The Risk Management Process: Business Strategy and Tactics

The Risk Management Process: Business Strategy and Tactics

The Risk Management Process: Business Strategy and Tactics

The Risk Management Process: Business Strategy and Tactics

Synopsis

Praise for The Risk Management Process'True to its claim, The Risk Management Process is a rigorous yet lucid and broadly accessible account of how the timeless principles of corporate finance apply to the management of risk. Written by an experienced consultant with impeccable academic credentials and incisive analytical thinking, this book is a must-read for the senior manager and corporate treasurer who aspire to integrate risk management with corporate financial management and business strategy.'-George M. Constantinides, Leo Melamed Professor of Finance, University of Chicago Graduate School of Business'Christopher Culp's The Risk Management Process: Business Strategy and Tactics is a comprehensive treatment of the issues that face risk managers today. His book constructs a bridge to connect the theory and the practice of risk management, and Culp leads readers over that bridge with great care.'-Peter Tufano, Sylvan C. Coleman Professor of Financial Management, Harvard Business School'An unusually simple and lucid analysis of the risk management process. This book will be valuable for anyone trying to manage financial risk.'-Ken French, NTU Professor of Finance, Sloan School of Management, MIT'As opposed to offering us another dry, one-size-fits-all, mathematical approach to measuring or managing one risk or another, this book provides a general management approach to this important facet of managing any business in the twenty-first century, yet doesn't shy away from sharing with the reader the underlying and necessary quantitative thinking that is required to perform the role of financial risk management. Culp easily switches between a statistical approach to risk measurement and a real-world approach to the particular exposure(s). In addition, it was refreshing to see the amount of time he spent on drawing the distinction between managing risk on Wall Street and managing the same risk within a corporation, which may have very different goals and success benchmarks.'-Brent Callinicos, CPA, Treasurer, Microsoft Corporation'The Risk Management Process is at the same time scholarly and comprehensive, yet readable, realistic, and insightful. Unquestionably, this is the right book at the right time, destined to become the standard reference work in the field.'-Steve H. Hanke, Professor of Applied Economics, Johns Hopkins University, and Chairman, The Friedberg Mercantile Group, Inc.

Excerpt

Discussions of risk management almost always center more on risk than management. How to measure value at risk is often regarded as more important to risk management, for example, than how conflicts between shareholders, creditors, and managers contribute to the need for risk management and inhibit its effective implementation. In business school programs as in actual practice, risk managers are more often viewed as “finance nerds” than general managers. In corporations, risk managers are usually perceived to be a cost center whose jobs senior managers and directors only sometimes understand and very rarely utilize to productive ends. Risk management, in short, is traditionally viewed as the necessary evil by which firms try to quantify—and, if possible, avoid—financial Armageddon.

To make the risk manager's image problem worse, financial risk management is regarded as a relatively new and fad-like phenomenon. Before the great derivatives disasters of the 1990s—Barings, Procter & Gamble, Metallgesellschaft, Orange County, and so forth—risk management was not seen as much more than insurance. Or risk management might have been seen by a trader as, say, how to leg out of one side of a straddle without getting too exposed on the other side. But in general, risk management was not seen as a discipline or function by its own right until after a number of mainstream, household corporate giants lost big money on so-called risky derivatives.

But to view risk management as novel, independent from, or even secondary to general management is to miss the whole point. If anything, risk management is first and foremost about sound general management. In that sense, risk management is an organizational function and business process is hardly new. Principles of sound general management have been around quite a while, and applications of those principles to risk management are not a particularly recent phenomenon—just ask the insurance industry.

Nor is risk management the exclusive playground of financial mathematicians and droll economists. Technical finance problems only enter the picture as distant subordinate issues to the management problems that both necessitate risk management and contribute to the difficulties with its . . .

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