The Risk Institute at The Ohio State University Fisher College of Business operates at the intersection of risk research and risk management practice. Focused on an integrated, interdisciplinary approach to risk management.
In 2017 we focused on building connections — across the university, across industries and across the nation.
In 2018 our focus was on time and change — we wanted get the word out about the future of enterprise risk management, the fourth industrial revolution and how to leverage a dramatically changing landscape to create value.
2018 By the Numbers
Hosted more than 550 people at Risk Institute event
Collaborated with 120+ organizations
Garnered more than 200 million media impressions from publications like The Washington Post, Financial Times, Bloomberg Businessweek, Columbus Business First and the Columbus Dispatch
Funded nearly $160,000 in research in the form of six research projects, eight class projects, and representing four countries
Time & Change 5th Annual Conference welcomed more than 150 C-Suite executives and world-renowned speakers for an enlightening two-day event
We continued our national initiative to predict and curb distracted driving behaviors through our Distracted Driving Initiative.
With the holidays upon us, here are six quick tips to be being a safer driver this winter.
1. Put your phone down and place hands on the wheel at 9 and 3 for the most control of your vehicle. As learned from driving instructors at Mid-Ohio School hosted by Maria’s Message Safe Driving Day, it’s impossible to overcorrect when your hands are in the proper position.
2. Drive slowly, do not tailgate, even when roads look clear, black ice has the potential to loom when you least suspect it. Black ice forms just about the freezing point, the heat of tires and cold air are a dangerous combination
3. Wear your seatbelt Being uncomfortable is no excuse. Plus it’s way more uncomfortable being dead. If you won’t wear it for your own safety, wear it for the safety of others riding with you.
But seriously, your loved ones don’t want to hear you weren’t wearing your seatbelt because it was uncomfortable. Protect yourself and protect others. This is what an unrestrained body looks like in a crash.
4. If you hit ice, take your feet off the brake and gas; steer the car to an open space. Allow the car to stop/slow on its own before using the gas. In a recent class I took, the instructors spoke about an open field and one tree, and the spinning vehicle inevitably will hit the tree, the driver is so focused on the tree that the car and energy propel towards the object instead of away from it. In times of panic, focus on wide open spaces away from others, and allow the car to come to a stop.
5. Before heading out on the winter road Take your vehicle to your mechanic to ensure it’s up to date on its winter car car.
6. Always have an emergency kit For those unexpected circumstances, you can pick up one various store or make your own with extra items you already have. Runners, next time you’re in a race hold on to those shiny silver thermal blankets. Toss it in the emergency kit; they take up virtually no room and will allow warmth in case of emergency.
Have a safe and happy holiday season from all of us at The Risk Institute!
A team of four undergraduate students from The Ohio State University Fisher College of Business has been selected to participate in the national Spencer-RIMS Risk Management Challenge — a national case competition sponsored by Spencer and the Risk Management Society (RIMS).
Twenty-seven teams are selected to participate in the national contest. In a typical year, more than 100 colleges submit team applications. The contest, which takes place over several months, culminates in the winning team presenting at the RIMS national conference in April.
This is the second year in a row that a team from Ohio State has been selected. According to team advisor and Executive Director at The Risk Institute Phil Renaud, this year’s team is uniquely qualified to advance in the competition saying, “We’ve got a great group this year. They’re dedicated students with a passion for Risk. I think they’ve got a great shot.”
This year’s team consists of Megan Reardon, a fourth-year in Finance and Economics; Jessica Roth, a fourth-year in Actuarial Science and Economics; Benjamin Jessberger, a fourth-year in Finance; and Christopher Hull, a third-year in Actuarial Science and Economics.
The case will center on Sage and the Sage Foundation. The team expects to receive the case late next week.
The first round of work is due in December; teams will find out if they’ve advanced to the next round in early 2018.
The Risk Institute is proud to enable students to engage in the leading edge thought around risk practice.
About the Risk Institute
The Risk Institute is a collection of forward-thinking companies and academics that understand effective risk management strategies not only protect firms, but position firms to create growth and value. Housed at The Ohio State University Fisher College of Business, The Risk Institute is dedicated to bridging the gap between academia and risk practitioners. For more on the Risk Institute visit us at fisher.osu.edu/risk
About The Spencer Educational Foundation
Spencer Educational Foundation is the premier organization awarding scholarships and grants in risk management and insurance industry. Since its founding in 1979, it has awarded approximately $6 million in student and part-time master’s scholarships and $3.25 million in grants to universities, corporations and professional institutions for educational programs, internships and conferences. Spencer is a registered 501(c)(3) charitable organization whose purpose is to fund the education of tomorrow’s risk management and insurance industry leaders.
