Risk Management

 

Instructor:

Alexander V. Bukhvalov, Doctor of Science, Professor, Head of Department of Finance and Accounting, Graduate School of Management, St. Petersburg University

Workload:

6 ECTS,

45 hours of classes

Prerequisites:

Corporate Finance I (with basics of options analysis)

Goals and objectives:

This course is devoted to strategic treatment of uncertainty. Uncertainty, and its associated risks, is not avoidable. It is impossible to manage these risks (like it is impossible to manage earthquakes and hurricanes) but it is necessary to maintain a company appropriately in non-predictable environment. This is the essence of risk management approach.
The course material is divided into two parts. Part I is devoted to the concept of the real options analysis (ROA), which provides both theoretical framework and workable instrument of decision making in uncertain business environment. Numerous mini-cases and cases are discussed.
Part II is devoted to the implementation of risk management in modern internal control. Financial risks are consequences of real risks in company’s core product market. In accordance to the modern paradigm it should be maintained primarily in the corporate governance framework with active role of the board.

Course Content:

Part I. Real Options

Topic 1. Introduction to Real Options Analysis (ROA): from SWOT analysis to ROA. Resource-based view of firm’s strategy
Topic 2. Valuation and decision making
Topic 3. Valuation and fundamental quadratic approach
Topic 4. ROA and simulation analysis
Topic 5. ROA implementation—Cases: Merck (1993), Intel (1982–2013), stylized cases

 

Part II. Modern Internal Control in Large Corporations

Topic 6. MM-theorem for Risk Management policies
Topic 7. Corporate governance and internal control. Strategy, uncertainty and internal control
Topic 8. Board of directors, internal control and “say no” principle. Case: Enron (2001)
Topic 9. Cases: KONE, Nokia, Apple, Adobe, Sony
Topic 10. Group presentation

Course Organization:

Interactive lectures, case studies, group project/presentation.

Course Reading:

Compulsory literature list:

  • [B] Benninga S. Financial modeling. 4th ed. The MIT Press. 2014.
  • [BMA] Brealey R.A., S.C. Myers, and F. Allen. Principles of Corporate Finance. 9th ed.. McGraw-Hill, 2008. Chapters 21–23, 27–28.

 

Supplementary literature list:

  • [AK] Amram M., and N. Kulatilaka. Real Options. Managing Strategic Investment in an Uncertain World. Harvard Business School Press. 1999. This book is available in the reading hall and through GSOM’s electronic subscription to Books 24x7 collection.
  • [BMA–SM] Solutions Manual for use with [BMA], 9th ed. This book is available in the reading hall.
  • [G] Grant R.M. Contemporary Strategic Analysis. 7th ed. Wiley, 2010. Chapters 1–5. This book is available in the reading hall.
  • [GT] Grinblatt M., and S. Titman. Financial Markets and Corporate Strategy. 2nd ed. Pearson, 2002. Chapters 11–13, 21-22.
  • [H] Hull J.C. Options, Futures, and Other Derivatives. 6th ed. Pearson, 2006. Chapters 11–15.
  • [COSO] Moeller R.R. COSO Enterprise Risk Management: Establishing Effective Governance, Risk, and Compliance. 2nd ed. Wiley & Sons, 2011. This book is available through GSOM’s electronic subscription to Books 24x7 collection.

 

Required papers:

  • Bukhvalov A.V., and B. Bukvalova. 2011. The Principal Role of the Board of Directors: the Duty to Say “No”. Corporate Governance. 11 (5): 629–639
  • Nichols, N., 1994. Scientific management at Merck: an interview with CFO Judy Lewent. Harvard Business Review 72: 89–99

Final Exam:

The final exam is based on the whole course issues and materials: theory, materials from articles, presentations, and discussions during the course.
Written exam, 90 minutes, closed book

Grading Policy:

Exam 70%, coursework 30%.
Coursework consists of the following elements:

  • Assignments (20%)
  • Group project (10%)

 

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