Ken Bedingfield of Northrop Grumman Discusses Enterprise Risk Management

By Alana McLain

Ken Bedingfield, a Corporate Vice President and the Chief Financial Officer of Northrop Grumman, discussed risk management from a defense contracting standpoint with the student fellows on Tuesday, April 4th. The main discussion was around how the board of directors works together to assess key risk factors for the company.

Northrop Grumman is a global security company whose largest customer is the United States government, who makes up a majority of Northrop Grumman’s business. They also operate globally with allied nations like Australia and South Korea. While a portion of their operations are classified, Ken was able to tell the student fellows about how the board of directors goes about managing risk for the company.

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The board of directors outlined several risk factors for their investors in 2016. These are umbrella factors that include more specific risks, but have been broadened in order to manage them more effectively. A few of these broad risk factors include customer concentration, appropriations, contract performance, cyber security, pension plans, nuclear activities, work force, and performance obligations. One of the approaches that Northrop Grumman takes in risk management is the absence of a risk management officer. They believe that it is the entire company’s responsibility to manage risk and that farming out risk management isn’t beneficial to the organization. Instead, Northrop Grumman utilizes an enterprise risk management council to regularly review and address risk.

After addressing a few specific risk topics in detail – like pension plans, threat based risk, taxes, and insurance – Ken outlined the steps that the Enterprise Risk Management Council uses to recognize, assess, and mitigate risk. Their key elements of risk assessment are a robust and dynamic risk assessment at many levels, actionable and tested mitigation plans, recognition of significance and priority of risk, and managing risk instead of avoiding it. By regularly reviewing risks, they are able to catch new and changing risks early. Testing their actionable mitigation plans ensure that they can execute these plans before the risk gets out of hand. They use a risk cube to analyze the significance and priority of a risk to determine which ones are more important to manage. And finally, they must manage risk instead of avoiding it to take advantage of profit opportunities. As the saying goes, high risk means high reward. By managing risk, they can capitalize on these higher rewards generate profit for Northrop Grumman.

 

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Timothy Barr, Project Manager for the National Bio and Agro-defense Facility Speaks to Student Fellows

By Alex Reed and Vince Sylvester

During a visit to campus on March 27th, the CRMER Student Fellows were able to listen to Timothy Barr speak about his experience with risk management during the construction of NBAF, the National Bio and Agro-defense Facility in Manhattan. Tim is the Project Manager for NBAF, and is responsible for overseeing the successful and safe completion of the project.

We were able to learn about how big of a role risk management plays in the process of constructing NBAF first hand from Tim, and how massive of a project the facility itself and the entire process is (The schedule alone has 30,000 activities!). Tim told us that the facility is essentially an insurance policy for managing the risk of agriculture, a sector that makes up a major portion of the economy of the United States.

With such a complex process from design and planning beginning in 2006 to fully operational by 2023, risks are everywhere. Due to the prolonged schedule, sub-contractors were exiting the deal because of the longevity before they could begin their work. To mitigate this risk, Tim explained that the team behind NBAF decided to allow sub-contractors to purchase all of their materials early. This gave the sub-contractors the benefit of having cash flows now, and gave the team at NBAF the confidence that these contractors would stay for the long haul and successfully complete the project with reasonable costs.

Any real-world project of large enough size to be interesting faces too many risks for each to be individually considered and prevented but by proactively thinking about what may happen, the effects it could have, and how we should react, we can start to take measures to protect ourselves.  Tim talked about a few methods his team used in the risk assessing process.  First, he talked about not starting out too complicated.  His team sat down and brainstormed a whole swath of if- then situations and followed as many branches that each eventuality might take as they could think of.  This process of thinking collaboratively and vocalizing what might sound like obvious risks is a good way to start charting out where your dangers are and where you need protection.  Tim also mentioned more technical ways NBAF attempted to quantify and then mitigate their risks.  He talked about using statistical methods with each risk they identified given a probability and a cost to simulate how much the project was expected to costs and various other questions in the design process.  He also mentioned that before they started construction, they created a three-dimensional model of the facility, and then built it alongside the facility, with any change in the plans affecting the model first, and basing each step of construction off the evolving model.  This took time and expense, but it allowed them to keep track of where they were at in construction and where they were going, so errors didn’t compound through development.   All in all, we learned a lot about the difficulties of managing a large project; that while problems will come up that you could never have seen coming, a thorough, proactive planning process and room to change can help keep disruptions to a minimum.

