Abstract:
A method of projecting a future condition of a business entity by identifying a plurality of risks and a plurality of opportunities for the business entity and evaluating at predetermined times a potential impact of each of the risks and each of the opportunities on the future condition of the business entity. Determining at each of the predetermined times for each of the risks one of a probability that the risk will come to pass during a predetermined period of time and a frequency at which the risk will come to pass and determining at each of the predetermined times for each of the opportunities one of a probability that the opportunity will become available to the business entity during a predetermined period of time and a frequency at which the opportunity will become available to the business entity. Projecting at each of the predetermined times the future condition of the business entity based on the potential impact of each of the risks and opportunities and based on the determinations with respect to the one of frequency and probability for each of the risks and opportunities.

Description:
INCORPORATION BY REFERENCE 
     U.S. Provisional Patent Application 60/238,416 filed on Oct. 6, 2000 and entitled “A System and Method for Managing Risk and Opportunity” to the same inventors named in the present application is incorporated hereby, in its entirety, by reference. 
    
    
     BACKGROUND INFORMATION 
     Businesses, whether they are large multinational corporations or locally owned single proprietorships, operate in a business environment characterized by an ever increasing number of risks that arise in the ordinary course of business. These risks arise from such factors as the increasing globalization of markets, intensifying competition and the development and use of new and complex technologies. Such risks are inevitable, because most businesses cannot engage in any meaningful form of commerce without accepting these risks. 
     There are a variety of factors, both internal and external, which in combination make it important for corporations to implement a structured approach to managing risk. The factors may include both commercial realities, legal requirements and other non-commercial factors. Commercial realities may include, for example, global competition for capital which means that one goal of the officers and directors of a business is to increase shareholder value to enhance the appeal of the corporation to current and potential investors, thereby fueling growth. Other commercial realities include the globalization of markets which results in increased competition and more complex and substantial risks, where each local market within the global economy may create risks unique to that market. Additionally, the rapid changing and evolution of markets, including new competitors, new technologies, new customer requirements, the compression of response times, and the increased use of outsourcing add to the risks and the complexities of these risks faced by modern business entities. 
     In certain jurisdictions throughout the world, business entities are required by law to ensure that there is an appropriate system in place to handle risk management. Also, other entities such as insurance companies and capital investment firms may require that a business entity identify and manage risks before they will indemnify or infuse capital into the business entity. A final example of another entity that may require a structured risk management program is a potential long term customer. For example, before signing a long term purchase contract, the customer may want assurances that the supplier business entity will be able to fulfill the entirety of the contract. One manner of providing those assurances may be to show a structured approach to handling risk and dealing with consequences. 
     SUMMARY OF THE INVENTION 
     A method of projecting a future condition of a business entity, comprising the steps of identifying a plurality of risks and a plurality of opportunities for the business entity. Evaluating at predetermined times a potential impact of each of the risks and each of the opportunities on the future condition of the business entity and determining at each of the predetermined times for each of the risks one of a probability that the risk will come to pass during a predetermined period of time and a frequency at which the risk will come to pass. Also, determining at each of the predetermined times for each of the opportunities one of a probability that the opportunity will become available to the business entity during a predetermined period of time and a frequency at which the opportunity will become available to the business entity. Projecting at each of the predetermined times the future condition of the business entity based on the potential impact of each of the risks and opportunities and based on the determinations with respect to the one of frequency and probability for each of the risks and opportunities. 
    
    
     
       BRIEF DESCRIPTION OF DRAWINGS 
         FIG. 1  shows an exemplary revenue forecast. 
         FIG. 2   a  shows an exemplary organizational structure for implementing a risk/opportunity management scheme on a corporate function level at an exemplary corporate entity. 
         FIG. 2   b  shows an exemplary organizational structure for implementing a risk/opportunity management scheme on a product line basis at an exemplary corporate entity. 
         FIG. 3  shows an exemplary process for risk and opportunity management. 
         FIG. 4  shows an exemplary checklist for the identification of risks in an exemplary risk and opportunity management process. 
         FIG. 5  shows an exemplary risk/opportunity table for quantifying the potential frequency of a risk or opportunity coming to pass. 
         FIG. 6  shows an exemplary embodiment of a risk/opportunity management system. 
         FIG. 7  shows an exemplary risk and opportunity categorization model having multiple risk/opportunity categories and sample risk/opportunity areas. 
         FIG. 8  shows an exemplary process flow for the automation of an exemplary risk/opportunity management process. 
     
    
    
     DETAILED DESCRIPTION 
     The present invention may be further understood with reference to the following description and the appended drawings, wherein like elements are provided with the same reference numerals. In describing the exemplary embodiments of the present invention, the specification generally refers to the entities engaging in business and commerce as corporations. Examples of entities, other than corporations, that engage in commercial transactions include partnerships, sole proprietorships, etc. Those skilled in the art will understand that the present invention may be implemented by any “for-profit” entity, as well as charities, foundations, non-profit organizations, etc. 
