EX ANTE EVALUATION OF EXPECTED RISK MANAGEMENT PERFORMANCE.

Abstract

The subject of this study is the impact of risk management on company value, and the methods and formalized financial models used as a tool for quantitatively measuring this impact. The goal is to develop a methodology and practical tools for analyzing and evaluating risk management decisions based on the value created, for the preliminary justification and selection of the most effective risk treatment option. This paper formalizes, substantiates, and illustrates with a comprehensive example an approach according to which the ex ante financial assessment of the impact of risk management decisions on company value is based on direct scenario modeling of the expected effects of risk decisions. To assess expected performance, a financial model was constructed based on discounting the expected capital cash flow at a rate that takes into account only systematic risks. It was also established that managing the uncertainty component of idiosyncratic risks creates value not by reducing the discount rate, but through additional expected cash flows that arise indirectly. The approach presented can be used to justify the choice between alternative methods of processing identified risks based on the assessment of expected performance expressed in value creation, and to construct KPIs for risk management units with subsequent control based on “plan-fact” analysis.