Fundamentals of Enterprise Risk Management: How Top Companies Assess Risk, Manage Exposure, and Seize » (New Edition)

John J. Hampton (Litchfield, CT) is the KPMG Professor of Business and Director of Graduate Business Programs at St. Peter’s College, and former Executive Director of the Risk and Insurance Management Society (RIMS).

Anyone could see that offering exotic mortgages to people with lackluster credit histories was a risky proposition. But when the default rate started its inevitable rise, almost no one imagined that large, esteemed financial institutions would actually collapse. What happened? How is it that so many organizations completely failed to understand their risk exposures? Didn’t they have risk management systems in place to reduce those exposures?

One thing the financial crisis clearly shows, says the author of Fundamentals of Enterprise Risk Management, is that traditional approaches to risk management are a failure. America’s financial companies kept a narrow, inward focus on limiting the impact of a web of maddeningly complex risk exposures. But the job of enterprise risk management (ERM) is not to centrally control risk, but to accurately identify it—constantly scanning the horizon for changing conditions and monitoring for internal weaknesses—and to share the information widely.

Fundamentals of Enterprise Risk Management offers an expansive yet focused approach that will radically improve your ability to recognize risk and minimize loss, as well as understand the level of risk that’s required to pursue opportunities.

Using examples from Home Depot, Boeing, Airbus, Nokia, and many other companies, the book’s insights, strategies, and unique tools help you:

●          Identify your organization’s exposure to a multitude of business, financial, and hazard risks—then visualize risk relationships using innovative new applications, such as Riskonnect®.

●          Recognize hard-to-see internal risk expo­sures, such as weaknesses in your strategy, subcultures that can destroy your goals, and life cycle risks for different lines of business and operating units.

●          Assign “risk owners” for every category of risk—thus eliminating the excessive com­plexity faced by a single risk manager—and align risk accountability with the organiza­tion’s business model.

●          Understand Nassim Taleb’s concept of “black swans”— unpredictable crises that seem to upend risk management stra­te­gies—and learn how seemingly random events are not always unexpected.

●          Examine how companies such as AIG blindly exposed themselves to excessive risk—and how a knowledge warehouse would have clearly illuminated the risk exposures and possibly circumvented the 2008 financial crisis.

●          Focus on the upside of risk and seize oppor­tunities that are attainable only by informed decisions on the acceptance of risk.

Comprehensive, refreshingly clear, and packed with the latest insights from the field, Fundamentals of Enterprise Risk Management is essential reading for anyone responsible for monitoring risk exposures, in any setting—corporate, nonprofit, or government.

John J. Hampton is the KPMG Professor of Business and Director of Graduate Business programs at St. Peter’s College, and former Executive Director of the Risk and Insurance Management Society (RIMS). He lives in Litchfield, Connecticut.

Pt. 1 Essentials of Enterprise Risk Management 1

1 Modern Risk Management 3

Russian Frozen-Chicken Case 14

2 Scope of ERM 17

3 Contributions of ERM 28

Home Depot Case 35

4 Challenge of the Black Swan 41

5 Challenge of the 2008 Financial Crisis 58

6 Implementing ERM 68

Pt. 2 ERM Technology 79

7 Visual Risk Clusters 81

AIG Visual Risk Cluster Case 88

8 Visual Risk-A Hypothetical Case 94

9 Tagging Risk-An Example 104

10 Airbus A380 Jumbo Jet 109

11 Product Launch Application 119

Pt. 3 Risks Without Risk Owners 125

12 Strategic Risk 127

Taiwan Strategic Risk Case 145

13 Subculture Risk 150

Appendix 13.A Characteristics to Use in Identifying Subcultures 164

Subculture Risk and High School Case 166

14 Leadership Risk 172

IKEA - Best Practices in Leadership Risk Case 181

15 Life Cycle Risk 185

GM and Toyota Life Cycle Risk Case 193

16 Horizon Risk 195

Pt. 4 ERM Stories 207

17 Aligning Risk Categories with the Business Model 209

18 Avoiding Business Disruption 215

19 ERM and Sarbanes-Oxley 219

20 Coffee Mug, Candy, Exotic Jams, and Toyota 223

21 ERM and Swarm Theory 227

22 Cerberus and Chrysler 230

23 Risk Management and the History of ERM 233

24 Evolving ERM Since 2004 238

25 Risk Management and the Future of ERM 243

Pt. 5 The People of Risk Management 253

26 Modern Risk Managers 255

27 Chief Risk and Strategy Officers 264

28 Risk Managers in Person 275

29 Central Risk Management Committee 288

Beaumont Central RMC Leader Case 292

Denouement 297

Bibliography 299

Index 301