ACTUARIAL STUDIES y HISTORY - In the early twentieth century, actuaries were developing many techniques that can be found

in modern financial theory, but for various historical reasons, these developments did not achieve much recognition.

Two Reasons -deals with the sheer complexity of calculations -the heavy burden of regulations

*ASSETS Economic resources Money and other valuables belonging to an individual or business. Balance sheet

ACTUARY mathematically evaluate the likelihood of events and quantify the contingent outcomes in order to minimize losses, both emotional and financial. is a business professional who deals with the financial impact of risk and uncertainty. Two major assets *Tangible

- have a physical substance * Intangible - lack of physical substance

ACTUARIAL SCIENCE is the discipline that applies mathematical and stat istical methods

Actuarial science interrelating subjects Probability Mathematics Statistics Finance Economics Financial Economic Computer programming 2. Fixed asset - include such items as buildings and equipment Five major current assets 1.Cash and cash equivalents - most liquid asset 2.Short-term investments securities - trading Tangible assets contain various subclasses 1. Current asset include inventory

Actuarial science and modern financial economics Financial economics -Pension actuaries

3.Receivables - net of allowance

4.Inventory

- lower of cost or market - expenses paid in

5.Prepaid expenses cash

ASSETS CHARACTERISTIC    The probable present benefit The entity The transaction

 speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum.   investment short selling

Ben Graham (Intelligent Investor) the prototypical defensive investor is "...one interested chiefly in safety plus freedom from bother.it may be classified as speculators, excepting only the rare few who are primarily motivated by income or safety of principal and not eventually selling at a profit. INVESTMENT RECOVERIES Redeployment

accounting equation: Assets = Liabilities + Stockholder's Equity (Owner's Equity) The accounting equation is the mathematical structure of the balance sheet. Assets are listed on the balance sheet. Similarly, in economics an asset is any form in which wealth can be held. *Valuation is the process of estimating what something is worth. can be done on assets or on liabilities.

Redeploying an asset to another part of an organization removes an asset from the idle category and also saves the organization money by eliminating the need to purchase a new asset at current market rates Divestment

types of models: Absolute value models Absolute value models Option pricing models

There are many ways to divest an asset. The method of divestment will depend on several factors: the condition of the asset the fair market value the number of prospective buyers

Business Valuation or fractional interests It may be valued for various purposes

the complexity of the asset the book value of the item whether the asset has hazardous materials or components Asset Sale

SPECULATIVE INVESTMENT

Ways to sell an asset Fixed price sale

participants can not raise their bids in response to the bids of others. Consignment

Private sale Negotiated sale Auction Sealed bid Consignment Outsourced sale Fixed Price Sale Fixed price sale is often the easiest sale to make for an investment recovery professional. The way it works is the asset is listed for a specific price and if the buyer likes the price, the buyer will purchase it. Private Sale Private sales are usually appropriate for more sensitive assets or branded inventory. There will usually be additional terms and conditions that will apply to this sale due to the sensitive nature of the asset. Negotiated Sale In a negotiated sale, the investment recovery professional negotiates with a group of buyers to find out which one of them will pay the most. Auction An auction can be a cost effective way to sell assets or inventory and can be a great way to discover the price of an item. Auctions work well when there are several buyers for an item. Sealed Bid The sealed bid process, while similar to an auction, involved taking one "last and best" offer from prospective buyers. However, there is no means of price discovery so Donation is an option that is not used as frequently by investment recovery professionals. This is because making a donation can be a more time consuming process since it can take a while to find an entity qualified and willing to receive a donation. Disposal Assets can fit into the disposal category if they are hazardous materials and need special environmental treatment. There can be significant costs associated with the asset disposal process. Hazardous materials may need to be treated extensively before they can be regarded as safe for a landfill. Internal Procedures and Management Outsourced Some companies also use outsourcers to sell assets or equipment. This is different from consignment because the outsourcer does not necessarily take ownership of the equipment. Scrap / Recycle Another important method of divestment is scrapping or recycling. Most investment recovery professionals use this option quite frequently. Donation Another way to sell an item is to consign it to a third party and have that third party sell the item. However, this can also result in additional costs on the sale. Many consignment companies charge 10 to 15% of the sale price to conduct these specialized asset sales.

