Growing in My Risk Perspective: SMF Graduate’s Story with The Risk Institute

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.

Post Executive Education Series, “Identify, Plan, Protect: Using Cyber to Your Advantage”

On April 19,2017,  The Risk Institute at The Ohio State University, Fisher College of Business held an engaging conversation, as part of its Executive Education series, on the topic, “identify, Plan Protect: Using Cyber to your Advantage”.

As we see on an almost daily basis, Cyber Risk and Crime has become a part of our lives. During the first few weeks of 2017, we witnessed a large restaurant chain’s register payment systems impacted and a large business services firm’s marketing database with over 33 million corporate contacts shared across the web. Without much difficulty multiple other examples are found that cross any number of industries.

We were fortunate to have had Ohio Attorney General Mike DeWine introduce the topic to our audience of executives. AG DeWine is passionate about Cyber Crime and Cyber Risk and its impact upon the citizens of Ohio.

The session focused on raising the conversation of the obvious current situation with regard to Cyber Risk and Crime, but also considered risk mitigants that businesses can take.  The speed at which crisis communication and Public Relations plans are treated and managed are certainly at the forefront of dealing with Cyber challenges within business.  So much so, that the phrase “Fiasco Vortex” has been coined (see Glass Jaw by Eric Dezenhall). In the 21st Century, communication never sleeps. We live in a 24/7 news cycle that demands a much different treatment to Cyber Risk and Cyber business continuity planning.

An organizations business continuity plans will need to be tested to respond to geographic specific exposure that could have wider impact upon the business and it customers. Our speakers highlighted, from their diverse experiences and backgrounds, how companies can take a proactive approach to Cyber Risk and Crime.

Session leaders, Helen Patton, CISO, The Ohio State University; Jim Trainor, SVP, Aon Cyber Solutions and former FBI head of the FBI Cyber Division, Washington, DC; David White, CIO, Battelle Memorial Institute; David Lyon, Senior Manager, The Crumpton Group, LLC, collaborated to provide insight into:

  • Cyber a View from the CISO Trench
  • Cyber Threat Landscape 2017 and Beyond
  • Cyber Security’s Impact on IT Operations
  • The Role of Intelligence in Cyber Attacks: Offense vs. Defense

The session emphasized how to proactively use risk management to balance the risks related to Cyber Risk in order to meet business goals and enhance business performance.

The session did an excellent job of creating thought provoking ideas and advancing The Risk Institute’s unique role in uniting industry thought leaders, academics and highly respected practitioners. This is an ongoing dialog to advance the understanding and evolution of risk management in our world today. The Risk Institute’s conversation about risk management is open and collaborative with its relevance across all industries and its potential for competitiveness and growth.

Identify, Plan, Protect: Using Cyber to Your Advantage

On April 19,2017, The Risk Institute at The Ohio State University, Fisher School of Business will be presenting as part of its 2017 Executive Education series, the topic “identify, Plan Protect: Using Cyber to your Advantage”.

As we see, almost on a daily basis, Cyber Risk and Crime have become part of our lives. During the first few weeks of 2017, we have seen a large restaurant chain’s register payment systems impacted and a large business services firm’s marketing database with over 33 million corporate contacts shared across the web. Without difficulty, multiple other examples are found that cross any number of industries.

We are fortunate to have Ohio Attorney General Mike DeWine introduce the topic to our audience. AG DeWine is passionate about Cyber Crime and Cyber Risk and its impact on the citizens of Ohio.

The session will look to raise conversation on the obvious current situation with regard to Cyber Risk and Crime, and will consider risk mitigants that businesses can take. The speed at which crisis communication and Public Relations plans are treated and managed are certainly at the forefront of dealing with Cyber challenges within business. So much so, that the phrase “Fiasco Vortex” has been coined (see Glass Jaw by Eric Dezenhall). In the 21st Century, communication never sleeps. We live in a 24/7 news cycle that demands a much different treatment to Cyber Risk and Cyber business continuity planning.

An organization’s business continuity plans will need to be tested to respond to geographic specific exposure that could have a wider impact upon the business and it customers. Our speakers will highlight, from their diverse experience and background, how companies can take a proactive approach.

