Supply Chain Risk Management

Supply Chain Risk Management A global supply chain is subject to various types of supply and demand uncertainties existing at different nodes of the supply chain giving rise to a variety of risks that can lead to disruption. Companies that stay on top of supply chain risk make their businesses more resilient. They can enhance the companys competitive position, support growth and produce measurable returns. Many companies have recognized this and are now undertaking supply chain risk management programs This research paper reviews published approaches to supply chain risk management and tries to understand how the risks differ in two major industries-electronics and pharmaceuticals. For managers, it provides knowledge of the types of risks that may be present in their supply chain and presents a variety of strategies for identifying and managing the same. Introduction Globalisation, multiple channels to market, the pressure to run lean supply chains extending beyond traditional organisational boundaries, and the need to embrace external parties such as contract manufacturers and logistics service providers, have left the modern supply chain increasingly vulnerable to risk and to possible disruption. Economic disruptions including currency fluctuations, commodity price volatility, and sudden downturns in demand and ownership or investment restrictions imposed by governments have become more frequent and more visible since the financial crisis of 2008. Despite significant growth in international trade, cross-border movements are vulnerable to customs regimes, tariff and non-tariff barriers, quota systems, security concerns and infrastructure bottlenecks. All these risks can be clubbed into- macroeconomic, extended value chain, operational and functional risks. Almost two-thirds of the respondents to a global survey conducted by Mckinsey consisting of executives, say that the risks to their supply chain have increased over the past years. A significant of them also agreed to the fact their companies dont take any steps to mitigate these risks. (Source: September 2006 Mckinsey Quarterly global survey of business executives) Thus there is a clear need to review risk management practices as they pertain to both long-term strategic and short-term tactical decision-making. Organizations should review their risk exposure against objective, transparent criteria, with costs balanced against the benefits of potential methods for mitigating risk. . There are two sides to supply chain risk management: Risk assessment and mitigation Response to supply chain disruption Both are necessary components to an effective supply chain risk management strategy. With strong risk mitigation strategies in place a company is ready to face a given supply chain event. However, not all events may be anticipated. When these events occur, accompany must be prepared to respond quickly and effectively or risk suffering financial and customer service losses. Both the quantitative and qualitative risks will be covered through this paper. A step by step approach to tackle SCRM is proposed:- Assessing risk To assess risk, an inventory of key risks is build, along with the effects and probabilistic likelihood of each risk. A supply chain probability and impact matrix needs to be built. Designing a framework to manage the supply chain Once assessed, supply chain risks need to be managed via a framework that integrates all the key risk capabilities required. Implementing supply chain risk mitigation Companies need a robust action plan funded with the appropriate resources to address the core of the risk issues and implement treatment. The objective of this paper is to propose a comprehensive risk management and mitigation model for global supply chains. The model is intended to equip managers with a step-by-step procedure to identify, assess, and manage risks in their global supply chains, and guide future research. The paper reviews various risk mitigation techniques proposed in different papers in this subject and tries to understand its significance in the electronics and pharmaceutical industry. Literature Review Manuj and Mentzer (2008) say that due to demanding customers and competitive pressures, businesses today are restructuring themselves to operate on a global basis to take advantage of the international product, factor, and capital markets. There are several concerns in operating globally, including economic, political, logistical, competitive, cultural, and infrastructure. Typically, a firm operating internationally is part of a complex supply chain. Global supply chains require highly coordinated flows of goods, services, information, and cash within and across national boundaries. Maximizing profits in a multi-national environment include sourcing from locations that offer the lowest total procurement cost, manufacturing and assembling products in least cost countries, and marketing in high potential demand centres. But Wright and Datskovska (2012) are of the opinion that through lean processes and the geographical concentration of production, most executives would probably say tha t their supply chains and transport networks have become more efficient. These advances in efficiency, however, have also changed the risk profile for their supply chains. Janat Shah (2009) proclaims that lean techniques have created chains with longer paths and shorter clock speeds resulting in more opportunities for disruption and a smaller margin for error for a disruption to take place. Lengthy supply chains are increasingly proving to be a source of concern in the face of disruptions in sourcing, production and distribution of goods and services. As a result, many organizations need to take a hard look at supply chain risk and to review their plans and procedures for