BUS460 Operational Risk Management
Management is largely about handling uncertainty; Short-term uncertainty in demand, price, transit times or the weather, as well as longer-term uncertainties from regulation, competition or other external or internal factors. Without uncertainty, planning and management would be very simple. Some uncertainty can be handled financially, but most cannot. The following topics will be discussed:
- Our intuitive understanding of uncertainty from behavioral psychology.
- What makes a decision (or the principles behind it) right? How can we say that an approach is incorrect?
- Why what-if analysis scenario analysis does not work.
- The relationship between strategic, tactical and operational decisions when handling uncertainty.
- The use of real options theory (not the mathematics), including its limitations and strengths?
- The concept of regret and other alternatives to utility theory.
- The dynamics of decisions; what is known when?
- The role of luck in decision-making.
- The IQ of hindsight.
- The value of information - what can we use if for?
- The role of reactive and proactive decision rules. How can we measure the difference?
- The role of rolling horizon approaches.
The course will not use complicated tools, only provide an understanding of what the tools actually provide ¿ often contrary to what they claim to provide.
Difficulty of the course: The course is technically simple, but conceptually challenging.
The course will give students knowledge about how to handle uncertainty with operational tools, and develop understanding of what can go wrong if decisions are made based on intuition. In particular
Knowledge: Upon completion the student
- understands how decisions under uncertainty are made when quantitative tools are not used; How intuitive decision making can lead us astray in systematic ways,
- understands how uncertainty should be handled in both risk neutral and risk averse companies,
- understands what different quantitative modeling ideas provide, and where they go wrong, and thereby be a good buyer of decision support systems.
Skill: Upon completion the student is
- able to handle uncertainty of any kind in operations, by understanding the connections between strategic, tactical and operational decisions,
- able to argue coherently about uncertainty and its effects on service and operational flexibility.
Competences: Upon completion the student can
- reflect critically on theories, methods and tools within operational risk management, read relevant literature.
The course will be a mix of lectures and casework. Some weeks will be free from teaching, and the emphasis will be on the analysis of relevant cases.
Requirements for course approval
Requirements for course approval
One case study, in English, in groups of at most three must be approved.
A second case study in groups of at most three (50%) plus a 3 hour written school exam (50%). The exams can only be written in English.
Daniel Kahneman, Thinking Fast and Slow, Penguin Books, 2011, Parts II and III. Students are advised, but not required, to read the whole book.
A compendium developed by the instructor.
Cases from the literature.
- ECTS Credits
- Teaching language
Stein W. Wallace