About RIMS Annual Conference & Exhibition
Launched in 1963, RIMS Annual Conference & Exhibition attracts some 10,000 risk and insurance professionals at all experience levels, business executives with risk management interests, brokers, insurers and service providers for the ultimate educational and networking experience. The four-day event offers more than 160 educational sessions, keynote presentations, special events and an expansive Marketplace Exhibit Hall with nearly 400 exhibitors. Following Philadelphia, the event will be hosted in San Antonio in 2018. For more information, visit www.RIMS.org/RIMS2017.
Are Bitcoin and blockchain the same thing? No, they aren’t. However, they are closely related. When Bitcoin was released as open source code, blockchain was wrapped up together with it in the same solution. And since Bitcoin was the first application of blockchain, people often inadvertently used “Bitcoin” to mean blockchain. That’s how the misunderstanding started. Blockchain technology has since been extrapolated for use in other industries, but there is still some lingering confusion.
Bitcoin is a type of unregulated digital currency that was first created by Satoshi Nakamoto in 2008. Also known as a “cryptocurrency,” it was launched with the intention to bypass government currency controls and simplify online transactions by getting rid of third-party payment processing intermediaries. Of course, accomplishing this required more than just the money itself. There had to be a secure way to make transactions with the cryptocurrency.
Bitcoin transactions are stored and transferred using a distributed ledger on a peer-to-peer network that is open, public and anonymous. Blockchain is the underpinning technology that maintains the Bitcoin transaction ledger. Check out this infographic and watch the video below for an overview:
How does the Bitcoin blockchain work?
The Bitcoin blockchain in its simplest form is a database or ledger comprised of Bitcoin transaction records. However, because this database is distributed across a peer-to-peer network and is without a central authority, network participants must agree on the validity of transactions before they can be recorded. This agreement, which is known as “consensus,” is achieved through a process called “mining.”
After someone uses Bitcoins, miners engage in complex, resource-intense computational equations to verify the legitimacy of the transaction. Through mining, a “proof of work” that meets certain requirements is created. The proof of work is a piece of data that is costly and time-consuming to produce but can easily be verified by others. To be considered a valid transaction on the blockchain, an individual record must have a proof of work to show that consensus was achieved. By this design, transaction records cannot be tampered with or changed after they have been added to the blockchain.
How is blockchain for business different?
The blockchain that supports Bitcoin was developed specifically for the cryptocurrency. That’s one of the reasons it took a while for people to realize the technology could be adapted for use in other areas. The technology also had to be modified quite a bit to meet the rigorous standards that businesses require. There are three main characteristics that separate the Bitcoin blockchain from a blockchain designed for business.
Assets over cryptocurrency
There is an ongoing discussion about whether there is value in a token-free shared ledger, which is essentially a blockchain without cryptocurrency. I won’t weigh in on this debate, but I will say this: blockchain can be used for a much broader range of assets than just cryptocurrency. Tangible assets such as cars, real estate and food products, as well as intangible assets such as bonds, private equity and securities are all fair game. In one business use case, Everledger is using blockchain to track the provenance of luxury goods to minimize fraud, document tampering and double financing. Now, over one million diamonds are secured on blockchain.
Identity over anonymity
Bitcoin thrives due to anonymity. Anyone can look at the Bitcoin ledger and see every transaction that happened, but the account information is a meaningless sequence of numbers. On the other hand, businesses have KYC (know your customer) and AML (anti-money laundering) compliance requirements that require them to know exactly who they are dealing with. Participants in business networks require the polar opposite of anonymity: privacy. For example, in an asset custody system like the one being developed by Postal Savings Bank of China, multiple parties, including financial institutions, clients, asset custodians, asset managers, investment advisors and auditors are involved. They need to know who they are dealing with but one client or advisor doesn’t necessarily need to be able to see all transactions that have ever occurred (especially when those transactions relate to different clients).
Selective endorsement over proof of work
Consensus in a blockchain for business is not achieved through mining but through a process called “selective endorsement.” It is about being able to control exactly who verifies transactions, much in the same way that business happens today. If I transfer money to a third party, then my bank, the recipient’s bank and possibly a payments provider would verify the transaction. This is different from Bitcoin, where the whole network has to work to verify transactions.
Why will blockchain transform the global economy?
Similar to how the internet changed the world by providing greater access to information, blockchain is poised to change how people do business by offering trust. By design, anything recorded on a blockchain cannot be altered, and there are records of where each asset has been. So, while participants in a business network might not be able to trust each other, they can trust the blockchain. The benefits of blockchain for business are numerous, including reduced time (for finding information, settling disputes and verifying transactions), decreased costs (for overhead and intermediaries) and alleviated risk (of collusion, tampering and fraud).