dealing with a broad range of new contingencies. Supply chain risk classification Wagner and Bode (2008) describes a supply chain risk as the combination of (1) an unintended, anomalous triggering event that materializes somewhere in the supply chain or its environment, and (2) a consequential situation which significantly threatens normal business operations of the firms in the supply chain. We can describe a five step approach to supply chain risk management- Risk Identification, Risk Assessment and Evaluation, Selection of Appropriate Risk Management, Implementation of Supply Chain Risk Management Strategy and Mitigation of Supply Chain Risk. Different authors have described various classifications of risk sources. Various supply chain risks can be divided as Supply, Operational, Demand, Security, Macro, Policy, Competitive and Resource risks. Chopra and Sodhi (2004) classify them as Disruption, Delay, Forecast, Systems, IP, Procurement, Receivables, Inventory and Capacity risks. Juttner, Peck and Christopher (2004) simplifies the classification to environmenta l risk sources, network-related risk sources and organisational risk sources. Risk assessment Pramod Kumar Mishra (2011) says that decisions on supply risks can be taken only when the impact of risks on the companys business can be evaluated. This can be quantitative or qualitative depending on the resources available. Risk assessment involves exploring what if scenarios like those below can help groups identify, understand and prioritize risks, a key prerequisite to tailoring effective risk-mitigation strategies. Manuj talks of two methods-probabilistic choice and risk analysis methods depending on the repeatability of events. Janat Shah has described constructing a probability and impact matrix to assess risk. Historical data may be used to understand the behaviour of risk probability distributions. However, there are many instances when there is none, inadequate, or unreliable historical data. In such cases, techniques such as the Delphi method may be used to assign probabilities. But Iyer(2008) says that this exercise is challenging because the relationships between risk factors are not static. One decision or risk factor may impact other risk factors. Risk mitigation Risk management is focused on identifying and assessing the probabilities and consequences of risks, and selecting appropriate risk strategies to reduce the probability of, or losses associated with, adverse events. Basically risk mitigation strategies can be classified primarily into seven categories: avoidance, postponement, speculation, hedging, control, sharing/transferring, and security. Hult, Craighead and Ketchen (2010) have suggested real options based method. Janat Shah has created a matrix with investment required for mitigation and risk score as the axis to decide the mitigation plan. Juttner, Peck and Christopher (2004) in there paper have defined an approach based on avoidance, control, cooperation and flexibility. Avoidance is through dropping product lines, markets, supplier or partners. They define a control approach through increasing stockpiling and buffer inventory, maintaining excess capacity and imposing contractual obligations. Cooperation is mentioned to be thr ough joint efforts in information sharing and preparing continuity plans. Flexibility can be through multiple sourcing and localised sourcing. Blos, Wee and Yang (2009) have devised a framework based on business continuity planning. Depending on the demand and supply uncertainty, the authors have also defined a matrix aligning the strategic objectives of the firm with the supply chain objective and the mitigation plan to be followed. An efficient, responsive, risk hedging and agile supply chain each have different plans. There are also devised methods for continous risk monitoring-stress testing and Tailoring Risk Management approaches. Trade-off The biggest challenge companies face is mitigating supply-chain risks without eroding profits. Juttner, Peck and Christopher (2004) summarised the trade-off decision as (1) Repeatability versus unpredictability, ie trading the benefits of repeatable processes against the cost of a lack of flexibility; (2) the lowest bidder versus the known supplier; (3) centralisation versus dispersion decisions in production and distribution; (4) collaboration versus secrecy, ie while sharing more information on e.g. the results of risk audits would better place organisations to manage supply chain risks, it could also deter potential customers or weaken the bargaining position; (5) redundancy versus efficiency, ie managing the conflict between excess capacity in a supply chain and the efficiency-focused lean paradigm aiming at the elimination or reduction of waste. A final, maybe paramount supply chain trade-off decision is between managing risk and delivering value. This is the trade-off between t he extra costs related to most of the mitigating strategies and the total costs of supply as a main principle of contemporary supply chain management. Risks in Pharmaceutical industry Enyinda, Mbah, Ogbuehi (2010) reports on the empirical findings of the quantification of risks that decision makers consider most important when deciding on a risk portfolio to mitigate and the manner in which risks are prioritized according to their importance in the pharmaceutical sector. The empirical findings suggest that decision makers attached great importance to counterfeit, Food and Drugs Board, and exchange-rate fluctuations. With respect to risk-mitigation strategies, risk reduction is considered most important, followed by risk avoidance. Dynamic sensitivity analysis with respect to a change (increase) in the Food and Drugs Board did not result in any change in the ranking of risk policy options, while a change (increase) in counterfeit