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ADDITIONAL TOOLS AND TECHNIQUES

Making risk-adjusted decisions and practicing strategic risk management by utilizing new tools and techniques to measure the value created or protected by adopting the ERM process is not limited to value mapping. Risk managers now have multiple options that, depending on the potential impact to the organization and its executive management and the level of complexity, could be employed to improve

Value Map Showing Risk Correlations

Exhibit 16.5 Value Map Showing Risk Correlations

the quality of their decisions. These tools can be quite sophisticated, and might require outside experts to facilitate a specific project, especially strategic issues that could be a destiny-determining event for the CEO. One example is game theory. Especially useful in situations involving outside suppliers, competitors, and regulators, game theory can provide insights and recommended courses of action about the various players' interests and options. If there are multiple players involved in complex negotiations, competitive strategy, crisis management, and public policy, game theory can be utilized to develop specific strategic and tactical options.

CONCLUSION

Risk management is evolving from focusing only on the downside of risks to a far broader understanding that strategic decisions have the potential of producing both downside and upside outcomes. By employing the ERM process at the strategic planning level, the organization has a far greater chance of exploiting opportunities that may arise during a typical multiyear planning cycle. Likewise, the organization has a greater chance of protecting organizational value when adversity strikes. However, to enable the organization to adopt and adapt the broader view of enterprise risk management and use the ERM process to practice strategic risk management, executive management must:

• Reexamine the purpose of ERM within the organization.

• Position and leverage ERM into strategic planning to support business goals.

• Utilize value maps to measure the value created or protected as a consequence of practicing strategic risk management.

One way to start or reignite the ERM process within an organization is to create or redraft an ERM charter. The charter should set forth a vision, mission, and purpose of ERM within the organization as a strategic function. To ensure that all levels of management are speaking a common language when it comes to risk, greater clarity will be attained by including a definition of ERM, risk, and strategic management within the charter; then utilizing modern risk registers and value maps will enable executives to better achieve their strategic goals.

ABOUT THE CONTRIBUTORS

John Bugalla is Principal of ermlNSIGHTS, an advisory and training firm specializing in enterprise risk management and strategic risk management. His experience includes 30 years in the risk management profession serving as Managing Director of Marsh & McLennan, Inc., Willis Group, Pic., and Aon Corporation before founding ermlNSIGHTS. He led the Willis team that negotiated the integrated risk program on behalf of United Grain Growers. He is the author or coauthor of numerous articles in diverse publications such as The Corporate Board magazine, CFO magazine, the National Law Review, Credit Union Management magazine, Risk Management magazine, the Journal of Risk Management in Financial Institutions, and the Journal of Risk Education.

James Kallman is Assistant Professor at St. Edward's University, Austin where he teaches courses in finance, and statistics, and risk management. Dr. Kallman holds a doctoral degree and master's of science degree in risk management and insurance from the University of Wisconsin, a bachelor of science degree from the University of Minnesota, and an Associate of Risk Management and RIMS Fellow degree. He is author or coauthor of numerous articles in diverse publications such as The Corporate Board magazine, CFO magazine, Risk Management magazine, Journal of Risk Management in Financial Institutions, and the Journal of Risk Education.

 
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