Q.2. Discuss the following techniques of risk identification
[i]
Brain Storming
[5 marks]
[ii]
Delphi method
[5 marks]
[iii]
Risk Checklists
[5 marks]
[iv]
Interviews
[5 marks]
[v]
Historical Data
[5 marks]
Total = 25 Marks
SOLUTION
[1] BRAIN STORMING
This is a risk identification method that provides a free and open approach that encourages
everyone to participate on a project. This can result in a team commitment to managing risk
for the period of a project.
[2] DELPHI METHOD
This is an organizes methodology for continuously identifying and measuring the unknowns
by developing mitigating options such as selecting, planning and implementing appropriate
risk mitigation and tracking the implementation to ensure successful risk reduction.
[3] RISK CHECKLISTS
This is a historic list of risk identified on past projects. It can be used or shared between the
estimators and discipline groups on all projects. On the other hand, it can help maintain risk
checklist to capture corporate knowledge within a state of agency and ensure that common
risks are not overlooked in estimating or risk management process. The risk checklist
estimators should know the use, what it does, when to use it and how to use it.
[4] INTERVIEWS
It is conducted with the project participants, stakeholders, experts and other players to identify
risks. The root causes are determined for identified risks and such causes are further used to
identify additional risks. The important part of this is that strengths and weaknesses are
identified for the project and then risks are determined.
[5] HISTORICAL DATA
The historical data is widely used as a basis for risk assessment, particularly to predict the
current stress (beta) or value-risk and future potential paths of the assets and portfolio.
However, historical data analysis can not solely be depended on but an expert’s opinion to
interpret data can help to assess risk.
Q.5. Briefly explain the following terms in risk management techniques and tools.
[i]
Forward Market
[5 marks]
[ii]
Future Market
[5 marks]
[iii]
Option Market
[5 marks]
[iv]
Sport Market
[5 marks]
[v]
SWAP Market
[5 marks]
Total = 25 Marks
SOLUTION
[1] FORWARD MARKET
This is a market place that offers financial instruments that are priced in advance for future
delivery. It tends to be referenced as the foreign exchange market but can also apply to
securities, commodities and interest rates.
[2] FUTURE MARKET
This is a market where future contracts are transferable agreement to make short or long
delivery of a standardized amount and designated quality at a specified price at future specified
date. It particularly describes financial instrument which may be tangible or intangible of an
entity.
[3] OPTION MARKET
It is an agreement that allows trading between two (2) parties to buy and sell or trade
instruments such as securities at a fixed cost in a specified period but doesn’t mandate the
trading.
[4] SPORT MARKET
This is a public financial market in which financial instruments or commodities are traded for
the immediate delivery. This contrasts with futures market in which delivery is due at a later
date. In sport market, settlements normally happen in two (2) working days, therefore, delivery
of cash and commodities must be done after 2 working days of the trade date or transaction
date.
[5] SWAP MARKET
SWAP market is a market through which two (2) parties exchange the cashflows or liabilities
from two (2) different financial instruments. This usually involves cashflows based on the
National Principal amount such as a loan or bond, although an instrument can be almost
anything.