       FIG. 1  shows an exemplary revenue forecast chart  1  for a corporation. Expected revenue  2  is charted against time  3  resulting in exemplary revenue curve  4 . However, there are factors that can move the revenue forecast in either the positive or the negative direction. Positive changes may result in the revenue forecast being revised up to exemplary revenue curve  5 , while negative changes may result in the revenue forecast being revised down to exemplary revenue curve  6 . The negative effects, which may be termed “risks,” are dangers that events, acts or omissions may obstruct a corporation in the achievement of its objectives or the successful implementation of its strategies. Risk includes all these events, internal or external to the corporation, that have the potential to threaten the success of the company, and is not limited to unexpected negative developments. For example in  FIG. 1 , at time  11  the forecast is for revenue  12 . However, because of potential risks, there may only be actual revenue  13  at time  11 . The positive effects in the revenue forecast may be termed “opportunities.” An opportunity is the potential that an option which may help the corporation to achieve its objectives or its strategic goals may be available in the future. For example in  FIG. 1 , at time  10  the forecast is for revenue  14 . However, because of potential opportunities, there may be actual revenue  15  at time  10 . Those skilled in the art will understand that the quantification of risks and opportunities is not limited to revenue forecasts, but can be applied to other monetary forecasts, for example, earnings, sales, etc., and non-monetary forecasts, for example, market share, number of employees, new technologies, new applications, new product/process developments, etc. 
     The managing of these risks and opportunities will be referred to as risk/opportunity management. Additionally, throughout this description the terms risk and opportunity may be used singularly. However it should be understood that unless specifically referred to as applying to risk or opportunity only, these terms refer herein to both risks and opportunities. The processes and functions described herein for managing risk may be equally applied to the management of opportunities. Risk/opportunity management includes the activities and measures associated with the identification, evaluation and handling of risks and opportunities. Risk/opportunity management is not aimed at removing all risks, but rather at identifying and developing opportunities while assessing the risks encountered in the normal course of business. An integrated and clearly structured risk/opportunity management framework can help support the maximization of equity values in a corporation. Such a structured system includes, for example, clear roles defining responsibilities and expectations for managing risks and opportunities to maintain risk at a desired level, early risk/opportunity identification to allow early and effective decisions, an effective and efficient process and/or processes for identifying risks, a focus on key opportunities and risks, identification of risk accumulations and risk escalations in a particular sector or business unit, and the improvement of risk awareness. However, each individual corporation should focus its risk/opportunity management structure based on its business strategies and goals. For example, a multinational automobile company most likely has strategies and goals different from those of a local service industry business, or even a multinational semiconductor company. Thus, risk/opportunity management is not self-serving, but should be part of a company wide solution to optimize the risk-return relationship. 
     A risk/opportunity management system may be tailored to reflect the unique characteristics of an individual organization, but there may be some common fundamental elements that form the foundation of a comprehensive risk/opportunity management system. These elements may include, risk/opportunity management policies and guidelines, a risk/opportunity management organization, a well-defined risk/opportunity management process and risk/opportunity culture and communication. Each of these elements will be described in greater detail below along with supporting instruments and tools, which include risk/opportunity identification, risk/opportunity categorization, risk/opportunity evaluation and risk/opportunity analysis. 
     Risk/Opportunity Management Policy and Guidelines: The formulation and authorization of a risk/opportunity management policy at the corporate level illustrates management&#39;s commitment to implement and continuously develop risk/opportunity management within the corporate organization. The policy should set out the objectives and elements of risk/opportunity management within the organization and assists in promoting risk/opportunity awareness among employees and integrating risk/opportunity management in the corporate culture. Also, corporate management based on its knowledge and understanding of the corporation&#39;s strategies and goals, should formulate risk/opportunity management policies in a manner designed to accomplish these specific goals. A risk/opportunity policy will include, for example, the corporation&#39;s objectives and strategy for handling risk/opportunity, general requirements for risk/opportunity management and the general organizational structure for the management of risk/opportunity and the various parties&#39; responsibilities within the organizational structure. The corporate risk/opportunity policy may be implemented via a series of detailed policies and guidelines for different risk/opportunity areas or regarding specific risk/opportunity management strategies. 
       FIG. 2   a , for example, shows an exemplary organizational structure for implementing a risk/opportunity management scheme at an exemplary corporate entity. In this exemplary corporation, corporate management  50  has formulated a risk/opportunity management scheme that is focused on corporate functions, for example, accounting  60 , sales  70  and engineering  80 . Those skilled in the art will understand that the risk/opportunity management organizational scheme is not limited corporate functions, but may be organized along any line best suited for a particular organization, for example, business unit, division, product line, etc. Corporate management  50  may define the policies and guidelines for each of the corporate functions  60 - 80  to compliment long term corporate strategy. Corporate management  50  may, for example, state that the engineering function  80  is responsible for risks/opportunities associated with lead times for designs, with the procurement of raw materials and with capital projects. Similarly, the accounting function  60  and sales function  70  may be assigned responsibility for risks/opportunities most closely associated with those functions. Along with assigning risks/opportunities to each of the particular corporate functions  60 - 80 , corporate management  50  may also assign to each of corporate functions  60 - 80  the goals and objectives they should accomplish with their risk/opportunity management scheme. 
     In general, corporate management  50  will set overall policy and guidelines for each of corporate functions  60 - 80 , but will leave the responsibility for implementing these policies to the individual corporate functions  60 - 80 . For example, each of corporate functions  60 - 80  may implement a series of specific and detailed policies to implement the overall policy assigned to that function by corporate management  50 . Accounting function  60  may implement specific policies  61 - 66 , sales function  70  may implement specific policies  71 - 76  and engineering function  80  may implement specific policies  81 - 86 . To follow through with the example above, specific policy  81  of engineering function  80  may be to implement a risk/opportunity management policy for design lead times, specific policy  82  may be to implement a risk/opportunity management policy for raw material procurement and specific policy  83  may be to implement a risk/opportunity management policy for capital projects. There may also be any number of sub-policies or guidelines within each of these specific policies that are needed to fully implement the goals proscribed by corporate management  50 . The specific policies implemented by corporate functions  60 - 80  or the overall corporate policies formulated by corporate management  50  may be written, but there is no specific requirement that the policies be written, they may be communicated by any means to the individuals responsible for carrying out the risk/opportunity management policy. 