Session leaders, Helen Patton CISO, The Ohio State University; Jim Trainor SVP Aon Cyber Solutions and former FBI head of the FBI Cyber Division, Washington, DC; David White CIO Battelle Memorial Institute; and David Lyon, Senior Manager Crumpton Group, LLC will collaborate to provide insight into:

  • Cyber a View from the CISO Trench
  • Cyber Threat Landscape 2017 and Beyond
  • Cyber Security’s Impact on IT Operations
  • The Role of Intelligence in Cyber Attacks: Offense vs. Defense

The session will emphasize how to proactively use risk management to balance the risks related to Cyber Risk in order to meet business goals and enhance business performance.

The session will provide thought provoking ideas advancing The Risk Institute’s unique role in uniting industry thought leaders, academics and highly respected practitioners in an ongoing dialog to advance the understanding and evolution of risk management. The Risk Institute’s conversation about risk management is open and collaborative with its relevance across all industries and its potential for competitiveness and growth.

Spencer Foundation Grant Enables RMA Students to host Ed Katersky

Managing trade risk in uncertain times

The threat of a trade war is greater than any point in the last 50 years.  Multinational firms must deal with the strategic risks of moving forward in a climate characterized by uncertainty with respect to foreign trade and investment.  In times of uncertainty, supply chain flexibility is an excellent strategy for risk mitigation.

Supply chain flexibility starts with postponing non-necessary capital expenditures and reducing unnecessary expenses such as travel or technology upgrades in the short term, with the idea of investing that cash once the path forward is more clear.  In an extreme situation, the extra cash may even be needed to support critical suppliers who otherwise might find themselves in distress as a result of the trade war.  If critical suppliers’ operations are impacted, the risk to your business may be more significant than just increased materials costs, especially if supplier stock-outs shut down your operations.

Other approaches to increase supply chain flexibility involve supply chain network design and strategic sourcing.  If you currently manufacture in Asia, or subcontract with suppliers who do, the recent withdraw of the U.S. from the Trans-Pacific Partnership (TPP) means that at the very least, you are not likely to see the decreased materials costs you were hoping would result from the TPP.  In a worst-case scenario, firms may face a 35% import tariff on products entering the U.S. from Asia.

Developing, or expanding your pool of domestic backup suppliers is critical.  While the costs may be higher than what you had planned, moderate price increases associated with moving to a U.S. based backup supplier may be better for your business than being subject to a 35% tariff or the potential supply chain delays that could result from economic turbulence associated with a trade war.

Consider moving some of your foreign operations back early.  This could lead to a positive public relations opportunity while mitigating the risk of disruption.  Subcontracted domestic manufacturing is another option for risk mitigation.  While domestic prices may not be as attractive as imports, domestic subcontractors are less likely to be impacted by trade turbulence and you may be able to negotiate their ownership of some of your productive assets and inventory, further freeing up capital.  This strategy preserves precious cash reserves for alternate uses later.

Nearshoring is also worth considering.  With the future of NAFTA in question and the Peso at affordable prices, there may be opportunities in partnering with a subcontractor just across the southern border.  This strategy is higher risk than subcontracting with domestic suppliers, but it may offer higher rewards.  If NAFTA is modified to include the rumored 20% tariff on imports or a border adjustment tax, the cheaper Peso makes investments into Mexico very affordable in the short run relative to Asian imports.  However, there is a risk that foreign direct investment into Mexico may bear losses as the U.S. leaving NAFTA completely would reduce demand for productive Mexican assets.  Mexico is an interesting high-risk proposition that should only be considered by companies with large Asian exposures, significant cash holdings, low degrees of operating leverage or that are in industries where the markets are not dominated by U.S. demand so they can take advantage of export opportunities if necessary.

Exploring an increased role for automation in your domestic operations is also recommended.  Automation is a great strategy for reducing the impact of a potential labor shortage in the U.S., or subsequent wage inflation for manufacturing workers.  If upgrading your automation is of interest, you may need to move quickly.  Once announcements of changes to U.S. trade policy happen, your competitors may also undertake automation projects.  This may leave automation and robotics suppliers with significant backlogs and increase your project’s lead-time.

