Real options valuation risk case study book

#Real options valuation risk case study book series#

Often these injured workers are overwhelmed by the prescribed treatment regimen and confused by their role in their own recovery. The effectiveness of treatment and success of recovery from those injuries relies heavily on the mindset of the individual patient. Musculoskeletal (MSK) injuries are the leading cause of work-related injuries and disability. How? Through the conventional practices of risk financing and transfer. Had they been more impressed, the company may have mitigated the loss in equity value which will trigger the inevitable pile on of litigators. Noxious media typically amplifies that gap, which it certainly did in FacebookвЂ™s case.ДЇinancial stakeholders may have been somewhat impressed with the companyвЂ™s apparent sensitivity to reputation risk. Reputation risk is the peril of stakeholdersвЂ™ disappointment and anger when there is a gap between stakeholder expectations and reality. What is helping to mitigate the reputational damage is that NiSource appears to have a genuine interest in the welfare of both its customers and employees, and such culturally-sensitive goodwill manifests in times like these where competing forces are battling for the mind of the stakeholder. In my firmвЂ™s experience, reputational value losses can exacerbate 3rd-party related liability losses by factors ranging from 2 to 7 times. However, they could in theory be much worse.

#Real options valuation risk case study book series#

Well aware of its reputation risk, which is disclosed in six mentions in the 2017 10K, it also acknowledges that angry disappointed stakeholders lead to вЂњloss of cost recovery and increased litigation.вЂќ The boardвЂ™s nominating and governance committee is charged with вЂњreviewing and evaluating risks to the CompanyвЂ™s reputation and the steps management has taken to monitor and control such risks.вЂќДЄfter a series of gas explosions in the Boston area, and facing a complaint from the Governor of Massachusetts, the company undoubtedly faces costly liabilities and has already experienced a loss in market cap. Example 2: NiSourceДЄ current example of cultural issues shaping a liability exposure involves NiSource, one of the nationвЂ™s largest natural gas distribution companies serving approximately 3.9 million customers in seven states. Among the most memorably is the case of the exploding Ford Pintos. Liability risk models, such as the burden-probability-loss formula that was articulated in Judge Learned HandвЂ™s 1947 ruling are failing in the face of cultural issues. Noxious media typically amplifies that gap, which it certainly did in FacebookвЂ™s case. As a result, few at Facebook seemed to anticipate that the loss of trust precipitated by the Cambridge Analytica disclosures would erase 20 percent of the firmвЂ™s market cap when its impact on user growth and engagement became known to investors.ДЇacebook created the expectation of trust and failed to meet it. In the spring of 2018, the audit committee was overseeing reputational matters but had no quantitative measure of reputationвЂ™s importance and no risk managers working from a framework that linked reputation risk to cash flows or other economic metrics. What follows are four case studies on how companyвЂ™s tried and failed or succeeded in managing this risk.ДЇacebookвЂ™s 2017 10K explicitly notes the value of reputation and the potential cost of its loss 14 times. However, until my firm developed actuarial models for reputation risk using synthetic measures of reputation value, the insurance world offered little guidance. Actuarial models developed by risk bearers help risk managers allocate resources to mitigate 1stВ party economic losses. Reputation risk, it would seem, should be managed like other 1stВ party risks. Most risk management frameworks lump reputation among a firmвЂ™s valuable assets. It is therefore obvious that the economic benefits of meeting stakeholdersвЂ™ expectations is the value of a firmвЂ™s reputation the Economist newspaper crowned risk to that value as the вЂњrisk of risksвЂќ more than a decade ago. In addition, in certain commercial sectors, regulators demand risk management with failures manifesting in fines, criminal charges and loss of business rights. These stakeholders, implicitly or through covenants, expect risks to their expectations will be managed. Customers expect to be delighted by product and service experiences.

Confidence in a companyвЂ™s ability to pursue its strategy is what motivates investors to risk capital, lenders to advance capital and employees to engage.