I recently worked on a business case for a custom internal software tool. It gave me a great opportunity to leverage what I have been learning in my MBA in Finance and learn how the industrial automation industry manages risks.
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Maximum liability can be negotiated in contract, but Canadian equitable remedies suggest that whether it holds in court can be influenced by contextual factors
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With operations, there is both compliance liability if the industry is regulated and financial/operational liability
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There are different strategies to quantify this risk; including Equivalent Value (EV), Value at Risk (VaR), options pricing where āThis risk is equivalent to selling a call option where upside is capped but we are exposed to the tail downside riskā, and the price that formal insurance to hedge the risk would cost
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Errors may cause āliquidated damagesā which may be paid out financially or negotiated out by providing equivalent contract concessions
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Sometimes, even if you have the numbers, things often come down to strategic/contextual factors