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Cambridge University Press
Strategic Risk Management Practice: How to Deal Effectively with Major Corporate Exposures

Strategic Risk Management Practice: How to Deal Effectively with Major Corporate Exposures

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At a time when corporate scandals and major financial failures dominate newspaper headlines, the importance of good risk management practices has never been more obvious. The absence or mismanagement of such practices can have devastating effects on exposed organizations and the wider economy (the stories of Barings Bank, Enron, Lehman Brothers, Northern Rock, to name but a few, illustrate this very fact). Today's organizations and corporate leaders must learn the lessons of such failures by developing practices to deal effectively with risk. This book is an important step towards this end. Written from a European perspective, it brings together ideas, concepts and practices developed in various risk markets and academic fields to provide a much-needed overview of different approaches to risk management. It critiques prevailing enterprise risk management (ERM) frameworks and proposes a suitable alternative. Combining academic rigour and practical experience, this is an important resource for graduate students and professionals concerned with strategic risk management.

Product Details

ISBN-13: 9780521132152
Publisher: Cambridge University Press
Publication date: 03/04/2010
Edition description: New Edition
Pages: 245
Product dimensions: 6.80(w) x 9.60(h) x 0.60(d)

About the Author

Torben Juul Andersen is Professor at the Center for Strategic Management and Globalization, Copenhagen Business School. His professional career includes positions as Senior Consultant at PHB Hagler Bailly Inc., Arlington; Senior Vice President at Unibank A/S, Copenhagen; Managing Director at SDS Securities A/S, Copenhagen; Vice President at Citicorp Investment Bank, London; and Corporate Bank Head with Citibank, N.A. He is the author of several books on risk management, including Global Derivatives (2006) and Currency and Interest Rate Hedging (1993).

Peter Winther Schrøder is a director at Saxo Bank A/S, where he is responsible for all risk management within the group. He has held various executive risk management positions in the banking and insurance industry over the past twenty years where he gained comprehensive practical experience in all aspects of financial and operational risk management. He is also a part-time associate professor at the Copenhagen Business School.

Table of Contents

List of abbreviations viii

List of figures x

List of tables xiii

List of boxes xiv

Preface xvii

1 The strategic nature of corporate risk management 1

1.1 The nature of risk management 1

1.2 The significance of potential risk effects 2

1.3 Different approaches to risk management 11

1.4 Integrating risk management approaches 15

1.5 Does risk management pay? 16

1.6 Effective risk management 21

1.7 Conclusion 30

2 Economic exposures in corporate risk management 33

2.1 Exposures to market risk 33

2.2 Economic exposures 35

2.3 Foreign exchange rate exposures 38

2.4 Interest rate exposures 40

2.5 Interacting effects of market-related risks 45

2.6 Managing complex market exposures 46

2.7 Conclusion 51

3 Managing market-related business exposures 53

3.1 Market-related risk exposures 53

3.2 Various hedging possibilities 54

3.3 The insurance market 54

3.4 Derivative instruments 60

3.5 Capital market instruments 69

3.6 Coordinating risk management approaches 73

3.7 Conclusion 74

4 Extending the risk management perspective 76

4.1 Risk management in all of its aspects 76

4.2 An extended view on risk exposures 78

4.3 Real options and strategic exposures 85

4.4 Real options frameworks 88

4.5 Application of the real options logic: managing innovation in the pharmaceutical industry (external venturing) 92

4.6 Extending the real options perspective 95

4.7 Conclusion 96

5 Integrative risk management perspectives 99

5.1 The need to look across risks 99

5.2 Shortcomings of traditional hedging practices 109

5.3 An integrative approach to other types of risk 112

5.4 Managing the different images of risk 115

5.5 Conclusion 118

6 Current risk management practice and the rise of ERM 120

6.1 Drivers of the new risk paradigm 120

6.2 Risk management practices 123

6.3 ERM - the new risk paradigm 128

6.4 Limitations of the ERM framework 138

6.5 Conclusion 143

7 Strategic risk analyses 146

7.1 Environmental scanning in a predictable world 146

7.2 Scenario planning - a simple technique in an unpredictable world 159

7.3 Adding complexity and uncertainty 167

7.4 Dealing with the unknown 169

7.5 Handling the different images of risk 173

7.6 Conclusion 175

8 Strategic risk management - amendments to the ERM framework 178

8.1 The relationship to corporate strategy 178

8.2 Organizational aspects 180

8.3 Organizational involvement and cultural aspects 187

8.4 Conclusion 198

9 Strategic risk management 200

9.1 Organizing the risk management activities 200

9.2 The integrative strategic risk management process 202

9.3 Organizational structure and risk management 211

9.4 Risk management at If P&C Insurance 215

9.5 Conclusion 223

10 Postscriptum 225


Appendix 1 A strategic responsiveness model 233

Appendix 2 Determining the premium on a call option 235

Appendix 3 Determining the value of a real option 237

Index 239

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