Author: Michael Power, London School of Economics and Political Science
Source: Accounting, Organizations and Society 34 (2009) 849–855, Elsevier
This essay challenges core elements of enterprise risk management (ERM) and suggests that an impoverished conception of ‘risk appetite’ is part of the ‘intellectual failure’ at the heart of the financial crisis. Regulators, senior management and boards must understand risk appetite more as the consequence of a dynamic organizational process involving values as much as metrics.
Source: Harvard Business Review, October 2009
with by Nassim N. Taleb, Daniel G. Goldstein, and Mark W. Spitznagel
“We don’t live in the world for which conventional risk-management textbooks prepare us. No forecasting model predicted the impact of the current economic crisis, and its consequences continue to take establishment economists and business academics by surprise. Moreover, as we all know, the crisis has been compounded by the banks’ so-called risk-management models, which increased their exposure to risk instead of limiting it and rendered the global economic system more fragile than ever.
Low-probability, high-impact events that are almost impossible to forecast—we call them Black Swan events—are increasingly dominating the environment. Because of the internet and globalization, the world has become a complex system, made up of a tangled web of relationships and other interdependent factors. Complexity not only increases the incidence of Black Swan events but also makes forecasting even ordinary events impossible. All we can predict is that companies that ignore Black Swan events will go under.” Read more >
Source: ICMA (International City/County Management Association)
by Ron Blanquie
“It’s no wonder that risk management’s public role is often underused and misunderstood. Government entities have incorrectly concluded that risk management’s overall costs can only be tethered but not controlled or reduced.
Public entities in California today face an unprecedented challenge as they try to maintain the levels of public service that their citizens have come to expect. Given the current dismal global economic situation and its adverse trickle-down effect on local government, it’s a wonder that more California communities are not filing for bankruptcy.
Federal bailouts and proposed tax increases seem to be the only revenue-generating mechanisms left—or are they? Maybe an ever-present but unrealized opportunity for local governments exists—risk management!
Public entity risk management has historically been viewed as a necessary evil, an expense line item. Governments have viewed their risk management organization as a triad composed of society, the judicial system, and what the insurance industry has forced on them. This perception is further supported by inexplicable insurance premiums, arbitrary claim settlements, and frivolous lawsuits.” Read more >
Source: Bloomberg Businessweek
“A critical issue on the agenda for most directors these days is determining the board’s role in overseeing risk. That was the topic of a recent peer-to-peer discussion hosted by Directorship and Deloitte. A group of leading board directors and industry professionals explored risk-related issues in the aftermath of the economic crisis, which most agree was a catastrophic failure, particularly on the part of finance institutions, to recognize and rein in excessive risk.
“When we talk to senior stakeholders about risk, it’s really about finding a balance across the entire organization. This balance refers to addressing the sensitivities between strategic, operational, and compliance risk, and ensuring the right information and transparency exists,” said Henry Ristuccia, partner and U.S. leader of governance and risk management at Deloitte. Read more >
As from 2006 the municipality Rotterdam in the Netherlands must picture risks for their conduct of business for all services, more and more managers are persuaded of usefulness. Rotterdam also uses risk management to get visibility on risks by adding organization components and at the introduction of “the WMO”, a complex law of social support in the Netherlands. Risk management is especially a practical instrument. It provides fast insight and it keeps people sharp.
The introduction of risk management is not new. In this case the reason to use risk management was a “municipality-broad scan” regarding the quality of the financial and control function of Rotterdam.
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