If your product has a long shelf life and is unlikely to become obsolete over the next year, consider advancing production.  Importing now, while tariffs remain low and building up domestic finished goods inventory protects the margins on those units in inventory.  This may require renting additional storage space or short-term borrowing to fund the increase in working capital.  Increasing finished goods inventory is not a long-term strategy, but the extra inventory can buffer any rough periods of transition as you recalibrate your supply chain to deal with any new trade policies that we may see in the short-term.

With so much uncertainty, now is the time to invest in your backup strategy.  The strategy may be a Mexican partnership, domestic subcontractor, or reintroducing some of your own operations back to the U.S., positioning you to react quickly to policy changes and take advantage of opportunities that are likely to follow in the near term while your competition is still reacting to the news.  These are the times where supply chain flexibility and responsiveness offer a strategic advantage for leaders with vision.


Professor Gregory Sabin is a senior lecturer at Boston College’s Questrom School of Business.  Prior to that, he was a lecturer at The Ohio State University and a Fellow of The Risk Institute.  Professor Sabin helped start Fisher’s student led Risk Management Association.

OSU research institute leads nationwide initiative to curb distracted driving

The Risk Institute at The Ohio State University Fisher College of Business is leading a nationwide initiative comprised of dozens of companies, government entities, and researchers seeking to combine leading-edge research with industry expertise in order to predict and curb distracted driving behaviors. The project officially kicked off on Wednesday, February 22 at a roundtable discussion at The Fisher College of Business. 

“Distracted driving is an epidemic across the country. Every day you hear ‘distracted driving is killing people,’ and it is, but nothing is being done to figure out how to stop it,” says Phil Renaud, Executive Director of the Risk Institute. “That’s why we started this initiative — to create actionable change.” 

The number of fatal traffic accidents rose 7.2 percent nationally in 2015 according to the National Highway Traffic and Safety Administration. It is the greatest year-over-year increase since 1966. Distracted driving was a factor in about 10 percent of auto deaths; the exact percentage is difficult to determine due to privacy rules and other factors.

“Nationwide Insurance has a long history of promoting safety for our members,” says Larry Thursby, Vice President of Personal Auto Product and Pricing at Nationwide Mutual Insurance Company.  “We recognize that distracted driving is an issue and we’re looking forward to working with a team of professionals from across the country to find solutions that protect families in every community.”

The consortium identified a three-tiered approach: research, legislation, and technology.

Michael LaRocco, president and CEO of State Auto Insurance Cos., says that collaboration is the reason partnerships between industry, research, and government are crucial to a project like this saying, “This isn’t a problem that will be solved by legislation, research or technology alone. That’s why we’re working directly with researchers to apply their research to everything from car design and manufacturing to insurance, and using new technology to our advantage.”

Practical research application is a crucial component of this initiative, particularly behavioral research. 

“Understanding what makes people do what they do is the first step to changing that behavior,” says Ellen Peters, Professor of Psychology at The Ohio State University. “At a dangerous curve in the UK, for example, they played with drivers’ peripheral vision.  As drivers approach the curve, they see trees planted next to the road at decreasing distances apart. This funnel of trees creates a visual illusion that tricks drivers into feeling as if they’re speeding. As a result, people slow down.”

Renaud highlighted the Risk Institute’s involvement in bringing this project and all the involved partners together saying, “We are uniquely positioned to facilitate valuable conversation between academics and practitioners. The Risk Institute is rooted in research, dedicated to education, and committed to collaboration. This initiative is the perfect amalgamation of those values, and we are so excited to get started.”

Industry partners involved with the project are Honda Inc., Aon Benfield, Nationwide, NiSource, Ford, Motorists Insurance, DHL, State Auto, Freer Logic, True North and others. Representing the legal and governmental branches are the Ohio Attorney General’s Office and the Ohio Department of Insurance. Ohio-based Root Insurance, Smart Drive, Greenroad, and eDriving Fleet make up the technology voices in the conversation. A dozen researchers and thought leaders from OSU representing behavioral science, engineering, automotive research, risk and others make up the research arm of the initiative.

Show me the money

Are private equity investments worth the risk?

investment-trees

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.

 

Intellectual Property: Defense is the Best Offense

Intellectual property is worth a good strategy for risk management.Identifying a company’s intellectual property can sometimes be a fuzzy exercise, but it’s clear that failing to do so and not having a risk management strategy to safeguard a business’ “secret sauce” can lead to dire consequences. That’s especially true for startups whose only real asset may be the big idea that got them going in the first place.