resulted in a change in the ranking between risk reduction and risk avoidance. Risk avoidance ranked number one, followed by risk reduction. The paper leverages the analytic hierarchy process (AHP) to quantify risk mitigation. Greg Brandyberry (2010) reports five important trends in risk management practices in the pharmaceutical industry. Sensible cash-flow management: With the changing environment of increased regulation, price controls, generic-drug competition, and longer and more expensive research and development cycles, pharmaceutical and biotechnology companies have become much more focused on supply-chain cash-flow management strategies (following the lead of other industries that began implementing these strategies as many as 25 years ago). These strategies consist of a combination of programs that strive to better balance cash inflows versus cash outflows. Better balance of low cost versus low risk. Global supply chains have been under development across pharmaceutical industry since decades. Outsourcing, combined with low-cost country sourcing, is even riskier. The US Food and Drug Administrations recall of heparin in 2008 due to contamination of lots produced in China is another example. In this heparin recall, the drug was oversulfated as Chinese heparin manufacturers were unethically cutting the medication with chondroitin sulfate to cut down on manufacturing costs. This incident had devastating impacts on those who had chosen to use this Chinese supplier. FDA reported that there were hundreds of serious adverse reactions and scores of deaths among patients that had taken the heparin (2). The hard lessons learned from this incident have made it important for companies to revaluate their low-cost country sourcing strategies. They are evaluating risk versus cost and rebalancing their supply strategies to less riskier profiles. Comprehensive strategic-procurement initiatives Strategic sourcing is a pragmatic and structured procurement process. This process is conducted over several steps and includes: rigorous internal and external analysis; development of multiple strategic options weighted for risk and cost; strategy selection made collaboratively with business stakeholders; well-orchestrated negotiation; and detailed implementation planning, supplier selection, and ongoing supplier management, including continuous-improvement activities. Sustainability When it comes to embracing sustainability and green behaviour in manufacturing and product specifications, several large corporations such as GlaxoSmithKline (London), Proctor Gamble (Cincinnati), Diageo (London), and Unilever (London) achieved material cost savings, enhanced brand image, and generated increased demand for their products through innovative changes in primary and secondary packaging components. Risk in electronics industry Frank Zwibler and Marco Hermann (2012) have suggested that most supply chains in the electronics industry are global networks consisting of a single OEM, an A-supplier, and several small and medium supply companies (SME). These networks are characterized, firstly, by the dominance of the OEM or the A-supplier and, secondly, by the volatile electronics market and its strong fluctuations in demand, short product life cycles, and tremendous potential for technical innovation. Supply chain mapping, brain-writing method and stress, resilience and expense portfolio have been described as successive steps of risk identification. The Failure Mode and Effects Analysis (FMEA) technique has been used for risk assessment. After assessing the different parameters, the so-called risk priority number (RPN) can be determined. Risk measures to control are similar to earlier described mitigation plans. Sodhi(2005) has outlined a process to manage this risk by suggesting two risk measures for demand- a nd inventory-related risk respectively and two linear-programming (LP) models: one for allocating the plants replenishment schedule among the customers and the other to guide the request to plants for replenishment over the horizon. Research lacunae There is an immense need for action in industry to implement supply chain risk management systems. Each industry differs in their management of supply chain risks. Not only that supply chain risk management is not evenly applied throughout the different sectors, there are also great differences in the use and the implementation of supply chain risk management. A study comparing sector wise supply chain risk management is of immense scope. Research Methodology Mainly secondary research from peer reviewed journals, articles, websites and proceeds. Analysis The supply chain risk management process can be summarised as Figure : Supply Chain Risk Management Framework Electronics Industry More than ever before, electronics manufacturers are facing harsh realities. With further dismantling of trade barriers, globalization is now enabling companies to enter new markets each with its own standards and regulations creating fragmented product lines and distributed networks of suppliers and vendors. Product innovation is receiving greater emphasis as global competitors turn up the heat and product lifecycles continue to shrink. The entire nature of demand has changed, placing traditional forecasting weak. The fact is, long-range planning and demand forecasting are increasingly and inherently losing their ability to guide manufacturers as the recent inventory crisis in electronics showed all too clearly. With the introduction of partners such as electronics manufacturing services (EMS) providers, component suppliers and distributors, original design manufacturers (ODMs), contract design manufacturers (CDMs), and other participants, it becomes more challenging to control that network of suppliers. Although original equipment manufacturers (OEMs) still