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Chris Haverkamp, CEO of Paragon Speaks with Student Fellows

By Carragan Lynn and Hannah Wilborn

On February 23rd, The CRMER Fellows had the privilege of listening to the CEO of Paragon Ag Advisors, Chris Haverkamp, speak.  Paragon Ag Advisors is a commodity brokerage firm with its headquarters located in the heart of Kansas and additional offices throughout the Midwest.  Seeing as Chris is native to a farming community in Northeast Kansas and is a graduate from Kansas State University, we had an easy time relating to one another.  Our conversation allowed us to not only gain insight into the formation of Paragon, but also understand how Chris discovered his passion for trading.  Through Chris’s story we learned that some success stories can have a rocky start.  However, his rough start in the business world did not stop him from continuing to work hard until he was in a place that allowed him to do what he loved with purpose and integrity.

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Haverkamp took the time to talk to one Fellow in each academic major within the group and discuss how our abilities could be used in a company like Paragon.  He gave us an inside look at how a brokerage firm like theirs deals with risk every single day.  As we approached the end of our conversation with Mr. Haverkamp, he made sure to leave us with a statement imprinted in our minds: “communication is key.”  As we get to hear Chris Haverkamp and other important business men and women speak, the incredible importance of communication becomes more evident.

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Adapting to a World Filled with Risks: Guest Speaker Drew Hannan Visits with Student Fellows

Drew Hannan, Global Risk Management Manager from Asurion, spent an afternoon on campus with the CRMER Student Fellows on Wednesday, February 15th. Drew began his presentation with an introduction about Asurion, the world’s largest provider of cell phone insurance and technology solutions. Drew joined Asurion as an International Risk Manager in 2015, after previously working for Lockton Companies. In his current role at Asurion, Drew is responsible for ensuring the success of Asurion’s global operations by identifying risks, and using different tactics to manage the risks facing Asurion’s business.

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Drew defined risk as exposure to danger, harm or loss. Effective risk management, Drew explained, should help companies avoid having to use their own insurance. In order to effectively manage risk, Drew discussed the importance of conducting risk assessments. Drew shared a heat map with examples of possible risks a business could face. He explained how he uses data analysis tools like this to evaluate the probability and severity of different risks that could impact a company. This opened up into a conversation about the areas companies must consider to identify and mitigate risks.

Following this discussion, Drew walked us through some different business scenarios. He displayed a few hypothetical examples of risk associated with exploring new international business operations, severe weather threats to a large warehouse, and reacting to political tensions in current global operations. It was very exciting for the fellows to see Drew in action as he broke down each scenario for us and gave a comprehensive explanation of the various risks a company would face in these situations.

We were fortunate enough to end the lecture with the opportunity to ask Drew some questions about his own career and current role at Asurion. Asurion adjusted their business while considering risks to develop from providing cell phone insurance, to now also providing technology solutions and support to a world with a growing dependency on technology. We learned a valuable message about the importance of being able to adapt, not only in the business world, but in life.

We really appreciate Drew taking time to share his knowledge and enthusiasm for risk management, which has made us eager to learn more in the future.

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Student Fellows begin Spring Semester with Visit to ADM Milling

By Josie Anderson and Hannah Wilborn

ADM Milling Company hosted a group of CRMER Student Fellows on February 10, 2017. While at the facility, ADM executives shared with us how risk management is incorporated in their various roles. Upon arriving, we were welcomed by ADM Milling President, Mark Kolkhorst, who provided us with an overview of ADM’s business operations. Next, ADM Milling’s VP of Technical Services, Nick Weigel, gave us a tour of the Technical Center’s testing area where samples from ADM facilities across the U.S. are analyzed. It’s a good thing we had a catered lunch on the agenda, otherwise the facility would’ve been missing several delicious-smelling bread samples!

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Following our tour of the testing area, VP of Grain, Pete Goetzmann, and VP of Trading and Risk Management, Dennis Toalson, outlined aspects of risk management in ADM’s Grain and Milling divisions. These are more complex than they may seem; not only does ADM have to consider the potential quality of crops in a given season, which relies on factors like weather behavior, they must also take steps to ensure that they minimize the risk of transportation failure. Not only is the availability of transportation a potential issue, but a lack of cleanliness and maintenance of vehicles poses a food safety threat.

