Risk management is a well-established discipline and an important part of every organization. However, in recent years, events have shown that traditional risk management techniques, though necessary, are not sufficient. These events include corporate accounting scandals (e.g., Enron), September 11th, climate change, and the financial crisis. In response, a major advancement in this field has emerged, called enterprise risk management (ERM).
ERM is a process by which companies identify, measure, manage and disclose all key risks to increase value to stakeholders. ERM offers several advantages, such as:
-Addressing risks from all sources (financial, strategic and operational);
-Measuring the integrated impact of multiple risks occurring simultaneously;
-Aggregating exposures to the enterprise level;
-Defining risk appetite of the enterprise; and
-Integrating risk information into strategic planning and incentive compensation.
At its core, ERM helps companies better understand the true value of the enterprise, its overall volatility, and how to protect and grow enterprise value, through better risk-return decision-making. Rather than merely an advancement in risk management, ERM is the next step in the evolution of business management. ERM concepts can also be applied to other entities, such as governments (e.g., homeland security), non-profit organizations, and individuals.
There is currently a high level of demand for people with ERM skills and experience, and this is widely expected to continue to grow. Shareholders, boards of directors and rating agencies are all pressing for enhanced ERM capabilities. Globally, and in every sector, companies, consulting firms and I/T vendors and are seeking talent with ERM knowledge and experience, and top universities are expanding their curricula into ERM to meet this demand. This course is designed to provide the student with a level of advanced yet practical ERM knowledge sufficient to make the student an excellent candidate for these expanding opportunities in ERM.
Sim Segal was a Columbia Business School faculty member from 2010 to 2011.