Risk and Uncertainty

© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd.

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Definitions

•Risk and Uncertainty

•Risk–Measurable

•Uncertainty–Information missing

–Rumsfeld know knowns......

© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 2

Uncertainty/information availability

© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 3

Risk and reward•2x2 matrix

•Information incompleteness

•Contract incompleteness

–Provisions to cope with uncertainty

•Company procedures to anticipate risk/return

–Commercial management

•Client protection

–Design teams

© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 4

Influencing factors

© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd.

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Corporate governance

• Voluntary self regulation• Statutory requirements– UK corporate governance code• Opennes• Integrity• Accountability

– Companies Act– Turnbull report• Reporting on risk exposure

© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd.

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Capital

• Working capital–Definition

–Sources

•Loan

•Equity

–Where reported

•Balance sheet- current assets

© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 7

Flexibility and capital• Sources– Loans– Credit– PAYE

• Banks vs Shareholders– Capital gearing– Working capital ratios•Current/acid

•Liquidity

© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 8

Profitability

• Definition• Income gearing• Work in progress– Measurement of profit– Establishment of value– Establishment of cost

• Payment has no connection with value

© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd. 9

Insolvency

• Risks and their management• Limited liability• Instability– Coping strategies– Indicators– Links to industry demand and market

© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd.

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Credit control

• Definition• Debtor days• Creditor days• Management of income/expenditure

© 2013 Andrew Ross and Peter Williams. Published 2013 by John Wiley & Sons, Ltd.11