       FIG. 2   b  shows an exemplary organizational structure for implementing a risk/opportunity management scheme at an exemplary corporate entity. In this exemplary corporation, corporate management  50  has formulated a risk/opportunity management scheme focused on product lines: for example, product line A  100 , product line B  110  and product line C  120 . 
     Similar to the description above for  FIG. 2   a , corporate management  50  may define the policies and guidelines for each of the product lines  100 - 120  to compliment long term corporate strategy. Meanwhile, each of individual product lines  100 - 120  may implement a series of specific and detailed policies to implement the overall policy assigned to that product line by corporate management  50 . For example, product line A  100  may implement specific policies  101 - 106  to accomplish the risk/opportunity management goals it is assigned by corporate management  50 . 
     Risk/Opportunity Management Organization: In  FIG. 2   a , risk/opportunity management organization  90  is interposed between corporate functions  60 - 80  and corporate management  50 . In this exemplary structure, each of corporate functions  60 - 80  report to risk/opportunity management organization  90  which acts as a buffer or filter for corporate management  50 . Risk/opportunity management organization  90  is responsible for reporting risk/opportunity to corporate management  50  for the entire organization. In some instances, risk/opportunity management organization  90  may be distributed throughout the organization in each of corporate functions  60 - 80 , or in some cases, a group that performs the function of risk/opportunity management organization  90  may be centrally located, physically and/or organizationally. 
     The role of risk/opportunity management organization  90  may include review of the risk/opportunity management responsibilities of each of corporate function  60 - 80  to determine that the responsibility corresponds to the business responsibilities of each function. For example, sales function  70  may have been initially assigned the responsibility for managing risk/opportunity associated with the collection of payments from customers because the sales organization made the sales and has the most contact with customers. However, in the business structure of the organization, accounting function  60  may be responsible for collections, and therefore, the responsibility for risk/opportunity related to this may be more properly suited to accounting function  60 . Risk/opportunity management organization  90 , with the approval of corporate management  50 , may be responsible for reallocating such a risk/opportunity responsibility. Similarly, risk/opportunity management organization  90  may also be responsible for the avoidance of inefficiencies in the risk/opportunity management responsibilities including the avoidance of gaps and overlaps in the risk/opportunity management responsibilities across the entire organization. For example, risk/opportunity management organization  90  may be tasked with identifying all areas of risk/opportunity within the organization and assuring that the responsibility for each of these areas is assigned to one, and only one, of corporate functions  60 - 80 . Likewise, it may be the responsibility of risk/opportunity management organization  90  to resolve disputes among corporate functions  60 - 80  as to areas of risk/opportunity responsibility. 
     Risk/opportunity management organization  90  may also be tasked with the reporting of risks and opportunities to corporate management  50 . To provide meaningful reports, risk/opportunity management organization  90  must ensure that each of corporate functions  60 - 80  records and reports their risks and opportunities in a uniform manner so that each individual report may be combined into a comprehensive report detailing the risks and opportunities for the entire organization. Risk/opportunity management organization  90  may also be assigned the task of corporate training for risk/opportunity management. Such training may be used to ensure that the optimum approach to risk/opportunity identification, handling and control processes are used throughout the organization. This does not mean that each of corporate functions  60 - 80  use the same risk/opportunity identification, handling and control processes, just that the most optimum processes for each function are used. The manner in which risk/opportunity management organization may accomplish such a task may be through the review of each of the specific policies implemented by corporate functions  60 - 80 , for example, specific policies  61 - 66 . Through such a review, risk/opportunity management organization  90  may identify potential problems in the policy and recommend solutions to these problems. These reviews may also identify unique solutions to risk/opportunity management that may be implemented throughout the organization. Finally, these reviews may also be used to accomplish the goal of uniform reporting by each of corporate functions  60 - 80 . 
     Risk/Opportunity Management Process: The objective of the risk/opportunity management process is to identify and evaluate risks/opportunities, handle and monitor these risks/opportunities efficiently and ensure ongoing risk/opportunity reporting for informed decision making. The risk/opportunity management process embraces the whole spectrum of activities and measures concerned with the systematic management of risk/opportunity within the corporation. The overall objective of the risk/opportunity management process is to optimize the risk-return relationship, to eliminate unacceptable risks and capitalize on worth-while opportunities. 
       FIG. 3  shows an exemplary process for a risk/opportunity management system. In step  150 , risks/opportunities are systematically identified. There are numerous methods that may be employed to systematically identify risks/opportunities that may be used alone or in conjunction to assist the risk/opportunity identification process. These methods include, for example, checklists, structured interviews, workshops, questionnaires, surveys, evaluation of planning and control documents and the analysis of flow charts. In addition to risk/opportunity identification, the root causes of such risks/opportunities may also identified so that the risk/opportunity may be properly evaluated in later steps. One of the keys to exploiting the information generated by a risk/opportunity management system is the timely identification of risks/opportunities. Therefore, risk/opportunity identification step  150  should be an ongoing process that occurs on a regular basis. For example, risk/opportunity identification step  150  may be performed on a weekly, monthly or quarterly basis. 
