Lecture 1 - Introduction
, BEC31806
Lecture 1 - Introduction to Risk Management in Food Supply Chains
Risk Management in Food Supply Chains | Period 4 | 2025-2026
➔ Focus in this course is on = “How to cope with risks within ● With respect to uncertainties were facing and their
the food supply chain?” outcomes
● Subjective outcomes = the decision that you will make
➔ Learning outcomes after following this course depends on your own subjective judgement
● Have basic knowledge about the sources of risks within a (interpretation and gut feeling), which can alter the
food supply chain resulting outcome
● Have basic knowledge on risk reducing techniques - Two examples =
● Are able to conceptualize risky decision problems within
food supply chains ➔ Example 1 = There are 2 possible bets from which you
● Are able to select and apply appropriate techniques to can choose (subjective judgements about uncertainties)
analyse decisions under risk
● Risk Management in Food Supply Chains
● My subjective judgement is that bet 1 is more safe, since
you only have two possible outcomes (heads/tail) and
thus the highest probability (50% each) that you get 500
euros. In bet 2 there is a bigger possibility that you lose
money, since the weather here can be very uncertain and
- Disruptions between manufacturers, suppliers etc can can thus have multiple outcomes.
occur at any level within the supply chain ● Both answers can be correct, but it is all about your own
subjective judgement
➔ Basic concepts on risk in relation to decision making
➔ Example 2 = There are 2 possible bets from which you
can choose (subjective judgements about outcome
values)
● Bet 2 is a safer bet because you cannot lose money. In bet
● Simple decisions are more general decisions, like choosing 1 there is a bigger possibility that you lose money,
the clothes you will wear today. although the benefit can be higher.
● Hard decisions are made today, but the outcome lies in
the future and is influenced by different processes we
➔ Decision making
don’t have control over (= risk!)
● Hard decisions also have a multi goal aspect = think for
example of choosing to stay competitive in the market
regarding quality and reducing production costs
➔ Definition of decision making
1
, BEC31806
Lecture 1 - Introduction to Risk Management in Food Supply Chains
Risk Management in Food Supply Chains | Period 4 | 2025-2026
shortage of raw materials, crime, financial irregularities,
➔ Risk and uncertainty etc.
● When we hear things going wrong with supply chains, it is
usually the dramatic effects of external risks; each of these
is certainly a major one-off incident, but when you add
together all of the one-off incidents they form an ever-
present background of external risk.
➔ Risks
● We generally think of risks in terms of unpleasant things
that might happen and risks occur because we never
know exactly what will happen in the future.
● We can even use the best forecasts and do every
possible analysis, but there is always uncertainty about
future events and it is this uncertainty that brings risks ● Try to apply tools to avoid lower end of the tail (losses;
● For managers = risk is a threat that something might bad outcomes) and at the same time try to maximize the
happen to disrupt normal activities or stop things opportunities to reach the right tail (win; successes)
happening as planned
● E.g. there is a risk that a new product will not sell as well ➔ Sources of risk in food production and examples
as expected, that a project will not be successful, etc.
● Risks come in a huge variety of different forms and they
can appear at any given point in the supply chain, where
they can e.g. cause sudden peaks in demand or collapses,
range in scope from minor delay through to a natural
disaster, etc.
● Different risks can be linked in a way that an outbreak of
disease can cause a spike in demand for surgical masks,
vaccines and antiseptic wipes, but a drop in availability of
people to produce them.
● Production risk = come from the unpredictable nature of
● In practice, most risks are fairly minor and have limited
the weather and uncertainty about the performance of
consequences; for instance, congestion on a motorway
crops or livestock through e.g. incidence of pests and
might make a delivery an hour late, which unfortunate,
diseases.
but rarely is a catastrophe
● Price/market risk = farm inputs/outputs are seldom
● There are risks in a supply chain when unexpected events
known for certain at a time that a farmer must make
might disrupt the flow of materials on their journey from
decisions about how much of which inputs to use or what
initial suppliers through to final customers.
and how much of various products to produce. Price risks
● These initial effects are only a beginning and the
include risks stemming from unpredictable currency
consequences are generally much broader; a late delivery
exchange rates.
of materials might raise costs by forcing a move to
● Institutional risk = changes in rules that affect farm
alternative transport; it might make partners reconsider
production can have far-reaching consequences for
their trading relationships.
