and disruptive.
Thus, UGG Currently purchased a number of different insurance policies for various
traditional risk exposures. For example, it purchased a variety of policies to cover its
property exposures and liability exposures to cover its tort liability. Then, UGG asked
Willis to investigate the possibility of structuring an insurance contract on industry grain
shipments. Willis then contacted several major commercial insurers, including a
division of large reinsurer Swiss Re, called Swiss Re New Markets, which tailored an
insurance contract that hedged UGG against their weather exposure.
Finally, the above analysis of enterprise risk management processes within the
enterprise studied indicate that we accept the hypothesis of this research according to
what were stated within this analysis: there are different alternatives can be used by any
enterprise to manage its risks such as integrating enterprise risk management policies
into company's core values, performing risk analysis, and implementing various
strategies to minimize risk.
Chapter 4: Research Conclusions:
Having done this research and written the paper “Managing Enterprise Risk” the researcher
came to the following conclusions:
1. Risk can be described as any situation surrounded by uncertainty. It’s an indication to the
possible variability in outcomes around some expected value.
2. There are different risk management methods, each one used for specific purpose, such as
Loss Control, Loss Financing, and Internal Risk Reduction.
3. Risk is costly and its management costs include the expected cost of both direct and
indirect losses, cost of loss control, cost of loss financing, cost of internal risk reduction,
and cost of residual uncertainty.
4. Enterprise Risk Management is a discipline by which an organization in any industry,
assesses, controls, exploits, finances, and monitors risk from all sources for the purpose of
increasing the organization’s short and long term value to its stakeholders.
5. Enterprise risk management process includes: establish the goals and context for ERM,
identify risks, analyse risks in terms of likelihood, evaluate risks, and treat risks with the
most suitable options.
Thus, to manage its risk, the enterprise studied started with determining the context of
risk, dealt with analysis of the determined risk to identify and evaluate the possible
outcomes of each possible exposure. Internally, they formed a risk management
committee consisting of many managers. Externally, they hired the services of Willis
24
Risk Solutions to gather data and estimate the probability of losses from the risk
exposure. Finally, they used available results to treat their risks with continuous
consulting and monitoring.
6. There are three major components of enterprise risk; business risk, financial risk, and
hazard risk.
7. ERM recognizes that some risks are serious and some are not, which can be determined
by measuring the severity and frequency of losses.
8. The basic guideline for optimal retention/reduction decisions is: retain reasonable
predictable losses and insure potentially large or disruptive losses.
9. We accept the hypothesis of this research according to the analysis' considerations of
enterprise risk management processes within the enterprise studied and what we stated
within this analysis. Then, we can say that:
There are different alternatives can be used by any enterprise to manage its risks such as
integrating enterprise risk management policies into company's core values, performing
risk analysis, and implementing various strategies to minimize risk.
10. According to the previous point we found that although UGG purchased a number of
different insurance policies for various traditional risk exposures, it asked Willis to
investigate the possibility of structuring an insurance contract on industry grain
shipments. The aim behind this process is to minimize risk and maximize shareholders
value and achieve good and effective relation with all other parties.
11. Finally, this research covers the basic ideas related to managing enterprise risk according
to selected case study. All other subjects which were not covered within this research,
such as the possible trade off between different types of risk, the component of cost of
risk, and the details of risk reduction and retention decisions, represent open questions for
future studies.
25
References:
1. Books:
1.
2.
3.
4.
5.
6.
7.
8.
Chong, Yen, Y., “Investment risk management”, John Wiley & LTD, Sussex, 2004.
Collier, Paul, M., “Fundamentals of Risk Management for accountants and managers: Tools and
Techniques”, Jordan Hill, Oxford, 1ST edition, 2009.
Hampton, John, J., “Fundamentals of Enterprise Risk Management”, Amacom, New York, 2009.
Harrington, Scott, E. and, Niehaus, Gregory, R. “Risk Management and Insurance”, McGraw-Hill, Inc.,
New York, 2nd Edition, 2003.
Morley, Michael, "How to Manage Your Global Reputation: A Guide to the Dynamics of International
Public Relations", Palgrave MacMilan, Basingstoke, Second Edition, 2002.
Regester, Michael & Larkin, Judy ,“Risk Issues and Crisis Management: A Casebook of Best
Practice”, Kogan Page Ltd, Third Edition, London, 2002.
Saunders, Anthony and, Cornett, Marcia, “Financial Institutions Management: A Risk Management
Approach”, McGraw-Hill, Inc., New York, 5thEdition, 2006.
Venette, Steven (2003) “Risk communication in a High Reliability Organization’’, North Dakota State
University, Second Edition, North Dakota.
2. Journals and Theses:
1.
2.
3.
4.