     In order to effectively identify all risks/opportunities faced by the business, the risk/opportunity universe may be broken down into several manageable risk/opportunity categories. Risk/opportunity may be categorized as causes, events, impacts and strategies. A cause may be, for example, an unstable manufacturing process. An event may be, for example, a regional crisis, environmental catastrophe or a strike. Impacts may be on, for example, assets, earnings, cash flow and reputation. Finally, strategies may be, for example, insurance for suitable risks. A risk/opportunity categorization model based on causes may be effective because it makes the management and control of risks effective by identifying root causes which allow treatment before the causes turn into symptoms. It also helps to identify risk/opportunity owners and assign responsibilities for risk/opportunity management and thus provides a basis for monitoring compliance with the risk/opportunity management responsibilities. Such a categorization model also assists in the identification of areas of accumulations and escalations of risk/opportunity arising from a single cause. The model selected, whatever it may be, should be designed to allow a generic approach applicable to all different kinds of business, allow the creation of comprehensive checklists and/or questionnaires containing all risks/opportunities faced by the corporation, supply a basis for consistent terminology to avoid ambiguity and support the identification of risk/opportunity owners and the allocation of roles and responsibilities within the risk/opportunity management process. 
       FIG. 7  shows exemplary risk/opportunity categorization model  350  having multiple risk/opportunity categories  351 - 357  and sample risk/opportunity areas The exemplary risk/opportunity categories illustrated in  FIG. 7  include general business risks/opportunities  351 , operations management risks/opportunities  352 , financial risks/opportunities  353 , information technology risks/opportunities  354 , purchasing risks/opportunities  355 , legal and compliance risks/opportunities  356 , and human resources risks/opportunities  357 . Each of risk/opportunity categories  351 - 357  may be defined to ensure common terminology throughout the corporation and consistency in the application of the standard risk/opportunity categorization model. Those skilled in the art will understand that each of the exemplary risk/opportunity categories  351 - 357  may be further sub-categorized to more narrow areas of focus. For example, general business risks/opportunities  351  may have subcategories of market/industry risks/opportunities and business management risks/opportunities. Similarly, operations management risks/opportunities may have subcategories of technology and product development risks/opportunities and manufacturing and logistics risks/opportunities. 
     General business risks/opportunities  351  are changes to the external environment or changes made to the business strategy in response to this external environment, which alter the ability to continue to provide target performance, for example, market cycles and competitor behavior. A risk associated with market cycles may be an unexpected or excessive drop in the demand for a product, while an opportunity associated with market cycles may be an increase in demand for a product. Similarly, operations management risks/opportunities  352  are risks/opportunities within the value chain process or the supporting process, for example, manufacturing process stability. Likewise, each of remaining risk/opportunity categories  353 - 357  have associated risks/opportunities as shown by the exemplary risks/opportunities illustrated in  FIG. 7 . Those skilled in the art will understand that every risk may not have a corresponding opportunity and vice versa. For example, in financial risks/opportunities  353 , interest income is an opportunity, but there is no corresponding risk to the opportunity of interest income. In information technology risks/opportunities  354 , there may be a risk of the misuse of information systems, but there are no opportunities associated with this risk. 
       FIG. 4  shows an example of a checklist  200  that may be used to identify risks/opportunities in risk/opportunity identification step  150 . Exemplary checklist  200  is aimed at the identification of financial risks/opportunities. However, those skilled in the art will understand that such checklists may be generated for any area where risks and opportunities are present. Exemplary checklist  200  is separated into three main areas, instructions  210 , risk/opportunity categories  220  and other risks/opportunities  230 . Instructions  210  are self explanatory and indicate how the individual should fill out checklist  200 . Risk/opportunity categories  220  list a number of risks/opportunities  221 - 228  that are subcategories of financial risks/opportunities. For example, credit management  223  may be both a risk and an opportunity, while country risks  225  may only be a risk. Risk/opportunity categories  220  also has three columns  241 - 243  for the identification of risks/opportunities. In filling out column  241 , the individual will check each of risks/opportunities  221 - 228  that apply to their area. For example, if currency fluctuations  221  are a risk/opportunity for the particular entity filling out checklist  200  that line would be checked in column  241 . In column  242 , the individual is instructed to indicate which of risks/opportunities  221 - 228  are most essential to the area within this risk/opportunity category, financial risks/opportunities. In this exemplary embodiment, the responsible individual is to indicate the five risk/opportunity areas that are most essential to the area. It may be that financial risks/opportunities are not essential to the responsible individuals area and therefore, none of the boxes in column  242  may be checked. For example, the individual may be filling out all the risk/opportunity checklists for a product line and in this particular product line financial risks/opportunities are not essential, but purchasing risks/opportunities are essential. Therefore, for example, three out the five most essential risks/opportunities may be identified in the purchasing checklist. Finally, in column  243 , the individual is requested to check those of risks/opportunities  221 - 228  for which they have a responsibility. Other risks/opportunities  230  is essentially the same as risk/opportunity categories  220  except that the individual has an opportunity to add additional risks/opportunities that are not specifically listed in risk/opportunity categories  220 . Exemplary checklist  200  may be followed-up with an interview by risk/opportunity management organization  90  to identify the root causes of the risks/opportunities identified by checklist  200  and also to determine if additional risks/opportunities identified in other risks/opportunities  230  should be permanently added to checklist  200 . Those skilled in the art will understand that risks/opportunities which have their source in financial transactions may be more readily identified and subsequently evaluated through an analysis of accounting and other transaction related records, rather than through the use of a checklist. 
