Decision Analysis RSS

  A Better Way of Managing Major Risks  Premium

Bromiley, Philip; Rau, Devaki
Print Share

In trying to identify all the risks a firm faces, managers can turn risk management into an overwhelming paper-processing exercise that distracts them from focusing on the risks that really matter -- namely, strategic ones that threaten the firm's existence. By not being able to grasp the assumptions and limitations of complex and costly Enterprise Risk Management (ERM) tools and models, managers may be operating under a false sense of security. Based on their research on firm risk-taking and risk management, the authors offer nine practical suggestions to help managers make the risk function more meaningful and relevant. A healthy dose of skepticism, prudence and resilience will go a long way toward helping your firm see the forest rather than the trees.

Tools and Frameworks:
> "The Standard Risk Cube" depicts the three-dimensional matrix frequently used to depict the various interrelated levels of risk facing an enterprise.
> "Not All Risks Are Equal" lists 50 risks identified by one consultant, with the caveat to identify which risks are the strategic ones for you.
> The article includes nine tips to help readers focus on the risks of strategic importance to their particular firm.

Examples Cited:
Countrywide Financial, Bank of America, bank loans, subprime lending, New Century Financial, Wall Street, NASA, securities trading, Nortel Networks, Philips, Ericsson, Nokia

Research Basis:
Based on the authors' research on firm risk-taking and risk management, including "Looking Under the Lamppost? A Research Agenda for Increasing Enterprise Risk Management's Usefulness to Practitioners."

About the Authors:
Philip Bromiley is the Dean's Professor in Strategic Management at the Merage School of Business of the University of California, Irvine.

Devaki Rau is an associate professor in the Department of Management at Northern Illinois University's College of Business.

This article is based on:  A Better Way of Managing Major Risks
Publisher:  IESE
Year:  2016
Language:  English