Still, intellectual property and risk management consultants say companies may not be doing as much as they can to protect their IP assets, which can include everything from product formulas to customer lists.

Risk Institute Portraits Fisher Hall - Third Floor Feb-02-2016 Photo by Jay LaPrete ©2016 Jay LaPrete

Philip Renaud, executive director of the Risk Institute at Ohio State University’s Fisher College of Business

“I wonder if inside the doors people are having enough robust conversations about what their intellectual property is and what needs to happen to manage the risk,” says Steve Snethkamp, a partner in the Columbus office of EY. His consulting practice covers a variety of industries with a focus on information technology.

The stakes are high, he says, pointing to incidents in which the technology behind a new product has been stolen and implemented by overseas competitors even before the IP owners can get that product to market. And it’s not easy to manage that risk, especially with all the data that can be shared—and exposed—through the ever-increasing use of mobile technology and interconnected devices.

“There is no silver bullet,” Snethkamp says, “but the first thing (for companies) is to create a cultural awareness that security is important and IP is the lifeblood of the organization. That needs to be the mantra of every person in the company from the janitor to the CEO.”

Then businesses need to clearly define their intellectual property, identify where it is located, make an inventory of it and put in place controls, processes and procedures to protect it appropriately.

“It’s hard stuff to do,” Snethkamp says.

But it’s also essential given the findings of a 2013 study by the independent Commission on the Theft of American Intellectual Property. It estimated that international thefts of intellectual property have an impact of more than $300 billion annually on the US economy, costing the country millions of jobs and dragging down economic growth and investments in research and development.

Risk managers historically were focused on hard assets—buildings, equipment and inventory—but that has shifted to intellectual property and intangible assets such as copyrights, patents, technical processes, trade secrets, customer lists and distribution networks, says Philip Renaud, executive director of the Risk Institute at Ohio State University’s Fisher College of Business. He has worked in the risk management field since the early 1980s, including stints with L Brands, Kmart, Exel and Deutsche Post.

“It’s much more difficult to value an intangible asset and protect it,” Renaud says. “I can’t put a sprinkler system and firewall around a copyright.”

In his opinion, IP risk management in many cases becomes a defense strategy in which companies must educate team members about the importance of protecting the brand. That is particularly the case of detailing the risks when employees are working online and sharing data.

Such preventative steps are especially important, Renaud says, because of the difficulty and expense of stopping an IP infringement after the fact.

“That’s the greatest challenge,” he says. “If the company that has infringed on you is exposed, the only way to get there is through legal proceedings. That costs a lot of money.”

There is also the thorny issue of taking legal action when an IP infringement occurs overseas. “How do you get enforcement in China?” Renaud asks.

His best advice for companies is to make sure they understand their intangible assets—how they are used, their value to the business and how they are being protected.

When looking to protect intellectual property, companies should consider registering their rights with patents, trademarks and copyright, says Susan Rector, an attorney at the Columbus office of Ice Miller LLP. She represents companies in all aspects of IP ownership and information technology transactions.

“Inherently, taking the steps to register the rights to your intellectual property gives you a leg up,” Rector says. “That’s important from a defensive standpoint. It can also be used offensively against people who come too close to your (IP) rights.”

She works with a lot of startup companies that are building their business model around a proprietary product that is far and away their most valuable asset.

“Often it’s two guys, a laptop and an idea,” Rector says. “A lot of them will get big valuations (from investors), but people will only back them if no one else has done it. … They need to think about an intellectual property strategy early. If they don’t, they can lose their ability to protect that product or device.”

Intellectual property presents some specific challenges for risk managers, says Nicholas Kaufman, head risk manager at Battelle in Columbus.

First, it can be difficult to place a value on IP assets because they can be hard to measure, especially compared to property risks or auto liability. Second, Kaufman says there really is no insurance market for intellectual property because mature insurers tend to organize around areas they understand and know the likelihood of payouts on policies. That’s not the case with IP because of the difficulties in placing a value on the assets and calculating the risks to them.

Despite those issues, companies still need to have a risk management program in place for their intellectual property assets because the stakes can be so high. Kaufman says Battelle’s program takes an enterprise-wide approach in managing the IP risks for its range of products, services and research it conducts.