have direct design relationships with the semiconductor. Suppliers, the purchasing relationship comes about through the OEMs partners, making inventory ownership ambiguous, blurring inventory visibility across the supply chain, and creating unstructured processes among partners for managing supply chain execution. Figure Electronics Supply Chain (Source: QAD White Paper: Successful Risk Management in the Electronics Supply Chain) Critical risks Inventory Risk This is the greatest risk for supply chains getting caught holding inventory when a product becomes obsolete or demand shifts unexpectedly. With the highly volatile demand of electronics manufacturing, companies that rely heavily on demand-forecast accuracy face unnecessary inventory risks. Supply-Interruption Risk Conversely, no company wants to experience materials shortages that impact their ability to supply finished product to their customers. Supply interruptions are the ultimate opportunity cost for manufacturers. Capacity Risk In the cyclical electronics industry, most profits arise from new orders during a peak cycle coinciding with price premiums. Too little capacity presents significant opportunity costs. Conversely, excess capacity can negate the profits gained in the peak period. (Frank Zwibler and Marco Hermann (2010)) Risk Mitigation Inventory Visibility Faster Information Lead Times Sales and Operations Planning Managing Key Performance Indicators Managing Inter-Enterprise Business Processes Lean Manufacturing Service and Support Management An IT backbone enabling Supporting a pull-based manufacturing and replenishment environment Achieving inventory visibility across fragmented supply chains including multiple tiers and component suppliers and contract manufacturers Minimizing supply interruptions by reducing information lead time Comprehensive sales and operations planning (SOP) to optimize inventory at various points in the supply chain Monitoring supply chain KPIs including supplier and contract performance Managing outsourcing operations Supporting lean manufacturing and lean supply chain strategies Creating aggregated supply plans to drive strategic sourcing This ability to assess the impact and exposure from sources of risk made a big difference to the fortunes of Nokia and Ericsson, which were leading cell phone vendors in 2000. In March 2000, a fire broke out at their common supplier Phillips NVs semiconductor plant in New Mexico, forcing the plant to remain shut down for several months. The difference in outcomes between the two companies was dramatic-Nokia came out of the disruption stronger and gained market share, while a substantially weakened Ericsson lost more than à ¢Ã¢â‚¬Å¡Ã‚ ¬400 million that year and ultimately exited the cell phone market in 2001. This difference was primarily due to Nokias comprehensive supply chain risk management program, which helped the company immediately-and accurately-estimate the impact of the shutdown on its business, and then react accordingly. Nokia switched orders to other Phillips plants and to Japanese and American suppliers, and redesigned chips to reduce its reliance on Phillips products. By comparison, Ericsson was unable to assess the potential impact of the fire on its business and could not respond quickly to the incident. Pharmaceutical Industry Figure : Pharmaceuticals Supply Chain (Source: Chartered Quality Institute Guide) Critical Risks Counterfeit Drugs As pharmaceutical supply chains worldwide continue to experience increased risk levels, led by counterfeit risk, the WHO reports (1998) that 10% of all drugs distributed worldwide are counterfeits, with a disproportionate 60% rate in the developing countries. Pharmaceutical counterfeits can impose tremendous costs on both the pharmaceutical industry and patient safety. The costs through the actions of counterfeiters and diverters include more sick patients, loss of life, erosion of public health confidence, loss of brand image, reduced profit and reduced shareholder value. These costs are compounded by the costs of product recalls and the growing threat of counterfeiting and diversion. Compromised or untrustworthy drug value chains can create uncertainty , decrease investment, and decrease in research and development. Food and Drugs Board Compliance norms for pharmaceuticals can make or break a drug. Regulators are becoming much stricter about quality issues, increasing the size and frequency of mandatory product recalls. The number of drug recalls by the FDA increased by more than 28 percent in 2009 to 2010, for example Exchange-rate fluctuations Foreign exchange rates can fluctuate dramatically over the course of a supply agreement and it is important to consider their impact upfront. Clinical trial risk This is a risk specific to the pharma supply chain arising as a result of the drug development process. The empirical findings from Enyindas research using Saatis AHP indicate that counterfeit risk (0.453) is considered more important, followed by FDB (0.264), exchange rate (0.112) and other risks. This helps in inferring the ranking of the risks in the sequence presented above. Risk mitigation for Counterfeits Usage of technology is the only means to curb the menace of counterfeit drugs. Sophisticated pack design and labelling using special inks Holograms Tags and tamper-evident seals Field agents actively investigating instances of counterfeit product Consumer Awareness Programs Enyinda Szmerekovsky(2010) have proposed that U.S. pharmaceutical firms must turn to SR supply chain to better track and trace prescription drugs. And the key enabler to SR supply chain is RFID technology that has been touted as the holy grail. Because of the significant promise that RFID has, FDA recommended its adoption by the pharmaceutical industry in order to achieve and meet the