Fundamentals of Enterprise Risk Management
A First Principles Approach
There have been many books written on enterprise risk management (ERM) but never one like this. This is the first book that explains comprehensively what risk management means and how to design and implement an ERM program that adds substantial value. Based on a first principles approach the book logically and systematically addresses virtually every unanswered question about ERM, including some that have never even been clearly defined, for example:>
- What is the true meaning of risk? Is risk a qualitative concept, a quantitative concept, both or something entirely different?
- What is the difference between the terms risk, loss, threat and scenario?
- What are loss prevention, threat mitigation, risk mitigation, tactical risk management and strategic risk management and how can these disparate tasks be integrated into a comprehensive, holistic risk management framework?
- What are risk appetite and risk tolerance and how should they be determined?
- Is risk inherently bad? If so, what is "upside risk" and how can one be risk neutral?
- How can one objectively identify a firm's top ten risks?
- What are emerging risks and how can they be proactively managed?
- What is the role of scenario analysis in risk management and how should it be implemented?
- What does it mean to classify risk? Is risk classification necessary for ERM?
- What does it mean to quantify risk? Is risk quantification necessary for ERM? If so, is there a simple yet theoretically robust method of quantifying every type of risk across every kind of business? Can risk be quantified where there are little or no empirical loss data? If so, how?
- What are the so-called "black swan" events and why do these supposedly rare events appear to happen so frequently; what issues underly the black swan concept and why are they important to C-level executives?
- Finally, how can one use risk information to make more informed tactical and strategic business decisions, for example, how does one incorporate risk premiums into product prices?
Even though the book tackles many complex problems, it has been written for all audiences - from those who have no prior knowledge of risk management to seasoned risk professionals with years of formal training and experience in this field. All the important terms are clearly defined so that virtually anyone eager to learn the subject matter should be able to follow the discussions with ease. More than just theory, the book includes numerous case studies and practical examples which explain how to address real world risk management business problems. A must-read for anyone interested in learning about ERM from the ground up.
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