“We look at it holistically,” he says. “It’s not just about defending our intellectual property but making it as easy as possible for our scientists to create IP.”

Kaufman says intellectual property best practices start with an understanding of your organization and how IP brings value. Then it becomes a matter of aligning resources to protect that value.

The sooner that companies think about protecting new intellectual property the better, says Ari Zytcer, a Vorys, Sater, Seymour and Pease LLP attorney who has worked in the IP field for more than 10 years. But he also recognizes that can be easier said than done.

“In identifying intellectual property,” he says, “you’re starting in the dark. Is this going to be a commercially successful product or an intermediary that leads to something down the road that you would like to protect and stake a claim? You don’t know what aspects you’d like to protect (with a patent) … so we see broad coverage at the beginning. As development continues, you home in on what is commercially viable and blocking other companies from getting into that space.”

Zytcer also says there is no one-size-fits-all approach for IP risk management.

Small companies, for instance, have to consider whether it is best to spend limited resources on patent procurement versus funding research and development and breaking into a market. Large companies generally take a more holistic view with IP committees drawn from the business side—risk management, legal, finance and marketing for example—and R&D side of the enterprise. They track new inventions and make the call on the allocation of resources for patents, trademarks and other IP safeguards.

“Having a cohesive policy for the company is crucial,” Zytcer says. “It’s almost like a marriage. The right hand needs to know what the left hand is doing.”

Jeff Bell is a freelance writer.

Area Companies Learn to Navigate Political Risk

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Whether an organization is a multinational player or just starting to explore expansion into the global market, political risk cannot be ignored or underestimated. Political risk is taking on new forms, both real and perceived, and may be at its highest level since the Cold War.

In order to succeed, companies must elevate their awareness of inherent challenges of everything from political violence to currency inconvertibility.

On November 15, The Risk Institute at The Ohio State University Fisher College of Business welcomed dozens of area and regional professionals to Navigating Political Risk in Uncertain Times (part of this year’s Risk Series) — an executive education session that explored effective ways to manage political risk and gain insight on how to navigate the landscape and find potential for competitive advantage.

The Risk Institute is thankful for the informed leadership of our session experts: Les Brorsen, Americas Vice Chair Public Policy at EY; Professor Richard Herrmann, Professor & Political Science Department Char at The Ohio State University; Roger Schwartz, Senior Vice President at Aon Risk Solutions; and Sarah Brooks, Associate Professor of Political Science at The Ohio State University.

The session centered around three concepts:

  • Learning to identify, measure, and manage political risk
  • Examining the macro-level political risks that could affect business interests
  • Exploring the relationship between the state and market in social and economic relations

The session’s thought provoking ideas and dialogues advanced The Risk Institute’s unique role in uniting industry thought leaders, academics and highly respected practitioners in an ongoing dialog to advance the understanding and evolution of risk management. The Risk Institute’s conversation about risk management is open and collaborative and relevant across all industries.

Start the New Year off right — registration is now open for our next Risk Series on supply chain resilience on January 24, 2017. We’ll see you there!

Navigating Political Risk in Uncertain Times

social-media-politicsJoin us on November 15 at 10 a.m. to explore effective ways to manage political risk and gain insight on how to navigate the landscape and find potential for competitive advantage.

Whether your organization is a multinational player or just starting to explore expansion into the global market, political risk cannot be ignored or underestimated. Political risk is taking on new forms, both real and perceived, and may be at its highest level since the Cold War. Companies have to elevate their awareness of inherent challenges of everything from political violence to currency inconvertibility.

Executives will learn:

• To identify, measure, and manage political risk

• To examine the macro-level political risks that could affect your business interests

• About the relationship between the state and market in social and economic relations

The Institute will welcome Les Brorsen, Americas Vice Chair Public Policy at EY; Professor Richard Herrmann, Professor & Political Science Department Char at The Ohio State University; Roger Schwartz, Senior Vice President at Aon Risk Solutions; and Sarah Brooks, Associate Professor of Political Science at The Ohio State University.

If you’re interested in attending, contact Denita Strietelmeier at (614) 688-8289 or send an email to RiskInstitute@fisher.osu.edu. For more information about this and the upcoming sessions in our Risk Series, please visit our website.