vol. XV no. 2

				Thousands of years ago, ship owners who borrowed money to finance their trade expeditions could pay a little extra on top for a key benefit: If a ship was lost, the owner wouldn't have to repay the loan. Enough vessels made it back safely for lenders to cover the risk of the few that didn't return. With some refinement, this is what business is still doing today - minimizing losses by insuring risk. And risks have to be taken; no organization can survive without hazarding funds in pursuit of company goals. External risk factors are ever present: a product could be recalled, currency rates regularly fluctuate, overseas labor policies are subject to change. Because so much is outside of their control, firms strive for the best possible response to business risk. The Changing Face of Risk However, simply responding to risk may no longer be good enough. Ever-expanding globalization and tremendous advances in technology have increased awareness in many areas of the business enterprise, including risk management. "Companies are becoming much more sensitive to risk," noted Martin Leinweber, managing director of the Center for Enterprise Risk Management and Assurance Services (CERMAS) at the Robinson College, "and they're realizing that risk has to be integrated throughout the enterprise for optimal results. This is a real change from the traditional approach." For the last several decades, conventional risk management has been concerned with risk aversion - loss prevention rather than identification of risks with potential gain, especially shareholder gain. A second-line function, risk management was performed in one or a few departments, each of which had little interaction with the others. How risk was analyzed, say by the finance department, and how it was insured by the insurance department were tasks done in tandem, but not necessarily in harmony. "Until fairly recently, risk management was viewed as a secondary concern," remarked William Messier Jr., Deloitte & Touche LLP Professor in RCB's School of Accountancy. "Factors like the dot-com bubble bursting, the fast pace of business change and improved corporate governance have led to a greater awareness of risk within greater complexity." Enter enterprise risk management, or ERM. As its name suggests, this newest approach to the challenges of risk management looks at the entire firm's spectrum of opportunities and problems, not just business risk by department. ERM embodies a paradigm shift from risk avoidance to risk balancing - and even leveraging risk to gain unique business advantages. Top | Next Page

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