electronic pedigree requirement and compliance. Effective risk management requires the ability of the decision maker to rank and prioritize a portfolio of risk factors involved in the supply chain. Managing the risk throughout the supply chain now means taking a systemic view. The goal is to build a system that can detect and work around any major supply-chain weaknesses. Discussion Hypothesis H0: All industries face similar supply chin risks. H1 :All findustries do not face same supply chain risks. Analysis of the risks shows that each of the industrys pharmaceuticals and electronics has critical risks which are quite unique to it in the case of the former. Firstly, Counterfeit risks are an inherent risk in the pharmaceutical sector with irreparable damage and life threatening implication as a result. This can tarnish the company with a huge blow to its brand and spoil its top line in the short term. They have a higher potential of damage to the company in terms of plausible revenue losses because of the inseparability in their appearance as compared to the original. This is not the same case with electronics where, there are ample amount of duplicates in the market but their appearance and performance can be easily scrutinized to arrive at a decision to buy. And they rarely have life threatening consequences. Secondly, pharmaceutical industry is controlled by the FDA who is a strict watchdog of the practices in the industry. New drugs receive extensive scrutiny before FDA approval in a process called a New Drug Application or NDA. The FDA reviews and regulates prescription drug advertising and promotion. After approval of an NDA, the sponsor must review and report to the FDA every patient adverse drug experience of which it learns. In electronics there is CEA, but they are not that a controllable authority as that FDA puts on pharmaceuticals. Thirdly, clinical trials done during drug development are very unique to the pharmaceutical research developing new drugs. Thus these particular risks are not a part of electronics industry and the generalised risk framework wont do for the same.They require specialised risk mitigation plans as discussed. Conclusion and Managerial Implications Supply Chain risk management will be a key success factor for companies in a globalized world if they have implemented a risk management process in their organizational structure. We have briefly reviewed several published literatures on supply chain risks. An effort has been made to define critical risks followed by its classification for electronics and the pharmaceutical industry. Several models of risk assessment from published sources have been reviewed .After this, several strategies of risk management is being presented. Supply chain risk management is thus a growing and challenging area with lot of research potential to be explored further. A future research scope would be to quantify the impact of various risks on each industry through primary research. Both pharmaceutical and electronic supply-chain risks are often related to a lack of information visibility or deviations in the information and physical flows from upstream to downstream, increased knowledge of essential risk management procedures and structures can significantly improve the ability of decision makers in implementing appropriate mitigation treatments for identifiable risk portfolios.

Marijuana: The Legalization :: social issues

Marijuana: The Legalization Their Side: After the sustaining vote in November of 1996 and coming into effect the beginning of this year, marijuana is now legal to medical patients in California and Arizona. Proposition 215 reads as follows: The people of the State of California hereby find and declare that the purposes of the Compassionate Use Act of 1996 are as follows: (A) To ensure that seriously ill Californians have the right to obtain and use marijuana for medical purposes where that medical use is deemed appropriate and has been recommended by a physician who has determined that the person's health would benefit from the use of marijuana in the treatment of cancer, anorexia, AIDS, chronic pain, spasticity, glaucoma, arthritis, migraine, or any other illness for which marijuana provides relief. (B) To ensure that patients and their primary care givers obtain and use marijuana for medical purposes upon the recommendation of a physician are not subject to criminal prosecution or sanction. C. To encourage the federal and state governments to implement a plan for the safe and affordable distribution of marijuana to all patients in medical need of marijuana. (Proposition 215 Section 11362.5) Of course, it goes on and breaks into fine detail into which I choose not to venture. To summarize it all, if you're sick, or think you are, your doc can get you some pot. Just like that. So what's so great about this? It supposedly brings relief to those with terminal illnesses. (Such were listed in 215) Cancer sufferers who are inflicted with nausea due to chemotherapy have reported that a puff or two of a marijuana cigarette relieves the pain. (Theorized after study by psychiatrist Lester Grinspoon of Harvard Medical School) It has also been reported to relieve the pain suffered by AIDS patients. Despite all this great relief, one question remains unanswered, what about the side effects? Exactly how harmful and addicting is this stuff? MY SIDE: (the important stuff) My personal opinion: Marijuana should remain illegal because of the enormous side effects and addiction that results after using the drug. My first fact to back my opinion would have to be this, marijuana is what it is, a drug! You can't change that no matter how many people vote on it. Sure, there are prescription drugs on the market that are potentially dangerous but their effects are nothing compared to that of marijuana.