Booth, Simon (2000) “How can Organizations Prepare for Reputational Crisis”? Journal of
Contingencies and Crisis Management, Volume 8, Number 4, pp.
Coombs, Timothy (2004) "Impact of Past Crisis on Current Crisis Communications: Insight from
Situational Crisis Communication Theory", Journal of Business Communication, , Volume 41,
Number 3, pp.
Dowling, Grahame, "Creating Corporate Reputation: Identity, Image, and Performance", Oxford,
Oxford University Press, 2001.
Jaques, Tony, ‘’Issue Management and Crisis Management: An Integrated, Non-linear, Relational
Construct’’, RIMT University, Melbourne, 2007.
3. Websites:
1.
2.
3.
4.
5.
6.
7.
8.
9.
http://www.theirm.org/publications/documents/ARMS_2002_IRM.pdf-20-11-2010.
http://www.casact.org/research/erm/overview.pdf-24-11-2010.
http://www.ncsi.com.au/Publications.html-16-12-2010.
http://www.businessdictionary.com/definition/riskretention.html?q=risk%20retention-9-1-2011.
www.mccombs.utexas.edu/dept/irom/bba/risk/rmi/arnold/presentations/ch022_NH_377rev-17-12011.
http://www.k-state.edu/internalaudit/intcontr.html-17-1-2011.
http://www.investorwords.com/4292/risk.html-23-1-2011.
http://www.palgrave-journals.com/rm/index.html-28-12-2010.
http://www.hbs.edu/centennial/businesssummit/global-business/enterprise-risk-management.pdf11-12-2010.
‫‪26‬‬
‫الخالصة باللغة العربية‬
‫يهدف هذا البحث الى التعرف على تطبيقات عملية إدارة مخاطر المؤسسة‪ ،‬إذ جرى اختيار ‪United Grain‬‬
‫)‪ Grower Enterprise in Canada (UGG‬كحالة تمت دراستها في هذا البحث‪.‬‬
‫يمكن تحديد مشكلة البحث من خالل طرح السؤال االتي‪ :‬كيف يمكننا وصف المخاطر الذي تواجهه ‪ ،UGG‬وما هي‬
‫عمليات إدارة المخاطر المستخدمة للتعامل معها؟ اعتمد ضمن هذا البحث نموذج محدد يتمثل في تحليل حالة دراسية‬
‫لإلجابة على السؤال أعاله‪ .‬االمر الذي تطلب العديد من الخطوات لتغطية معاني مختلفة للخطر وعرض الجوانب النظرية‬
‫األساسية المتعلقة بعملية إدارة المخاطر في المؤسسة‪ .‬ومن ثم تحليل الحالة المدروسة وتحديد العملية المتبعة في ادارة‬
‫المخاطر التي واجهت المؤسسة المدروسة‪ ،‬ومقارنة النتائج ذات الصلة بما يتماشى مع اختبار قبول او رفض فرضيات‬
‫البحث‪.‬‬
‫يتلخص االستنتاج الرئيسي لهذا البحث‪ :‬بان هناك بدائل مختلفة يمكن استخدامها من قبل أي مؤسسة إلدارة المخاطر مثل‬
‫تكامل سياسات إدارة مخاطر المؤسسة مع قيمها األساسية‪ ،‬وإجراء تحليل للمخاطر‪ ،‬وتنفيذ استراتيجيات متنوعة لتقليل‬
‫المخاطر‪.‬‬
‫جرى تقسيم هذا البحث إلى أربعة فصول‪ .‬في الفصل األول ‪ ،‬مناقشة منهجية البحث التي تظهر مشكلة البحث وأهميته‪،‬‬
‫وأهدافه والفرضيات التي يعتمدها‪ .‬بينما جرى في الفصل الثاني‪ ،‬دراسة القسم النظري الذي يشرح مفهوم الخطر‬
‫والطرائق والعمليات المختلفة إلدارة مخاطر المؤسسة‪.‬‬
‫بينما تناول الفصل الثالث‪ ،‬الجانب العملي للبحث من خالل عرض وتحليل بيانات الحالة المدروسة بغية تحديد األدوات‬
‫التي استخدمت من قبل ‪ UGG‬في إدارة المخاطر التي واجهتها‪ ،‬وأسباب اختيار تلك األدوات‪ ،‬وتحليل بيانات النتائج‬
‫المترتبة على ذلك‪ .‬والوصول الى تصورات مستوفية بخصوص فرضيات البحث‪.‬‬
‫ختم هذا البحث بالفصل الربع والذي تمثل باهم االستنتاجات المقدمة في ضوء نتائج تحليل الحالة المدروسة‪ .‬وأخيرا‪،‬‬
‫جرى عرض قائمة المصادر المستخدمة لتحقيق أهداف هذا البحث‪.‬‬