My name is Luis Garcia-Fuentes, alumnus of The Ohio State University Fisher College of Business. I now work for PwC in New York helping banks navigate financial reporting requirements. During my time at Ohio State, one of the organizations that furthered my education the most was The Risk Institute. The Risk Institute compliments Fisher’s academic programs by providing insights into the art and science of risk management, a theme that any business student must be familiar with in order to succeed in this ever-changing world. The Institute achieved this by providing networking sessions with risk professionals from multiple industries and by providing first-hand experiences through business simulations. I was able to participate in two of these simulations. The first was co-hosted by DHL professionals, and for the second I was a team member of the prestigious RIMS national case competition, which allowed me to better understand the risk environment of the Fintech sector.
My experience at the RIMS case competition was unique, as I worked within a group of five talented business and actuary science students to understand the risk environment of PayPal. Unlike any other case competition, where a problem is presented to be solved, the RIMS case competition asked a broader question; what PayPal risks are and what the best way to mitigate them is. This forced our team to spend weeks of research getting to know PayPal’s business environment, leveraging our findings with the guidance of our project mentor Philip Renaud, Executive Director of The Risk Institute. Our experience during that semester long project closely mirrored the profession of a risk consultant. We even had the opportunity to spend an hour in a conference call with one of PayPal’s C-suite executives.
To say that the Risk Institute creates value to the university by co-organizing case competitions and hosting networking events is an understatement. The Risk Institute serves as a host for ideas across different business disciplines, where all students can learn how to think about risk and how to act during a business crisis. Furthermore, The Risk Institute not only focuses on enhancing the education of Ohio State students, but they also host executive courses for professionals and share their industry expertise with the community of Columbus. The Risk Institute, through the active engagement of all its members, has made of my education at Ohio State a distinctive experience.
We often associate risk with something that has a negative connotation, while missing out on the fact that risk is faced with any unexpected outcome, whether good or bad. Before starting my master’s degree, I worked in a bank where for us, the word “risk” meant that there was a fair chance of events going awry.
When I started the SMF program at The Ohio State Fisher College of Business, The Risk Institute’s Monday evening sessions caught my eye and I soon realized that risk meant so much more. There were different aspects of risk such as financial, political, operational and cyber, to name a few. Risk management teams would work to ensure that the risks faced by an organization were mitigated/reduced.
The Risk Institute hosted educational sessions with an array of speakers to give insight into the diverse risks that their companies anticipated, faced and tackled. All these sessions were immensely informative and interesting. What I had anticipated being a subject with a negative connotation, turned out to be a whole new world of meanings. In addition to the guest speakers, Phil and Denita at The Risk Institute guided us in the scope of risk in this day and age, which led me to take on coursework for enterprise risk management.
As a part of the Enterprise Risk Management course, I worked on one of the risk projects for Abbott Nutrition at their Columbus Plant. The project seemed fairly simple on paper, however, as our team began working we soon realized its complexities. The scope of the project was a bit broad and we were still in the process of getting acquainted with the risks that Abbott Nutrition’s plant faced vis-à-vis other technical risks that we had studied in classrooms. We decided it would be best to seek out The Risk Institute’s advice on how to go about our project. Phil was more than happy to help us formulate a plan of action and to advise us on how such projects were done by The Risk Institute. Throughout the short term of our project, Phil, Denita and our sponsors at Abbott Nutrition were involved and continually provided feedback. This helped us in delivering a product that was ultimately appreciated by Abbott Nutrition.
In addition to the curriculum, the members of The Risk Institute have also helped me with my job search. They suggested prospective employers, networking events and connected me with professionals who have considerable expertise in the field of risk management.
To sum up my experience, it was wonderful working with the members of the Risk Institute and I plan to give back to The Risk Institute in whatever way possible in the future. I graduated in spring of 2017 from Fisher College of Business after completing my SMF degree. I am currently on the lookout for roles and opportunities.
In our interconnected, 21st century global economy, unexpected— black swan— events in one corner of the globe can have a ripple effect through global supply chains and impact customers like we have not seen in the history of global trade. In a January 24 session on supply chain resilience, we explored how companies who are prepared for such events can come out stronger and thrive, while others who may be less prepared or not at all, risk significant impact to revenue, brand and at the extreme, the very viability of the underlying business.
Session presenters included:
Joseph Fiksel, Executive Director of the Sustainable and Resilient Economy program at The Ohio State University and a faculty member in Integrated Systems Engineering. Dr. Fiksel is an international expert in sustainability and resilience with over 25 years experience in the space.
Keely Croxton, Associate Professor of Logistics at The Ohio State University. Dr. Croxton has a developed expertise in supply chain resilience, focused on helping companies balance their inherent vulnerabilities with their management capabilities in order to effectively mitigate disruptions in the supply chain.
Darrell Zavitz, Vice President (Retired) Shared Services/Supply Chain, The Dow Chemical Company. During his tenure with Dow, Darrell drove best practices into each of Dow’s businesses including Resilience, Six Sigma/Lean, and Network Design.