Insights provided by behavioural finance for personal finance strategy creation

Abstract Behavioural finance’s potential to impact personal finance planning has long been a topic of substantial debate.This essay examines the correlation of the field of behavioural finance to the formation of personal strategy with the goal of illustrating the strengths and weaknesses of the approach. The results of this study illustrate the close bond that lies between the psychological state and the investment patterns undertaken by active investors. This research will be of interest to any person studying the impact of behavioural finance on personal strategy. Introduction The field of behavioural finance is argued to have a considerable impact on personal financial planning, personal finance and strategy formation (Banerjee, 2011). This area is cited by many to have the capacity to dictate the plan that a person might choose to employ during the course of forming a personal investment strategy. Effective planning is central to the identification and subsequent illustration of systemic and habitual manners that can be both positive and detrimental in the course of creating the best price and return on investment (Baker et al, 2010). Beginning with a clear examination of impact, this essay sets out to define and provide a demonstration of the impact that behavioural finance can have on the entirety of a personal financial strategy with the intent of providing the means to avoid future mistakes. Behavioural Finance Benartzi (2010) defines the area of behavioural finance as the use of psychological based insights to create economic strategy. This approach demonstrates the potential impact that day to day emotions and basic intuition can have on a personal financial situation. In many cases, the use of emotion to operate investment strategy has resulted in a significant failure or systematic issues that continuously plague the investor (Benartzi, 2010). This suggests that some emotion-based investing is either ill-timed or ill-conceived and therefore faulty and liable to lead to significant losses in the short- to mid-term. Conversely, many argue that intuition, based on effective knowledge, has the capacity to lift an investor above the majority and provide a method of obtaining great investment gains (Benartzi, 2010). In contrast to emotional investing, basing a strategy on an inherent skill or talent is suggested here to have the innate capability to achieve the end goal of base profit. Howev er, the line between emotional or biased investment and undiluted intuition seems to be slight and extraordinarily slippery, leading directly to poor financial planning. Meier (2010) illustrates the position that many mainstream investors can be identified as the classical or standard variant. This form of investor commonly assumes that they know what is in the best interest of their portfolio and it is well within their power to implement (Meier, 2010). This method of investment operates on the notion that rivalry between firms will maintain competition and therefore require minimal oversight, enhancing trust in the endeavour. However, this view is offset by the behavioural financial argument that contends that investors are often confused or misled, and despite the best intentions of many investors there is often significant lack of follow through during the strategy process (Meier, 2010). This suggests that psychology has direct and compelling impact on any formation of a personal investment plan and that often less than optimal decisions are made. Further expanding on this point is the practical issue of the need for regulation in a world often described as corrupt and morally bankrupt (Paramasivan et al, 2009). Taken together, the separation of mainstream theory from behavioural reality seems to lead many investors to incomplete assumptions and poor patterns of investment behaviour and financial planning. McAuley (2009) illustrates the view that common decision making is based a concept referred to as heuristics or common sense rules of thumb. These approaches utilise the same capacity that humankind has employed to make day to day decisions for centuries (McAuley, 2009). However, many investors commonly use poor or mistaken data in their efforts to make a profitable investment in often volatile markets (Forbes, 2009). This concept supports that notion that there is the opportunity for investors to utilise an incorrect data model in order to create strategies, which in turn can lead to substantial losses and an eventual fundamental failure of strategy. Further expanding on this point is the creation of bias during the assessment process (McAuley, 2009). Bias is commonly defined as randomised departures from the rational process, although there is often a link to the rational base (Subrahmanyam, 2008). This suggests that some decision making is based on inherently poor material, which in turn is credited with leading the entire strategy to decline. With each loss there is a continual perpetuation of the bias cycle, with negative actions resulting in consistently negative consequences (Baker et al, 2011). Alongside this link to emotional investment patterns, there have been several forms of bias recognised and addressed during the process of personal fjnance formation and financial planning. Insufficient adjustment is the inherent bias on the part of the investor to overlook the larger market picture and remain too conservative in their investment approach (McAuley, 2009).With this lack of confidence in the building strategy on the part of the investor, there is a very dim prospect for the personal financial planning efforts to make a significant gain. Further, this bias could in fact hold back an investor from reaching out to an emerging opportunity, which in turn can become a fatal habit. Conversely, the bias of overconfidence is credited with much of the investor losses over the course of the past recession