Koch Industries Guest Lecture: Risk Optimization

By Alex Reed

On September 27th, the Center for Risk Management Education and Research Student Fellows welcomed employees of Koch Industries, Inc. to discuss risk management for Koch Ag and Energy Solutions (KAES), a Koch Company. Joining the center was Kurt Kolbeck, a 1987 Graduate from the K-State College of Business, and president of Koch Energy Services. We were also able to listen to Allen Burkhart, a recent K-State grad and manager of Business Development and Strategy at KAES.

Kurt and Allen opened by discussing what Koch does and the many industries they are currently in, as well as the management philosophy at Koch. They described Market Based Management, and the 10 MBM Guiding principles by which the company abides. We also learned that Koch Industries and its shareholders (Koch Industries is a privately held company) are committed to reinvesting 90% of earnings back into the company, with the goal aggressive growth for the future.

koch

The two discussed with us that Koch Industries uses the term “Risk Optimization” rather than “Risk Management”, with the belief that not all risks can be managed and must be situated to put the company in the best position, even if that means not taking certain risks. One interesting note that Kurt pointed out was the fact that even though certain employees entire job is focused around risk, every single employee is managing risk every single day. Even the employees simply answering a phone are handling customer retention risk every time they talk to a customer.

The student fellows were able to hear specific examples of risk optimization within Koch from the specific employees handling the situations, which was a unique experience. Kurt and Allen talked about an example dealing with UREA trading. They highlighted the major risks including navigating tough international market situations while creating value for its customers. Another case that we discussed dealt with fertilizer gas price management. Allen detailed that major risks include price risk, operations risk, and credit risk. When addressing risks in any scenario, Koch applies risk-adjusted thinking and option thinking to create long-term value and avoid catastrophic risks.

Kurt and Allen had lots of experience and knowledge around risk management to share with the center, and we were lucky to have them come speak. CRMER is also very thankful to Koch Industries for their support of the center, and the relationship that has formed between the company and the center, with many former fellows continuing on to work at Koch Industries following college.

Thank you to Allen and Kurt for taking the time to visit with us!

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About crmerstudents

This blog site will encompass the experiences and insights of Student Fellows of the Center for Risk Management Education and Research. The Student Fellows will share their journey as they go through their academic courses, network with industry leaders and work with the Center’s team of faculty to gain the knowledge necessary to help identify, accurately assess, and ultimately manage risks. For more information about the Center, visit our website at http://www.k-state.edu/riskmanagement/.
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