Risk Savvy Thinking about Reserves Videos
The GFOA report Is it Time to Rethink Reserves? suggests that reserves (i.e., a rainy day fund) are a form of self-insurance and should be treated as such. Insurance is used to manage risk. A savvy strategy for reserves will require savvy thinking about risk. Here we present videos that help explain tools for savvier thinking. We’d like to thank probabilitymanagement.org and Sam Savage for their assistance with the content for these videos. Click here to to deeper into cutting edge risk analysis in public finance.
Video Explanations
About Chance Based (Probabilistic) Reserve Models
Thanks to advances in computer technology local governments can now use the same techniques to analyze risks that are used by insurance companies…with nothing more than Microsoft Excel. This video shows how these techniques apply to reserve analysis.
Adding Risks Together: The Surprising Truth
Local governments are exposed to many risks. The optimal amount of reserves is not simply a matter of adding up your exposure to each risk. This video explains why risks don’t add up like you might expect and how you should think about adding them up.
The Decreasing Marginal Benefit of Reserves
There is a point at which adding more to your reserves ceases to do you much additional good. This video explains why this is and what diminishing returns looks like.
Multi-Year Analysis of Reserves
Reserves should be managed with a long-term view. This video explains how risks can be analyzed on a multi-year time scale.
Why Pooling Reduces the Cost of Risk
Risk pooling is a time honored and highly effective strategy for reducing the cost of risk. This video shows how risk pooling works.