and decade (McAuley, 2009). This bias has the inherent capacity to compel an investor to disregard sound advice or patterns in favour of other highly questionable actions (McAuley, 2009). This suggests overconfidence can easily overextend or compromise a working strategy. Modern financial theory has been developed in order to explain and develop the area of behavioural finance (Debondt et al, 2010). Redhead (2008) points to the Prospect Theory as a key method of determining the context of an investor’s behaviour. This approach argues that there are three separate components that must be considered in regards to an investor’s behaviour (Redhead, 2008): a) The perceived elements that are subject to bias. This identifies and illuminates the personal components that are tied to an investment decision. b) Investors are far more concerned with immediate losses and gains as opposed to overall level of wealth. c) Investors feel losses much more dearly than they do gains. Each of these elements ties into the state of the investor’s emotional and psychological balance preceding their investment strategy, which in turn provides the means to assess and adapt a developing investment plan (Redhead, 2008). Deaves et al (2005) contends that loss aversion is among the most powerful of the behavioural patterns expressed by anxious investors. In order to offset the concerns many potential market participants follow eight recommendations that have been found to have a direct impact on the formation and execution of a personal financial plan (Deaves et al, 2005): 1) Take a holistic view of the available assets and associated liabilities. There is and must always be room to adapt and adjust. 2) As much as possible allow for the maximum amount of affordable pay to be automatically invested within the client portfolio. This often takes the decision point away and offers a long term yield benefit. 3) Disregard the past actions and base investment decisions on future estimates of costs and benefits. 4) Take a long-term, as opposed to a short- to mid-term view of the investment portfolio. 5) Avoid any passing fad or quick trend promising a quick turnaround. 6) Past performance is no guarantee of future earnings. 7) Save as much as possible, as often as possible. 8) Stay the course. This approach to behavioural finance suggests that utilising elements of theory to assist in the creation of proper strategy is actively engaging the psychological tendencies of the investors in order to capitalise on their inherent strengths as well as avoid their innate detriments. Yet, despite the efforts of some financial planners many common investment mistakes continue to take place no matter the system in place (Montier, 2007). A very common loss aversion tendency that is credited with the loss of many investors’ assets is the tendency to hold on to a losing stock for too long based on past performance or associated issues (Benartzi, 2010). This is based on the very real emotional base of pleasure seeking and pain aversion. If person sells a successful stock and gains a profit, pleasure is felt, thereby encouraging the investor (Benartizi, 2010). Conversely, letting a failing stock linger, and losing money is credited with very physical manifestations of pain, which in turn lead to poor decisions the state of personal finances and personal finance planning (Benartizi, 2010). Risk aversion in behavioural finance has the potential to manifest in several different identities in the course of determining a personal financial strategy (Montier, 2007). This is a suggestion that the method that an investment is packaged and presented, or framed, has a direct bearing on the application or implementation of the proposal. Using tools including cash back incentives, or gifts, is a common method for inducing investors to overlook other data in favour of investing in the underlying company (McAuley, 2010). This suggests that a favourable set of circumstances to the investor have an impact on the manner and method of investment, prompting many advertisers and financial planners to readily target specific behaviour elements during their efforts to spur . Hens et al (2008) argue that in many cases an investor has an expected utility of the associated investment that is unrealistic. Many leading financial strategists state unequivocally that no one human can be fully informed on any single investment (Pompian, 2006). This leads to the investor believing that they have more control than is present in the endeavour, which in turn leads to a diminished or detrimental return. Baker et al (2010) credits many of the investment decisions made by investors as based on the discounting of the future potential in favour of the quick and present, albeit smaller, rewards. This need for immediate satisfaction has a direct impact on the ability for a portfolio to make the most of the assets available.This suggests that successful personal planning will focus on the mid to long term investments with a clear determination to avoid any quick or offhand investment decisions. Baker et al (2010) extend the point of the need to avoid physical distraction by illustrating studies that connect the gastronomically centred portion of the brain to the segments related to the investment areas. This is an indication that habits that are common in the population, including over eating and poor diet, can be extended to the investment portfolio. Emerging methods including surveys, interviews and focus groups are allowing for the concept of behavioural finance to be incorporated into mainstream investing (Muradoglu et al, 2012). With clear success in defining and removing behavioural impediments, many investors are looking to this field of research for potential edges in determining future strategy. Conclusion Behavioural finance is argued to provide substantial impact on personal finance and personal planning and the results of this essay support that contention. Despite the