     Returning to  FIG. 3 , the risk/opportunity management process then continues to step  160  where the risk/opportunity is evaluated. Risk/opportunity evaluation includes quantifying the impact of the various risks/opportunities to determine the potential severity/advantage and the probability of each of these risks/opportunities occurring. From this, the potential frequency of each risk and opportunity is determined. One of the objectives of step  160  is to measure the relative importance of risks/opportunities to enable decisions to be made on priorities and on the most appropriate form of treatment. One exemplary method of determining the potential frequency is to assign a varying degree of probability to each risk/opportunity.  FIG. 5  shows an exemplary risk/opportunity table  250  for quantifying the potential frequency of a risk/opportunity occurring. In exemplary table  250 , column  251  shows five categories of risk/opportunity frequency, while column  252  shows a qualitative relative measurement of the frequency of each category, for example, very low, low, etc. Column  253  shows a quantitative measurement of the frequency of each category. For example, risk/opportunity category  4  with a qualitative assessment of high has a 40-60% probability of occurring within the given time period. The use of this information will be described in greater detail below. 
     Quantifying the impact of the risk/opportunity to determine potential severity/advantage may include assigning a monetary value to the risk/opportunity were the eventuality to occur. Those skilled in the art will understand that there are many methods of assigning monetary values to different risks/opportunities. One manner of assigning a monetary value may be based on the EBIT (earnings before interest and taxes). For example, if there was a risk associated with the procurement of raw material that would result in the loss of a $1,000,000 order, such a risk/opportunity may be quantified as a $100,000 risk based on the projected net profit from the order. Whereas, other risks/opportunities may not be as easy to quantify, methods do exist to quantify their value. For example, strategic or industry alliances may be an important opportunity for a corporation in an industry that has high barriers to introduction of new products. Such strategic alliances may allow the corporation to reduce manufacturing costs and create options for future development of product lines. Such strategic alliance opportunities may be quantified based on operating cost savings or market share gains based on being the first to market with a product. The severity/advantage of the risk/opportunity may then be multiplied by the probability that risk/opportunity will occur to arrive at a quantified relative measurement of the risk/opportunity versus other risks/opportunities. Following through with the example started above, if the $100,000 risk had a high probability (40-60%) of occurring, the quantified risk would be a $40,000-$60,000 risk. The risk-return relationship of this risk can then be evaluated against other risks so that the risks can be prioritized to allocate and focus limited risk handling resources on the most important risks. Returning to  FIG. 3 , the process then continues to step  170  where risk/opportunity handling occurs. Risk/opportunity handling is the use of cost-efficient measures and mechanisms to reduce the potential impact of the risk should it occur and/or to reduce the expected frequency of its occurrence and to maximize the potential impact of an opportunity should it arise and/or to increase the expected frequency of its occurrence. Similarly, if it is a opportunity, the goal is to exploit the potential impact of the opportunity and/or increase the expected frequency of its occurrence. Some of the potential options include risk avoidance which is the withdrawal from the activity where additional risk/opportunity handling is not cost effective and the returns are unattractive in relation to the risks faced. For example, the $40,000-$60,000 risk described above may be unattractive compared to the potential reward of only $100,000 when compared to the risk. Another option may be activities and measures designed to reduce the probability of negative occurrences and/or minimize the severity of its impact should it occur. Some examples of these actions include hedging, loss prevention, crisis management, business continuity planning, and quality management. Once again, using the exemplary risk described above, it may be possible to arrange for a contingent supplier of raw materials at a slightly higher price were the risk of the first supplier failing to supply the raw material to occur. If such an arrangement can be made, it may reduce the expected impact of the risk, and therefore be more attractive to enter into supply contract. 
     Other options may include risk transfer which are activities and measures designed to transfer to a third party the responsibility for managing risk or liability for the financial consequence of a risk should it occur. The most common examples of risk transfer are the purchasing of insurance and subcontracting out a specific activity while obtaining indemnification from the subcontractor. Finally, there is risk acceptance where the additional risk handling may not be cost effective, but the potential returns are attractive in relation to the risks faced. Once again, returning to the example above, the return of $100,000 on a $40,000-$60,000 risk may not be attractive, however, there may be a potential opportunity for follow-on contracts having a total value of $10,000,000. In this case, the potential opportunity for a higher return may be attractive in relation to the risk and the risk will be accepted. 
     Before performing risk/opportunity handling step  170 , the risks/opportunities may be prioritized based on the evaluations performed in risk/opportunity evaluation step  160 . However, after risk/opportunity handling step  170 , the risks/opportunities may be re-prioritized because of the risk/opportunity handling measures applied during this step. This re-ordering of the risks/opportunities may then be used to determine whether a risk position is acceptable or whether certain steps necessary to prepare for a potential opportunity are justified and may be used to determine which risk/opportunity handling procedures will have the greatest influence on the expected outcome. For example, it may be determined that the risk/opportunity handling option of risk transfer offers the greatest benefit to the corporation because the net risk of each of the risks/opportunities that this approach was used on has the greatest decrease in quantitative risk after risk/opportunity handling step  170 . 
     The process then continues to step  180  for risk/opportunity control which includes risk/opportunity reporting and monitoring. Key risks and opportunities including the risk/opportunity handling measures are reported. This supports the availability of relevant risk/opportunity information at all levels of the organization and ensures the adequacy of the risk/opportunity handling. This monitoring and control aids in the timely notification of fundamental changes in risks and/or opportunities and identifies new threats or opportunities presented to the corporation. Additionally, the monitoring and reporting evaluates the viability of risk/opportunity handling methods used in step  170  and identifies any problems or possible enhancements to these methods. Finally, the reporting step allows for the evaluation of the risk/opportunity management process and risk/opportunity management system as a whole to ensure the continued suitability and robustness of the system. 
