Risk vs. reward

I had a good conversation about the current state of enterprise risk management yesterday with Prakash Shimpi, enterprise risk management practice leader at Towers Perrin. Mr. Shimpi is well versed on ERM, having written a book on the topic and having previously led Swiss Re’s Swiss Re Financial Services Corp.

He was in Chicago for an annual ERM symposium that this year drew about 500 attendees, and Mr. Shimpi believes the integrated approach to risk management is finally taking hold on a broad basis.

Among the reasons executives at insurance industry companies and other sorts of businesses are seeing value in ERM, he suggested, is that the lessons of Enron, WorldCom and others have moved the perception of ERM from an exercise that was solely the province of analytical wonks to a more accurate view that it’s an approach based on an understanding that every business activity has at its heart a risk/reward component.

“When you undertake any business activity, like it or not, you’ve got risk in that,” Mr. Shimpi said. “So risk management is inherent in any business decision.”

“The value of risk management is in allowing shareholders to earn a levered return,” the Towers Perrin practice leader said. “What enterprise risk managers have done in the end game is better economics for the business.”

Clearly, the benefits of  risk vs. reward thinking aren’t limited to the golf course.

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