Risk Management: A Brief History: Risk Management Has Gradually Evolved from a Narrow Insurance-Based Discipline to Covering Anything from Traditional Financial Activities to the Risk of a Building Burning Down. but as Diana Thompson Reports, the Profession Faces More Changes to Come. (Risk Management)

By Thompson, Diana | Journal of Banking and Financial Services, June-July 2003 | Go to article overview

Risk Management: A Brief History: Risk Management Has Gradually Evolved from a Narrow Insurance-Based Discipline to Covering Anything from Traditional Financial Activities to the Risk of a Building Burning Down. but as Diana Thompson Reports, the Profession Faces More Changes to Come. (Risk Management)


Thompson, Diana, Journal of Banking and Financial Services


To most businesses, the concept of risk management is confined to financial aspects such as liquidity, interest rate and foreign exchange movements and credit risk.

But the risk game is fast changing, with operational risk--covering anything from a computer meltdown to a terrorist attack--assuming much more importance.

This increased awareness has not happened by accident, even if a big mishap does tend to focus the mind of any manager. Behind the change in thinking is the relatively new Australian risk management standard AS4360 and the drafting of the global Basel Accord, which will require banks to hold capital for operational risk management purposes.

To bankers, risk management has often been related to the financial performance of customers and the banks themselves. But in recent years, banks have taken a broader view of operational risk management.

The level of awareness has been promoted by the well-known cases of significant off balance sheet fraud at Barings Bank and Royal Allied Irish, which resulted in substantial losses to those financial institutions.

In addition, the drafting of revised capital adequacy guidelines by the Bank for International Settlements (known as "Basel II") has forced the international banking industry to determine how to collect the data required to achieve compliance by 2005.

Raising the standard

The Australian risk management standard, a generic guideline, was first published in 1995 and revised in 1999. A subsequent revision is due to be published this year. It has gained international recognition by being adopted by the International Standards Association.

Consequently, this standard has been widely adopted across a range of industries worldwide, including banking and finance. It is highly relevant in that it provides a generic process to be followed.

To many professions and industries, operational risk management is the answer they have been looking for to encapsulate organisational learning in tight and competitive economic times.

The recent insurance crisis has encouraged customers to look to alternate means of controlling risk exposure. These options are clearly described in the Australian risk management standard.

Narrow focus

Until now, managers have resisted risk management in its various guises as a management discipline. Its meaning and application is misunderstood by the public and at many levels of management in both the private and public sector.

What has tended to happen is that risk managers adopt their own stance on risk management according to their expertise. Across the board examples are financial markets, occupational health and safety, insurance, project management, technology and political risk management. All of these approaches are correct; it's just that their focus is limited and lacks an integrated framework.

Recognising such a common framework for all types of operational risks will substantially improve the acceptance of risk management as an effective management tool throughout organisations. The framework below has been developed by Monash University and adopted by Prudentia Pty Limited to satisfy this need. It is based on some of the ideas contained in the Australian risk management standard.

Obviously, each organisation's requirements will differ and this framework will need to be modified accordingly.

The evolution

As with many other professions, risk management has evolved from a different beast. Originally risk management was an integral part of the insurance industry. Rather than employing insurance buyers in the 1950s, companies began to employ risk managers in recognition of the increasing cost of insurance.

Also, corporate insurance buyers succeeded in gaining better recognition and status by expanding their role to include property loss control, industrial safety, accident prevention and employee benefits.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Risk Management: A Brief History: Risk Management Has Gradually Evolved from a Narrow Insurance-Based Discipline to Covering Anything from Traditional Financial Activities to the Risk of a Building Burning Down. but as Diana Thompson Reports, the Profession Faces More Changes to Come. (Risk Management)
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.