     There are measures and indicators which can be used to illustrate certain risk/opportunity situations and/or the suitability of risk/opportunity handling measures. For example, in the area of information technology (IT) risks, there may be a risk that the information technology systems, e.g., computer network, will become unavailable for use. In step  170  there may be risk/opportunity handling measures employed to minimize this risk. The measured actual percentage of availability of the IT systems is then used to determine if the risk/opportunity handling measures were adequate or are in need of enhancement. Another example in the area of financial risks may be that customers will not pay in a timely fashion. Once again, in step  170  there may be risk/opportunity handling measures employed to minimize this risk. The actual amount of overdue receivables is then used to determine if the risk/opportunity handling measures were adequate or if additional measures need to be implemented. As described above, the same procedures may also be applied to opportunities and to measure the adequacy of opportunity handling measures. For example, in the general business opportunity area, a certain quantified value of business opportunity in the form of possible gain in market share may be identified in step  150 . This opportunity may then be evaluated and handled in steps  160  and  170 . Then, it is possible to measure the actual gain in market share to evaluate the adequacy of the opportunity handling measures. Other exemplary measures and indicators that may be used to judge the adequacy of risk/opportunity handling measures may be business volume, first pass yield of production, planning accuracy, currency volatility, number of IT support inquiries, average frequency of re-tendering, average delivery lead time, percentage of purchasing volumes with dominant suppliers, legal claims and notifications, regulatory investigations, staff satisfaction, staff turnover, and average time of sick leave. The process then reverts back to step  150  and remains a continuous process within the organizations management scheme. 
     It may be possible to automate portions of the risk/opportunity management process.  FIG. 8  shows an exemplary process flow chart for the automation of portions of evaluation step  160 , risk/opportunity handling step  170  and risk/opportunity controlling step  180  of the exemplary risk/opportunity management process described with respect to  FIG. 3 . A risk/opportunity analysis generator (ROA generator) may be a computer based tool designed to compile and analyze risk and opportunity related input. In step  400 , the responsible individual may input data into the ROA generator after identifying a risk or opportunity in step  150  of  FIG. 3  through the use of, for example a checklist. The data may be, for example, a description of a particular risk/opportunity, the EBIT impact of the potential risk/opportunity and the potential frequency of the risk/opportunity occurring. Those skilled in the art will understand that the ROA generator may also include a pre-stored set of risks and opportunities, along with or separate from quantified values, for example an EBIT, and potential frequencies. This pre-stored data may be compiled based on the corporation&#39;s knowledge and experience base with well known risks/opportunities and their impact on the business. Such a knowledge base also allows responsible individuals throughout the corporation to share information and input consistent data into the overall risk/opportunity management process. Furthermore, it allows responsible individuals to gain an understanding of the scope and breadth of risk and opportunity as it is seen by other responsible individuals throughout the corporation. 
     In step  410 , the ROA generator may then multiply the EBIT by the potential frequency to determine an expectancy value of the risk or opportunity. The ROA generator in step  420  may then rank the risks and opportunities based on the expectancy values to determine the relative importance of each risk and opportunity. As part of the ranking of risks and opportunities, the ROA generator may, for example, set thresholds for risk/opportunity handling methods. For example, all risks below a certain expectancy value may be eliminated because the continued cost of handling these risks may be greater than the actual impact to the corporation. Therefore each of these risks may be accepted and no further handling will be needed. Similarly, there may be a very high threshold value where all risks are avoided, or at least flagged to be immediately reported to senior management before further handling costs are incurred, because the risk is so great that it could be a threat to the existence of the corporation. Similarly, opportunities above a certain threshold value may be flagged for immediate reporting to senior management to determine how best to take advantage of the opportunity. Those skilled in the art will understand that there are numerous other thresholds that may be set to signal a certain action be taken with respect to an individual risk or opportunity. In step  430 , the ROA generator may determine where risks and opportunities are aggregating. For example, the ROA generator may determine that there are numerous risks/opportunities aggregating in one particular product line or that there are risks/opportunities aggregating with one supplier. The ROA generator may flag such aggregation points of risk or opportunity so that appropriate strategies for dealing with these risks or opportunities may be formulated. 
     The process then continues to step  440  where the ROA generator may suggest risk/opportunity handling measures for individual risks/opportunities. Once again, the ROA generator may draw upon the knowledge base of the corporation in dealing with similar risks/opportunities in the past. For example, if one product line has successfully handled a particular risk or opportunity in the past, when such a risk or opportunity appears for a second product line, the ROA generator may suggest the particular risk/opportunity handling measure that had previously proved successful. Similarly, the ROA generator may flag risk/opportunity handling measures that were unsuccessful in the past. Suggestions such as these foster a common understanding of risk and opportunity which supports the corporation in its efforts to consistently apply common handling measures for risk and opportunity. In step  450 , the ROA generator may apply the risk/opportunity handling measure selected by the responsible individual and recalculate the expectancy value of the risk/opportunity based on risk/opportunity handling measure. For example, if there was a $1,000,000 risk that was dealt with by using a risk transfer measure in the form of purchasing insurance having a $50,000 deductible, the ROA generator may recalculate the expectancy value to be $50,000 times the potential frequency. Likewise, other risks and opportunities where risk/opportunity handling measures have been applied may have their expectancy values recalculated and ranked. Again, the ROA generator may include a knowledge base of quantified risk/opportunity handling measure&#39;s effects on the expectancy values of certain risks/opportunities. The new rankings, in addition to showing the relative importance of each risk and opportunity, may also yield information on the risk/opportunity handling measures that are expected to yield the greatest benefit. 