desire for a black and white investment environment, there is no escaping the impact that inherent bias, shortcoming and basic human error play on the implementation of an effective investment scheme. The material presented illustrates the potential for personal bias based on such base elements as the food consumed prior to making decisions, yet, the process of identification has the potential to offset the negative and enhance the positive. Further, intuition has been credited with propelling many investors to success, yet, this is separate from the decision making process that allows for the creation of bias and the inclusion of errant material. A clear benefit to the implementation of a personal financial strategy is knowledge of the elements that make up the field of behavioural finance, allowing the creation of an effective process to offset any negative pattern of investment behaviour. In the end, as with all manner of investments, it comes to discipline, skill, patience and the determination of the investor to not be swayed in the face of adversity but hold to the reality of any situation. References Baker, H. and Nofsinger, J. (2010). Behavioural finance. 1st ed. Hoboken, N.J.: Wiley. Baker, M. and Wurgler, J. (2011). Behavioural corporate finance: Wiley. Banerjee, A. (2011). Application of Behavioural Finance in Investment Decisions: An Overview. The Management Accountant, 46(10). Benartzi, S. (2010). Behavioural Finance in Action. Allianz 1(1) p. 3-6. Brigham, E. and Ehrhardt, M. (2005). Financial management. 1st ed. Mason, Ohio: Thomson/South-Western. Deaves, R. and Charupat, N (2005). Behavioural Finance. Journal of Personal Finance 1(1). P. 48-53. DeBondt, W., Forbes, W., Hamalainen, P. and Muradoglu, Y. (2010). What can behavioural finance teach us about finance?. Qualitative Research in Financial Markets, 2(1), pp.29–36. Forbes, W. (2009). Behavioural finance. 1st ed. New York: Wiley. Hens, T. and Bachmann, K. (2008). Behavioural finance for private banking. 1st ed. Chichester, England: John Wiley & Sons. McAuley, I (2009). Understanding human behaviour in financial decision making. Centre for Policy Development 1(1). p. 1-5. Meier, S. (2010). Insights from Behavioural Economics for Personal Finance. Behavioural Economics and Personal Finance 1(1). p. 1-3 Montier, J. (2007). Behavioural investing. 1st ed. Chichester, England: John Wiley & Sons. Muradoglu, G. and Harvey, N. (2012). Behavioural finance: the role of psychological factors in financial decisions. Review of Behavioral Finance, 4(2), pp.68-80. Paramasivan, C. and Subramanian, T. (2009). Financial management. 1st ed. New Delhi: New Age International (P) Ltd., Publishers. Pompian, M. (2006). Behavioural finance and wealth management. 1st ed. Hoboken, N.J.: Wiley. Redhead, K. (2008). Personal finance and investments. 1st ed. London [u.a.]: Routledge. Sewell, M. (2007). Behavioural finance. University of Cambridge. UK Subrahmanyam, A. (2008). Behavioural finance: A review and synthesis. European Financial Management, 14(1), pp.12–29.

The Casey Anthony Case Essay - 2176 Words

The Casey Anthony case was one that captured the heart of thousands and made it to the headline of national TV talk shows, newspapers, radio stations and social media networks for months. The root of the case was due to a clash between the parental responsibilities, the expectations that went with being a parent, and the life that Casey Anthony wanted to have. The case was in respect to the discovering the cause of Casey’s two-year-old daughter, Caylee Marie Anthony’s, death; however the emphasis was placed on Casey and her futile lies, which resulted in a public outcry. The purpose of this essay is to delve into the public atmosphere and inquire about why the media and social media collectively attacked the case by uncovering the content†¦show more content†¦Casey told detectives several lies, including that her nanny had kidnapped Caylee on June 9, and that she had been trying to find her, too frightened to alert the authorities. She was charged with first-de gree murder in October 2008 and pleaded not guilty. The prosecution sought the death penalty and alleged Casey murdered her daughter to be free from parental responsibilities by administering chloroform and applying duct tape. The defense team countered that the child had drowned accidentally in the family’s swimming pool on June 16, 2008, and that George Anthony disposed of the body. The defense contended that Casey lied about these issues due to a dysfunctional upbringing, which was said to include sexual abuse by her father. On June 5, 2011, the jury found Casey not guilty of first-degree murder, aggravated child abuse, and aggravated manslaughter of a child, but guilty of four misdemeanor counts of providing false information to a law enforcement officer. She was released on a bond of $500,000 and a Florida court overturned two of the misdemeanor convictions on January 25, 2013. The â€Å"performers† of the trial played a crucial role in the trial, the verdict and the informal perceptions of Casey Anthony. The prosecutor and defense both played contrasting roles in shaping their client/opponent legally and informally, in the media. TheShow MoreRelatedCis 417 Week 7 Case Study 3 Casey Anthony Trial655 Words   |  3 PagesCIS 417 WEEK 7 CASE STUDY 3 CASEY ANTHONY TRIAL To purchase this visit here: http://www.activitymode.com/product/cis-417-week-7-case-study-3-casey-anthony-trial/ Contact us at: SUPPORT@ACTIVITYMODE.COM CIS 417 WEEK 7 CASE STUDY 3 – CASEY ANTHONY TRIAL On July 5, 2011, Casey Anthony was found not guilty of first-degree murder in the 2008 death of her daughter, Caylee. Further research this incident using quality and reputable resources. Write a two to three (2-3) page paper in which you: Read MoreCasey Anthony Trial Essay732 Words   |  3 Pages2008, one of the biggest crime cases devastated the United States nation-wide. 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