Decision tree. Risk planning and value презентация

A decision tree is a graphical method that shows the sequence of strategic decisions and proposed sequence in every possible unit of circumstances 2

Слайд 1Decision tree


Слайд 2A decision tree is a graphical method that shows the sequence

of strategic decisions and proposed sequence in every possible unit of circumstances

2


Слайд 3Building the decision tree begins with the earliest decisions and moves

forward in time through the successive events and decisions

3


Слайд 54
Because of every decision depends on the assessment of the events

that will occur later, the tree decision analysis begins at the end of the sequence and moves back

Слайд 6

The decision tree analysis



5

Starting from the top right part of the

figure the firms analyst calculates the expected value, if the price is high and if there is competition




Слайд 7Risk planning and price of risk


Слайд 8For the risk it is characteristic that the probability of outcomes

can be evaluated statistically

Potential profit and loss can be included in the cost structure of the firm

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Слайд 9In-house risk
Concerns possible losses that firms prefer to include in the

cost structure in advance instead of buying insurance against such losses

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Слайд 10If the number of accidents within the firm is large enough

so that they can be predicted,

the management may determine the probability of loss and add it to the other costs

Ех:

If the average estimated losses of the company can be predicted for the current period, then they can be insured in the company, regarding them as the cost of doing business

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Слайд 11Determination of the possibility of such damages can be part of

the planning of the company under condition of allocation of reserve in case of damage or unforeseen circumstances



Слайд 12Therefore, banks regularly write off bad loans, and the usual practice

in accounting is unpaid invoices for any business that has a receivables

Слайд 13Occurs if the number of observations within one company is not

large enough so that the management can predict the damages with reasonable accuracy

Intercompany risk


Слайд 14When considering a lot of firms, the number of observations becomes

large enough to be able to demonstrate the necessary stability of predictions

Слайд 15Examples of such risks are fire,


Слайд 16floods,


Слайд 17storms and other natural disasters


Слайд 18The burden of forecasting passed on insurance companies
The insurance companies have

large base of certain cases

Since the heads of companies are not able to predict such damage to their firms


Слайд 19The likelihood of loss cannot be set for a particular firm,

but the likelihood of loss, covering many businesses can be predicted with a minimum error

Р




Слайд 20Insurance company predicts cumulative risk of all firms that she secures

and distributes the total cost of the anticipated losses by charging each firm fee, called a premium

Слайд 21Insurance premium becomes part of the cost structure of the insured

company

Слайд 22The insurance company must decide what premium to charge based on

estimated losses + administrative costs and profit

Слайд 23The manager, trying to avoid risk, should decide whether to buy

or not to buy insurance, based on the estimated cost of operations of the company and its utility functions

Слайд 24Функция полезности
Ех:


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