Between 1900 and 2010 global natural disasters have grown exponentially, arguably impacted by climate, global crowding and connectivity. With the frequency of black swan events accelerating, the traditional COSO Framework for Enterprise Risk Management (Objective Setting, Event Identification, Risk Assessment, Risk Response and Control Activities) is no longer a sufficient means to view the world.
Today, more than ever, risks cannot always be anticipated. The risks may be very hard to quantify and adaptation may be needed to remain competitive. Resilience strategies in turbulent times would suggest that a more comprehensive strategy to the abruptness of change and the magnitude of change is warranted.
The SCRAM (Supply Chain Resilience Assessment & Management) Tool™ is based on more than a decade of research at The Ohio State University and was highlighted as an alternative framework allowing companies to focus on balancing vulnerabilities with capabilities. With this balance, a business will achieve balanced resilience and improved performance over time.
An ability to assess vulnerabilities and capabilities, look for gaps and build capabilities is at its basic level the key to building supply chain resilience. The more resilient a firm is, the less likely the firm will see swings in performance.
SCRAM™ in Action
The Dow Chemical Company began SCRAM implementation several years ago. Their focus on supply chain resilience and being agile drove a strategy shift. The project was in three phases:
Phase 1: “Get Fit” | Manage the Cycle
Phase 2: “Change the Rules” | Dampen the Cycle
Phase 3: “Change the Game” | Break the Cycle.
The approach taken by Dow in its SCRAM implementation began with a rapid qualitative assessment. This included an electronic survey involving 30-40 business resources devoting an hour or so to the assessment. The SCRAM methodology was then used as a filter to prioritize and sequence business urgency (opportunity and commitment). Model those results and follow with and audit to value delivery.
Risk tolerance and resilience capabilities tend to change as companies grow.
Companies need to develop the right portfolio of capabilities to match the vulnerabilities they face.
Every disruption presents a learning opportunity.
A critical leadership requirement is to develop a culture of resilience in the organization.
To maximize return on investment, companies should design for inherent resilience.
Measuring and managing enterprise resilience is still an emerging field, ripe for collaboration between industry and academia.
Question: Do private equity returns and diversification benefits adequately compensate investors?
This is the debate swirling in investment circles, and it’s the question that researchers Berk A. Sensoy from The Ohio State University Fisher College of Business and Nicholas P.B. Bollen from Vanderbilt University work toward answering in their paper, “How much for a haircut? Illiquidity, secondary markets and the value of private equity.”
Private equity investments have illiquidity and market risks related to the timing of capital flows and require management fees that are usually two percent of investors’ capital commitments per year, plus performance fees typically equal to 20 percent of the profits. According to the researchers, the returns and diversification benefits do justify the risks and costs borne by investors.
The drawback is that secondary sales could result in discounts from fund net asset values of as much as 50 percent during financial crises. During other times, the discount could be 20 percent. Despite these discounts, the study finds that the historical performance and diversification benefits of venture capital and buyout funds, the main types of private equity firms, are sufficient to justify their risks and fees. For example, buyout funds have on average outperformed public equities by about 3% per year.
So what percentage of your portfolio should you allocate to private equity?
If you’re an extremely conservative investor with an extreme risk aversion, the researchers recommend that you should allocate no more than about 10 percent of your portfolio to private equity investments.
If you’re an investor with low to moderate risk aversion, you can comfortably allocate up to 40 percent of your portfolio.
To set yourself up for the best chance of success, the study notes that you should be particularly willing to take the risk of private equity investments if you can access average-performing funds.
While this study will certainly not end the debate, Bollen and Sensoy’s study shows that the returns and diversification benefits of private equity appear sufficient to compensate for the risks and costs for limited partners who have a broad range of risk preferences at portfolio allocations typically observed in practice. The findings offer limited partners a guide in making their portfolio allocation decisions.
If you want to dig deeper into this (and other) of the latest risk research, the full paper and accompanying translation are available on our website.
The Risk Management Association at Fisher College of Business in partnership with The Risk Institute held a case competition earlier this month which exposed its participants to the technical aspects of risk management while also developing their critical thinking and presentation skills.
Seven teams competed in the two-week competition, which culminated in presentations to an expert panel of judges: Nick Kaufman, Head Risk Manager at Battelle; Dr. George Pinteris, Associate Professor of Finance at The Ohio State University; Dr. Jay Wellman, Associate Professor of Finance; Daniel Chizever, Senior Director of Risk Management at Abercrombie & Fitch; Jonathan Caruso, Risk Manager at Express.
The winning team included John LaVange, junior; Sam Bernardo, senior; Zhe Wang, senior. Awards were also given out for Best Speaker — George Valcarcel and Carly Smith — and Best Q&A — Ryan Patrick.