Summary of Integrating Corporate Risk Management

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Rating

9

Qualities

  • Innovative
  • Applicable

Recommendation

Many corporate officers deal with risk, from treasurers and risk managers to CFOs. But since each department faces risks of a different type, risk management in many cases is an ad hoc affair. Prakash Shimpi’s vision of integrated risk management not only consolidates the risk-management practices of an entire firm, but also blends capital management and risk management into a single, cohesive framework. This framework is the centerpiece of Shimpi’s book, which also provides readers with a comprehensive look at current risk-management practices, old and new tools for managing risk, and likely future developments in the field. While the topic at hand is complex and built of often-unfamiliar jargon, Shimpi manages to present the material in an accessible and engaging manner that will satisfy financial experts but won’t intimidate novices. getabstract recommends this book not only to the obvious audience of risk managers, treasurers and c-level executives, but also to mid-level managers and students, who will need an increasingly sophisticated understanding of the topic as risk management becomes an ever-larger component of basic corporate strategy.

About the Author

Prakash A. Shimpi is Managing Principal (U.S.) for Swiss Re New Markets. Swiss Re is a leading reinsurance firm with a global reputation for innovative financial techniques and management. Prior to joining Swiss Re in 1995, Shimpi was managing director of the Global Insurance Corporate Finance Division of Chase Manhattan Bank.

 

Summary

IRM Foundations

Because risk and opportunity go hand in hand, companies face a staggering array of risks. Managing these risks is sensible because it reduces a firm’s chances of experiencing financial distress and shields it from unanticipated events that disrupt its plans. While many executives contend with specific types of risk, risk management should be integrated and consolidated (ideally under a chief risk officer) to achieve maximum risk reduction at a minimum cost.

Risk is not avoidable, but it is manageable. Companies seek to manage risks in several basic ways: risk avoidance (deciding not to undertake risky endeavors), risk reduction (preventing and controlling risks by using safety devices, protective techniques and diversification), risk transfer (insuring or hedging), and risk retention (absorbing certain risks in a cost-effective fashion.)

It is critical for firms to coordinate their efforts in all of these areas in order to make coherent risk-management decisions. For example, a firm might spend hundreds of thousands of dollars insuring its plants and equipment against accidental losses that would be far less devastating than a shift in interest...


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