Dr. Etti Baranoff, an Associate Professor of Insurance and Finance at Virginia Commonwealth University in Richmond uses @RISK in her business school class, ‘Managing Financial Risk’. In this class, students apply Value at Risk (VaR) analysis to understanding the measures of risks and applying tools for risk management.
The students use @RISK to analyze which accounting data inputs can be most damaging to a company’s net income and net worth of a selected company. For Amazon, the students found that risks to ‘Property, plant and equipment’ and ‘reputation’ have the highest possibility to destroy net worth.
Dr. Baranoff says they were able to draw conclusions about how Amazon should plan for the future: “In order to have high sales revenue, Amazon will need to maintain an excellent reputation and stay at competitive prices to avoid reputational risk and decline in market share,” she says. “Also, to avoid weather disruption risk and supply chain interruption risk, Amazon will need to diversify the locations of its properties and keep the warehouses spread across the country.”
For FedEx, the students made similar conclusions around the key risk drivers: “FedEx has strategically diversified itself to compete effectively in the global market place…Property Plant and Equipment was a big influence on net worth, but the company is constantly evaluating and adjusting this factor, so that there are no shortages or excesses.”
For Dr. Baranoff, @RISK’s ease of use is a major reason for making it the tool of choice for her classroom. “And, at the end of the day, it gives us good viewpoints to compare the results among the cases,” she says. “The stories and the results lead to debate, and provide lots of fun in the classroom as the whole class become a risk committee.”
Read the full case study here.