Many of the elements that introduce risk are out of ADM’s control; therefore, they rely on solid relationships with their partners, accurate predictions of market behavior, and a certain degree of adaptability to deliver on their contracts, written months in advance. In addition to external factors, ADM must consider risks associated with their intracompany decisions. Human Resources manager, Marcie Oppold, spoke with us about how she combats risk when hiring new employees and addressing the company’s internal concerns.

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This visit was the first CRMER event for many of the new student fellows. We left ADM with an increased understanding of risk, both in general and how it applies to individual companies in the milling industry.

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Student Fellows Visit Industry Leaders in Chicago

This past month a group of 14 Student Fellows traveled to Chicago, Illinois and spent two days visiting corporate offices and meeting with risk management industry professionals.

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The first stop was at the CME Group global headquarters in downtown Chicago, on Thursday, October 20th.  Student Fellows were engaged in hearing how the CME Group, as the world’s leading and most diverse derivatives marketplace, manages such a large marketplace filled with risk. Fellows met with a variety of experts at CME Group who are involved in all the facets of risk that CME Group faces. The opportunity for Fellows to ask questions to these risk professionals and hear their thoughts on risk related topics was the most exciting part of the visit. An additional highlight was touring the CME Group Global Command Center.

Later that evening the Fellows attending a reception to network with K-State Chicago area alumni working in risk related fields. Fellows appreciated the time with these alumni and acknowledged that one of the biggest benefits of the CRMER fellowship program and off-campus industry visits like this trip is being able to network with and ask questions to professionals. Fellows would also like to thank again, R.J. O’Brien for sponsoring this reception.

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Friday, October 21st the Fellows started the day with a visit to the Aon Center, the company’s former global headquarters. Students were educated on the history of Aon’s business and the variety of career tracks available at the company. Students were most interested in hearing about examples of Aon’s clients and how Aon is able to develop risk management solutions for a large variety of clients. Following lunch, the Fellows were treated to a trip up to the top floor of the Aon Center to look out at the Chicago skyline.

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Before returning back to Manhattan, Student Fellows ended the trip with some sightseeing, including a stop at the infamous Bean to take a picture! CRMER would like to again thank both CME Group and Aon for their hospitality and continued commitment to education through their support of our program.

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Gavilon Hosts Fellows in Omaha

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By Olabisi Ekong, MS Agricultural Economics

The Center for Risk Management Education and Research (CRMER) Student Fellows visited Gavilon Headquarters’ situated in Omaha, Nebraska on Monday, August 29, 2016. Gavilon is a leading commodity management firm connecting producers and consumers of feed, food, fertilizer and fuel all over the world. They have presence in Asia, South America, Europe, North America and Africa. We were welcomed to the company by Patrick Burke, Marketing & Communications Supervisor, who led us on a tour of their trading floor where price discovery and risk management strategies were implemented.

Ed Prosser started the presentation with a brief description of his background and experience. He grew up on a farm in Dodge City and graduated from Kansas State University with a degree in Agricultural Economics in 1985 (GO WILDCATS). He is presently the Chief Trade & Risk Officer in Gavilon and has over 30 years’ experience in risk management. He is also a member of the Commodity Markets Council board of directors, Chicago Board of Trade and Minneapolis Grain Exchange. Furthermore, Ed gave us a brief history of Gavilon, the commodities they manage (grains, fertilizer, food and feed ingredients) and their locations.

Ankush Bhandari, Vice President of Economic Research spoke to us about ‘Emerging trends in agriculture and energy’. He enumerated various factors affecting supply and demand leading to the volatility in food prices. These factors include increase in global population, government policies, GDP rates and acreage and yield in agricultural production. He explained using various examples to highlight the fact that every activity in the world is intertwined and has a way of affecting the price of agricultural produce whether in a positive or negative manner.  He ended with a quote from David Ricardo – ‘The world will always raise the most food in the most economically way if the farmer grows the best crop in its soil and climate and trade with others’

Finally, Human Resources discussed with us on the various career opportunities (full time positions and internships) available at the company explaining employee benefits and paths to a successful career.

At the end of the presentations there was an interactive session where Ed answered questions, gave us insights about his experience in the risk industry over the years. CRMER Fellows appreciated Ed’s insights: use skills acquired as fellows for securing jobs and for decisions making whether in a managerial position or as entrepreneurs, be flexible in job locations now when young as our focus will differ once we start having families.

The Fellows at the Center for Risk Management Education and Research greatly enjoyed the presentations and insights shared by the speakers. We very much appreciate Gavilon’s hospitality and commitment to education through their support as founding partner of CRMER.

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