     The process then continues to step  460  where the actual operating experiences of the corporation may be input into the ROA generator. This actual data may then be used by the ROA generator to compare to the expectancy values of each of the risks and opportunities to determine the efficiency of the risk/opportunity management system. Such comparison may yield a wealth of information on the expectancy values of risks/opportunities, the frequency with which certain risks/opportunities actually occur and which risk/opportunity handling measures are most effective. These results may also be used for reporting purposes and to judge the overall efficiency of the risk/opportunity management system. 
     Risk/Opportunity Culture and Communication: The effectiveness of every risk/opportunity management measure depends on effective implementation of the risk/opportunity management scheme by corporate employees. Corporate management in promoting the risk/opportunity policies must effectively stress the importance of risk and opportunity awareness and the understanding of risk/opportunity situations within the corporation. Factors which promote such a risk/opportunity aware culture include, for example, a corporate philosophy and management style that factor in risk/opportunity management into corporate decision making, a trust in the competence and abilities of employees to recognize risk and opportunity and effective horizontal and vertical communication. 
     Communication is an important factor in an effective risk/opportunity management system. Factors which promote efficient communication within a corporation include a common risk/opportunity language enabling all parties involved in risk/opportunity management to communicate clearly and on a consistent basis. Risk/opportunity management organization  90 , as described with respect to  FIG. 2   a , may promote a common risk/opportunity language by providing glossaries and reviewing the specific policies of each individual group to ensure that consistent terminology is used. Another factor in effective communication is a prompt transmission of risk and opportunity situations along both horizontal and vertical channels to enable timely decision making. This can be encouraged by ensuring that communication of bad news is not punished but rather taken as an opportunity for constructive development. Finally, a free exchange of information across hierarchical and geographic barriers ensures that the corporation effectively uses the accumulated knowledge and experience of all participants in the risk/opportunity management system. Once again, risk/opportunity management organization  90  may be instrumental in reporting unique risk/opportunity management solutions or risk/opportunity management problems throughout the corporation. 
     Second Embodiment:  FIG. 6  shows another exemplary embodiment of a risk/opportunity management system having a three pillar approach. The first pillar consists of business units  300  in charge of and responsible for risk/opportunity management within the framework of each of their business responsibilities. The second pillar includes staff departments  310  and corporate risk/opportunity management department  320  that support business units  300  and have responsibility for risk/opportunity policy setting, risk/opportunity oversight and for developing tools and standards for the implementation of risk/opportunity management. As will be described in greater detail below, staff departments  310  may also have some responsibilities in the day-to-day management of risk/opportunity within a business unit. The third pillar is corporate audit department  330  which is responsible for providing independent assurance as to the implementation and effectiveness of the risk/opportunity management system. The roles and responsibilities of each of these departments will be described in greater detail below. 
     Business units  300  are responsible for the ongoing identification and evaluation of risks/opportunities within the business and selecting and implementing risk/opportunity management measures on a day-to-day basis. Business units  300  may be responsible for the entire risk/opportunity management process, for example, the exemplary risk/opportunity management process described with respect to  FIG. 3 . In addition to the risk/opportunity identification and evaluation, this may include reviewing the effectiveness, efficiency and suitability of the risk/opportunity management process and maintaining efficient and cost effective risk/opportunity handling mechanisms. Keeping these functions in business units  300  allows for a rapid response to the changing business environment because each of individual business units  300  is closest to its particular business. Business units  300  may also be responsible for reporting functions, including the regular reporting of key risks and opportunities, regular reporting of risk/opportunity handling measures and the reporting of significant breakdowns in risk/opportunity handling measures to prevent a recurrence in that business unit and other business units throughout the corporation. Business units  300  may also manage certain risks/opportunities through the use of facilities and services provided by staff departments  310 . For example, accounts receivable risks for business units  300  may be handled by the treasury department which is a staff department  310 . 
     Staff departments  310  may play a risk/opportunity management role at both the corporate level and at a business unit level. To the extent that staff departments  310  have responsibilities for day-to-day risk/opportunity management functions, their responsibilities may be coextensive with business units  300 . Staff departments  310  may assign risk/opportunity management specialists to individual business units  300  to handle particular risks/opportunities according to their specialities. However, the main focus of staff departments  310  is at the system level rather than at the operational level where business units  300  operate. Each of staff departments  310  may be assigned a specific risk/opportunity area with appropriately trained individuals for the assigned risk/opportunity area. For example, one staff department may specialize in financial risks/opportunities, while another specializes in purchasing risks/opportunities. The manner in which a corporation categorizes its risks/opportunities, for example, cause, event, etc., should assist in illustrating corresponding areas of activities of staff departments  310  within the risk/opportunity management system. Staff departments  310  may be responsible for preparing risk/opportunity policies for their risk/opportunity areas in line with the corporate risk/opportunity policy. Furthermore, staff departments  310  may be responsible for developing guidelines and methodologies to assist business units  300  in implementing the risk/opportunity management system. For example, a staff department specializing in financial risks/opportunities may prepare generic guidelines for the identification, evaluation, management, reporting and monitoring of financial risks/opportunities. Each of business units  300  may then integrate these generic financial risk/opportunity guidelines into its overall program to implement a risk/opportunity management system tailored for their business. In addition to providing policy direction, staff departments  310  may also offer advice in relation to their specific risk/opportunity area and provide other assistance to business units  300 . 
