On Friday, March 28, 2014, the 2014-2015 class of CRMER risk fellows traveled to Wichita to meet with executives from various businesses within Koch Industries. We began the day with an overview of the company and learned about their management techniques and plans for growth. We then jumped right in with conversation about how Koch optimizes risk, which set the stage for the rest of the day.
In the overview Dan Solomon, chief risk officer for Koch Industries, Inc., shared the ideas behind the Market Based Management concept and how it plays in to the way the company operates each of its businesses. Koch Industries, Inc. began in 1940 as Wood River Oil and Refining Co. and has since expanded into various industries including refining, chemicals, and biofuels, forest and consumer products, fertilizers, polymers and fibers, process and pollution control equipment and technologies, electronic components, commodity trading, minerals, energy, ranching, glass, and investments. They have many business locations, but have a major presence in the United States, Europe, South America, Asia, and Australia, which means they must be very cognizant of managing country risk.
After learning about the scope of the company, we began learning about Koch’s risk philosophy and how they try to absorb risk profitably by looking at the risk-reward outcomes and thinking about risk differently. We discussed the concept of risk-adjusted thinking, as well as option thinking and even got to participate in some simulations that challenged our own way of thinking about risk.
We then engaged in some more specific discussions about market risk and non-market risk while enjoying lunch with the Koch team. Jeff Parke, senior director of market risk management shared how Koch absorbs a lot of market risk and tries to optimize risk by analyzing timing and pricing of purchases and sales. Steve Packebush, president of Koch Ag and Energy Solutions (KAES) shared how KAES focuses on managing non-market risks by using training and education of people to ensure that risk are minimized. We then visited with Don Weaver, Chief Risk Officer for KAES, who shared with us some methods of risk management in practice.
At the end of the day, we were able to ask additional questions and the Koch executives shared some tips on how to prepare for the workforce. As CRMER student fellows, we are very appreciative of the opportunity to learn from the Koch team. Their willingness to engage us and share their valuable knowledge gave us a new way of thinking about risk and a beneficial insight into how to utilize capabilities to optimize risk in multiple industry sectors.