The main processes of idle asset identification, redeployment, and divestment are the what investment recovery professionals spend much of their time doing. However, in order for these processes to be effective, the company must have some basic procedures and systems in place to manage these processes and help make them successful. Risk Mngmnt

be transparent and inclusive be dynamic, iterative and responsive to change be capable of continual improvement and enhancement

ESTABLISHING THE CONTEXT: RISK - uncertainty of occurrence of any unforeseen event What is Management? the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively METHODS 1. identify, characterize, and assess threats 2. assess the vulnerability of critical assets to specific threats 3. determine the risk (i.e. the expected consequences of specific types of attacks on specific assets) 4. identify ways to reduce those risks 5. prioritize risk reduction measures based on a strategy Risk Options 1. Design a new business process 2. Periodically re-assess risks that are accepted in ongoing processes 3. Transfer risks to an external agency (e.g. an insurance company) 4. Avoid risks altogether (e.g. by closing down a particular high-risk business area) Principles of Risk Management Potential risk treatments create value be an integral part of organizational processes be part of decision making explicitly address uncertainty and assumptions be systematic and structured be tailor able SALES And BUSINESS take into account human factors Sharing - (transfer - outsource or insure) Retention - (accept and budget) Avoidance- (eliminate, withdraw from or not become involved) Reduction- (optimize - mitigate) Identification Planning Mapping out Defining a framework Developing an analysis Mitigation or Solution

 Is a statement about the future.  Help managers by reducing some of the uncertainty, thereby enabling them to develop more meaningful plans.  Plays an important role in the planning process because they enable managers to anticipate the future so they can plan accordingly. Uses of Forecast  Help managers plan the system. Involves long-range plans about the types of products and services to offer, what facilities and equipment to have, where to locate.  Help managers plan the use of the system. Refers to short-range and intermediate-range planning, which involve tasks such as planning inventory and workforce levels, planning purchasing and production, budgeting and scheduling.

MIS- new/revised information systems; Internet services. Operations- schedules, work assignments and workloads, inventory planning, make-or-buy decisions, outsourcing. Product/Service Design- revision of current features, design of new products or services. Elements of a Good Forecast  The forecast should be timely.  The forecast should be accurate and the degree of accuracy should be stated.  The forecast should be reliable; it should work consistently.  The forecast should be expressed in meaningful units.  The forecast should be in writing.  The forecasting technique should be simple to understand and use. Steps in the Forecasting Process

Uses of Forecast in business organization Accounting- new product/process cost estimates, profit projections, cash management. Finance-equipment/equipment replacement needs, timing and amount of funding/borrowing needs. Human Resources- hiring activities, including recruitment, interviewing, training, layoff planning, including outplacement, counselling. Marketing- pricing and promotion, ebusiness strategies, global competition strategies.

1) Determine the purpose of the forecast. 2) Establish a time horizon. 3) Select a forecasting technique. 4) Gather and analyze relevant data. 5) Prepare the forecast. 6. Monitor the forecast.

Approaches to Forecasting Qualitative method- consist mainly of subjective inputs, which often defy precise numerical description.

 Quantitative method- involve either the extension of historical data or the development of associative models that attempt to utilize casual variables to make a forecast. Qualitative techniques- permit inclusion of soft information in the forecasting process. Quantitative techniques- consist mainly analyzing objective, or hard, data

Weighted Moving Average- similar to moving average, except that it assigns more weight to the most recent values in a time series. Exponential Smoothingsophisticated weighted averaging method that is still relatively easy to use and understand. Each new forecast is based on the previous forecast plus a percentage of the difference between the forecast and the actual value of the series at that points. -Associative Forecasting techniques Rely on identification of related variables that can be used to predict values of the variable of interest. -Associative Forecasting techniques It is a vital aspect of forecasting. It provides the forecast user with a better perspective on how far off a forecast might be. -Sources of Forecast Errors

-Forecasts Based on Judgement and Opinion Judgemental forecasts rely on analysis of subjective inputs obtained from various sources, such as consumer surveys, the sales staff, managers and executives, and panels of experts. Rely on judgement and opinion to make forecast. -Forecast Based on Time Series Data Use historical, or time series, data with the assumption that the future will be like the past. A time-ordered sequence of observation taken at regular intervals over a period of time. Analysis of data requires the analyst to identify the underlying behavior of the series; Trend, Seasonality, Cycles, Irregular variation and random variation.

The model may be inadequate due to (a) the omission of an important variable, (b) a change or shift in the variable that the model cannot deal with, (c) the appearance of a new variable. Irregular variations may occur due to severe weather or other natural phenomena, temporary shortages or breakdowns, catastrophes or similar events. The forecasting technique may be used incorrectly or the results misinterpreted. There are always random variations in the data. -Choosing a Forecast Technique

-Techniques for Averaging Moving Average- forecast uses a number of the most recent actual data values in generating a forecast.

When selecting a technique for a given situation, the manager or analyst take a number of factors into consideration. The two most important factors are cost and accuracy. -Using Forecast Information A manager can take a reactive or a proactive approach to a forecast. A Reactive approach views forecast as probable descriptions of future demand, and a manager reacts to meet that demand. A proactive approach seeks to actively influence demand.

-Computers in Forecasting Computers play an important role in preparing forecasts based on quantitative data. Their use allows managers to develop and revise forecast quickly, and without the burden of manual computations.