     Training of business units  300  to be aware of risks and opportunities in specialized risk/opportunity areas may also be a function of staff departments  310 . Once again, open communication between staff departments  310  and business units  300 , along with communication lines to the other pillars of the risk/opportunity management system, corporate risk/opportunity management department  320  and corporate audit  330  should be fostered to create a corporate culture fully ingrained in risk/opportunity management. Those skilled in the art will understand that there should be open lines of communication between all the pillars of the exemplary risk/opportunity management system of  FIG. 6 . Finally, staff department  310  may also have a monitoring responsibility for each of business units  300  to ensure adherence to the corporate risk/opportunity policy and guidelines. 
     The aim of corporate risk/opportunity management  320  is to develop and promote a value enhancing risk/opportunity culture in a constantly changing commercial environment. This includes the promulgation and promotion of risk/opportunity awareness, the development of a comprehensive risk/opportunity management system and providing business units  300  and staff departments  310  with the tools necessary for accomplishing these goals. The responsibilities of corporate risk/opportunity management  320  may include the preparation and implementation of a corporate risk/opportunity management policy throughout the corporation, the designation of risk/opportunity responsibilities, and the development of common risk/opportunity management standards. Corporate risk/opportunity management  320  may also analyze the assessments of risks and opportunities, as well as the risk/opportunity handling measures developed by business units  300  while identifying major interdependencies and areas of risk and opportunity accumulation. For example, corporate risk/opportunity management  320  may determine that two or more business units  300  have interdependencies because of overlapping or complimentary product lines. For example, a first business unit may sell a particular integrated circuit product line, while a second business unit may sell printed circuit boards on which the integrated circuit product line of the first is placed. Corporate risk/opportunity management  320  should recognize such interdependencies and account for this in the corporate decision making process. Similarly, when a single supplier provides raw materials to multiple business units  300 , corporate risk/opportunity management  320  should recognize that there is an accumulation of risk/opportunity in this one supplier, whereas, individual business units  300  may not be able to make the connection because they are not aware of suppliers relations with other business units  300 . This same manner of recognition also applies to opportunities. For example, a first business unit may have a particular customer which would be a natural fit for a second business unit. Corporate risk/opportunity management  320  may have the responsibility for making connections such as this. 
     To make these connections and recognize interdependencies, corporate risk/opportunity management  320  may prepare comprehensive risk and opportunity reports based on the reports coming in from individual business units  300  and staff departments  310 . As described above, business units  300  may be responsible for the complete spectrum of risk and opportunity management for their businesses which may include the quantification of risk and opportunity as described previously. These reports may form the basis on which corporate risk/opportunity management  320  prepare comprehensive risk and opportunity reports for the entire corporation. Finally, corporate risk/opportunity management  320  may provide ongoing generic risk/opportunity management training including the sharing of risk/opportunity management knowledge and best practices, and the identification of risk transfer strategies in accordance with established risk retention levels. 
     Corporate audit  330  provides independent assurance of the risk/opportunity management system and the processes supporting it. Its role within the risk/opportunity management system is to review the overall effectiveness, efficiency and suitability of the risk/opportunity management process at the system level. Corporate audit  330  may also be responsible for testing compliance with the risk/opportunity management framework at all levels and identifying the potential impact of weaknesses of the risk/opportunity management system. It may also include making spot checks of the risk/opportunity evaluation and the suitability of risk/opportunity management measures employed by business units  300 . 
     As described above, business units  300  perform all the steps of the exemplary risk/opportunity management process described with respect to  FIG. 3 . This risk/opportunity management process employed by business units  300  may be considered an operative risk/opportunity management process. This operative risk/opportunity management process should be designed to identify, evaluate, handle and monitor the day-to-day risks/opportunities of business units  300  by implementing the risk/opportunity management system and tools. The corporate risk/opportunity management process implemented by corporate risk/opportunity management  320  may use the same steps as the operative risk/opportunity management process. However, the purpose of the corporate risk/opportunity management process is to ensure a common corporate approach toward risk/opportunity identification, evaluation, handling and monitoring and that all relevant information concerning risks/opportunities is available at the corporate level. 
     In the exemplary risk/opportunity management system illustrated in  FIG. 6 , monitoring and reporting is an important responsibility shared by all groups within the system. For example, each business unit  300  may be responsible for monitoring and reporting risks/opportunities and risk/opportunity handling measures and the development and implementation of risk/opportunity management action plans for its business. Staff departments  310  may be responsible for monitoring and reporting adherence to the risk/opportunity policy and guidelines set for their specific risk/opportunity area. Corporate risk/opportunity management  320  may be responsible for the monitoring and reporting of the overall risk/opportunity management system, including the changes resulting from business trends, while corporate audit  330  may be responsible for monitoring and reporting the adequacy and effectiveness of the risk/opportunity management system. 
     In the preceding specification, the present invention has been described with reference to specific exemplary embodiments thereof. It will, however, be evident that various modifications and changes may be made hereunto without departing from the broadest spirit and scope of the present invention as set forth in the claims that follow. The specification and drawings are accordingly to be regarded in an illustrative rather than restrictive sense.