profitability. Also regulations affecting production or sale
● Two kind of risks in a supply chain = (1) internal risks that
or cancellation of a milk quota after buying additional
appear in normal operations, such as late deliveries,
quota and using a bank loan to finance this purchase -> if a
excess stock, poor forecasts, financial risks, minor
milk quota falls, this can lead to lower prices for milk and
accidents, human error, fault in information technology
thus the farmer might not be able to repay the loan. Also
systems, etc and (2) external risks that come from outside
political risk (risk of unfavourable policy changes) and
the supply chain, such as earthquakes, hurricanes,
sovereign risks (risks caused by actions of foreign
industrial action, wars, terrorist attacks, outbreaks of
governments, such as failure to honour a trade
disease, price rises, problems with trading partners,
2
, BEC31806
Lecture 1 - Introduction to Risk Management in Food Supply Chains
Risk Management in Food Supply Chains | Period 4 | 2025-2026
agreement) and contractual risk (risks inherent in the ➔ The Seven Steps in Risk Management
dealings between business partners and other trading
organizations; unexpected breaking of agreements
between participants in the supply chain).
● Human/personal risk = a person can leave for another
company, that might leave a risk. Also a farmer can
handles livestock or machinery carelessly, which can lead
to losses or injuries.
● Financial risk = use of borrowed funds to provide some of
the capital for the business means that a share of the
operating profit must be allocated to meeting the interest
charge on the debt capital before the owners of the equity ● So focus on the most important risks, since you cannot
capital can take their reward. So the company has a control all of them
greater proportion of debt capital to total capital, the ● Focus in this course on step 4 and 5 = decision analysis
higher the leverage and hence the greater the steps of consequences driven by the main concepts of
multiplicative factor applied to business risk. Only if the risks = probability * effect
firm is 100% owner-financed there is no risk owning to
leverage. ➔ Analyze options and consequences
● Leverage = debt multiplies the business risk from the
equity holders’ viewpoint
➔ Sources of risk in food production and examples
➔ Evaluate and decide
● These are all external risks = you cannot influence them
➔ A general approach to risk management
● Risk attitude = different attitudes that a person can have
towards risk, so for example risk averse people prefer
safety over risk, risk neutral people value the average
more and don’t care about the risk/safety and risk lovers,
which love the gamble and don’t care if the value of the
● Since you cannot influence all kinds of risks, you try to risk is lower/higher
maximize the opportunities to achieve successes and NOT ● Utility = the value you attach to the outcome values
to minimize the risk ● If you rank on averages you assume a linear relationship,
● You do avoid/diminish risks that are judged to be too but in general there is influence from risk avers
great to be borne! ● Example =
3
, BEC31806
Lecture 1 - Introduction to Risk Management in Food Supply Chains
Risk Management in Food Supply Chains | Period 4 | 2025-2026
➔ Focus in this course is on = “How to cope with risks within ● With respect to uncertainties were facing and their
the food supply chain?” outcomes
● Subjective outcomes = the decision that you will make
➔ Learning outcomes after following this course depends on your own subjective judgement
● Have basic knowledge about the sources of risks within a (interpretation and gut feeling), which can alter the
food supply chain resulting outcome
● Have basic knowledge on risk reducing techniques - Two examples =
● Are able to conceptualize risky decision problems within
food supply chains ➔ Example 1 = There are 2 possible bets from which you
● Are able to select and apply appropriate techniques to can choose (subjective judgements about uncertainties)
analyse decisions under risk
● Risk Management in Food Supply Chains
● My subjective judgement is that bet 1 is more safe, since
you only have two possible outcomes (heads/tail) and
thus the highest probability (50% each) that you get 500
euros. In bet 2 there is a bigger possibility that you lose
money, since the weather here can be very uncertain and
- Disruptions between manufacturers, suppliers etc can can thus have multiple outcomes.
occur at any level within the supply chain ● Both answers can be correct, but it is all about your own
subjective judgement
➔ Basic concepts on risk in relation to decision making
➔ Example 2 = There are 2 possible bets from which you
can choose (subjective judgements about outcome
values)
● Bet 2 is a safer bet because you cannot lose money. In bet
● Simple decisions are more general decisions, like choosing 1 there is a bigger possibility that you lose money,
the clothes you will wear today. although the benefit can be higher.
● Hard decisions are made today, but the outcome lies in
the future and is influenced by different processes we
➔ Decision making
don’t have control over (= risk!)
● Hard decisions also have a multi goal aspect = think for
example of choosing to stay competitive in the market
regarding quality and reducing production costs
➔ Definition of decision making
1
, BEC31806
Lecture 1 - Introduction to Risk Management in Food Supply Chains
Risk Management in Food Supply Chains | Period 4 | 2025-2026
shortage of raw materials, crime, financial irregularities,
➔ Risk and uncertainty etc.
● When we hear things going wrong with supply chains, it is
usually the dramatic effects of external risks; each of these
is certainly a major one-off incident, but when you add
together all of the one-off incidents they form an ever-
present background of external risk.
➔ Risks
● We generally think of risks in terms of unpleasant things
that might happen and risks occur because we never
know exactly what will happen in the future.
● We can even use the best forecasts and do every
possible analysis, but there is always uncertainty about
future events and it is this uncertainty that brings risks ● Try to apply tools to avoid lower end of the tail (losses;
● For managers = risk is a threat that something might bad outcomes) and at the same time try to maximize the
happen to disrupt normal activities or stop things opportunities to reach the right tail (win; successes)
happening as planned
● E.g. there is a risk that a new product will not sell as well ➔ Sources of risk in food production and examples
as expected, that a project will not be successful, etc.
● Risks come in a huge variety of different forms and they
can appear at any given point in the supply chain, where
they can e.g. cause sudden peaks in demand or collapses,
range in scope from minor delay through to a natural
disaster, etc.
● Different risks can be linked in a way that an outbreak of
disease can cause a spike in demand for surgical masks,
vaccines and antiseptic wipes, but a drop in availability of
people to produce them.
● Production risk = come from the unpredictable nature of
● In practice, most risks are fairly minor and have limited
the weather and uncertainty about the performance of
consequences; for instance, congestion on a motorway
crops or livestock through e.g. incidence of pests and
might make a delivery an hour late, which unfortunate,
diseases.
but rarely is a catastrophe
● Price/market risk = farm inputs/outputs are seldom
● There are risks in a supply chain when unexpected events
known for certain at a time that a farmer must make
might disrupt the flow of materials on their journey from
decisions about how much of which inputs to use or what
initial suppliers through to final customers.
and how much of various products to produce. Price risks
● These initial effects are only a beginning and the
include risks stemming from unpredictable currency
consequences are generally much broader; a late delivery
exchange rates.
of materials might raise costs by forcing a move to
● Institutional risk = changes in rules that affect farm
alternative transport; it might make partners reconsider
production can have far-reaching consequences for
their trading relationships.
profitability. Also regulations affecting production or sale
● Two kind of risks in a supply chain = (1) internal risks that
or cancellation of a milk quota after buying additional
appear in normal operations, such as late deliveries,
quota and using a bank loan to finance this purchase -> if a
excess stock, poor forecasts, financial risks, minor
milk quota falls, this can lead to lower prices for milk and
accidents, human error, fault in information technology
thus the farmer might not be able to repay the loan. Also
systems, etc and (2) external risks that come from outside
political risk (risk of unfavourable policy changes) and
the supply chain, such as earthquakes, hurricanes,
sovereign risks (risks caused by actions of foreign
industrial action, wars, terrorist attacks, outbreaks of
governments, such as failure to honour a trade
disease, price rises, problems with trading partners,
2
, BEC31806
Lecture 1 - Introduction to Risk Management in Food Supply Chains
Risk Management in Food Supply Chains | Period 4 | 2025-2026
agreement) and contractual risk (risks inherent in the ➔ The Seven Steps in Risk Management
dealings between business partners and other trading
organizations; unexpected breaking of agreements
between participants in the supply chain).
● Human/personal risk = a person can leave for another
company, that might leave a risk. Also a farmer can
handles livestock or machinery carelessly, which can lead
to losses or injuries.
● Financial risk = use of borrowed funds to provide some of
the capital for the business means that a share of the
operating profit must be allocated to meeting the interest
charge on the debt capital before the owners of the equity ● So focus on the most important risks, since you cannot
capital can take their reward. So the company has a control all of them
greater proportion of debt capital to total capital, the ● Focus in this course on step 4 and 5 = decision analysis
higher the leverage and hence the greater the steps of consequences driven by the main concepts of
multiplicative factor applied to business risk. Only if the risks = probability * effect
firm is 100% owner-financed there is no risk owning to
leverage. ➔ Analyze options and consequences
● Leverage = debt multiplies the business risk from the
equity holders’ viewpoint
➔ Sources of risk in food production and examples
➔ Evaluate and decide
● These are all external risks = you cannot influence them
➔ A general approach to risk management
● Risk attitude = different attitudes that a person can have
towards risk, so for example risk averse people prefer
safety over risk, risk neutral people value the average
more and don’t care about the risk/safety and risk lovers,
which love the gamble and don’t care if the value of the
● Since you cannot influence all kinds of risks, you try to risk is lower/higher
maximize the opportunities to achieve successes and NOT ● Utility = the value you attach to the outcome values
to minimize the risk ● If you rank on averages you assume a linear relationship,
● You do avoid/diminish risks that are judged to be too but in general there is influence from risk avers
great to be borne! ● Example =
3
