Loading...

BUS404: Risk Management

Unit 5: The Evolution of Risk Management: Enterprise Risk Management   The first three units of this course provided information to help you understand and measure risks, as well as to evaluate risk attitudes and risk behavior. Unit 4 concentrated on risk management and methods for identifying, measuring, and managing risks. This final unit introduces an idea that is critical to the management of risk--the realization that all risks should be treated in a holistic, global, and integrated manner, as opposed to having individual divisions within a firm treating the risk separately. Information technology, globalization, and innovation in financial technologies have all led to a term called “enterprise risk management” (ERM) that includes managing pure opportunity and speculative risks. This concept of Enterprise-wide Risk Management (ERM) was named one of the top ten breakthrough ideas in business by the *Harvard Business Review** in 2004.*

Unit 5 Time Advisory
Time Advisory: This unit should take you approximately 10 hours to complete.
       Subunit 5.1: 2 hours
       Subunit 5.1: 2 hours
       Subunit 5.2: 2 hours
       Subunit 5.3: 2 hours
       Subunit 5.4: 2 hours
       Subunit 5.5: 1 hour
       Subunit 5.6: 1 hour

Unit5 Learning Outcomes
Upon completion of this unit, the student will be able to:
- Learn how the ERM function integrates well into the firm’s main theoretical and actual goal: to maximize value. - Understand the ambiguities regarding the firm goals. - Identify the tasks of the enterprise risk managers (ERM) function as it relates to the balance sheet of the firm annual statement. - Employ ERM to ensure sustainability by preventing losses and providing opportunities within the risk matrix.

5.1 Enterprise Risk Management within Firm Goals   - Reading: Risk Management for Enterprises and Individuals: “Chapter 5: The Evolution of Risk Management: Enterprise Risk Management:”“Section 5.1: Enterprise Risk Management within Firm Goals” Link: Risk Management for Enterprises and Individuals: “Chapter 5: The Evolution of Risk Management: Enterprise Risk Management:”“Section 5.1: Enterprise Risk Management within Firm Goals” (HTML)
 
Instructions: Please click on the link above, and read Section 5.1 in its entirety.  Also, complete the discussion questions at the end of the reading.  This reading discusses the values of risk management with respect to the goals of a company. 
 
Reading, note-taking, and answering the discussion questions should take approximately 1 hour to complete.
 
Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • Lecture: YouTube: Stanford University: Strategic Decisions Group’s “How to Specify and Apply Corporate Risk Management” Link: YouTube: Stanford University: Strategic Decisions Group’s “How to Specify and Apply Corporate Risk Management”(YouTube)
     
    Instructions: Please click on the link above, and watch the video in its entirety.  In this video, leading risk managers describe best practices for managing a given risk appetite, which can be categorized as risk averse, risk neutral, or risk seeking.
     
    Watching this video lecture should take approximately 1 hour to complete.
     
    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

5.2 Risk Management and the Firm’s Financial Statement—Opportunities within the ERM   - Reading: MIT OpenCourseWare: John E. Parsons and Antonio S. Mello’s Course Notes on Advanced Corporate Financial Risk Management: “Chapter 2: How Companies Manage Risk” Link: MIT OpenCourseWare: John E. Parsons and Antonio S. Mello’s Course Notes on Advanced Corporate Financial Risk Management: “Chapter 2: How Companies Manage Risk”(HTML)
 
Instructions: Please click on the link above, find “Chapter 2” in the “Course Notes” column, and click on the PDF link to download “Chapter 2: How Companies Manage Risk.”  Read the document in its entirety (23 pages) for an overview of corporate risk management strategies. 
 
Studying this reading should take approximately 1 hour to complete.
 
Terms of Use: This resource is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 United States license.

  • Reading: MIT OpenCourseWare: John E. Parsons and Antonio S. Mello’s Course Notes on Advanced Corporate Financial Risk Management: “Chapter 3: Why Companies Manage Risk” Link: MIT OpenCourseWare: John E. Parsons and Antonio S. Mello’s Course Notes on Advanced Corporate Financial Risk Management: “Chapter 3: Why Companies Manage Risk” (HTML)
     
    Instructions: Please click on the link above, find “Chapter 3” in the “Course Notes” column, and click on the PDF link to download the file titled “Chapter 3: Why Companies Manage Risk.”  Read the entire file (14 pages).  This reading illustrates the benefits of Enterprise Risk Management and introduces the Modigliani-Miller Theorem.
     
    Studying this reading should take approximately 1 hour to complete.
     
    Terms of Use: This resource is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 United States license.

5.3 Risk Management Using the Capital Markets   - Reading: Risk Management for Enterprises and Individuals: “Chapter 5: The Evolution of Risk Management: Enterprise Risk Management:”“Section 5.2: Risk Management and the Firm’s Financial Statement” Link: Risk Management for Enterprises and Individuals: “Chapter 5: The Evolution of Risk Management: Enterprise Risk Management:”“Section 5.2: Risk Management and the Firm’s Financial Statement” (HTML)
 
Instructions: Please click on the link above, and read Section 5.2 in its entirety for a discussion on the causes of the 2008-2009 financial crisis.  This reading discusses how ERM relates to a company’s balance sheet.  Pay attention to Tables 5.3 and 5.5.  Remember to complete the discussion questions at the end of the reading. 
 
Reading, note-taking, and answering the discussion questions should take approximately 2 hours to complete.
 
Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

5.4 Risk Management Using the Capital Markets   - Reading: Risk Management for Enterprises and Individuals: “Chapter 5: The Evolution of Risk Management: Enterprise Risk Management:”“Section 5.3: Risk Management Using the Capital Markets” Link: Risk Management for Enterprises and Individuals: “Chapter 5: The Evolution of Risk Management: Enterprise Risk Management:”“Section 5.3: Risk Management Using the Capital Markets” (HTML)
 
Instructions: Please click on the link above, and read Section 5.3 in its entirety for an introduction to the basic risk management concepts for dealings in financial markets.  This reading describes the evolution of financial markets and provides a case study of financial risk management at a bank.  Topics include derivatives, forwards, futures, swaps and options, and insurance-linked securities.   Remember to complete the Discussion questions at the end of the reading.  Note that this reading also covers the topics outlined in sub-subunits 5.4.1 and 5.4.2.
 
Reading, note-taking, and answering the Discussion questions should take approximately 2 hours to complete.
 
Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

5.4.1 Evolution of Financial Markets   Note: This topic is covered by the reading assigned below subunit 5.4.  Focus on the text below the heading “Evolution of Financial Markets.”  

5.4.2 Case Study: Financial Risk Management for a Hometown Bank   Note: This topic is covered by the reading assigned below subunit 5.4.  Focus on the text below the heading “Example: The Case of Financial Risk Management for the Hypothetical Hometown Bank.”  This case study illustrates the process banks used to manage risk prior to the 2008-2009 credit crisis.  While completing this reading, keep the following question in mind: what are the primary elements of Hometown’s financial risks?  Also, be sure that you understand the information conveyed in Table 5.11 before proceeding to the next resource. 

5.5 Value-Protection Risk Management   - Lecture: YouTube: Stanford University: Strategic Decisions Group’s “How Can Enterprise Risk Management Create and Protect Enterprise Value?” Link: YouTube: Stanford University: Strategic Decisions Group’s “How Can Enterprise Risk Management Create and Protect Enterprise Value?” (YouTube)
 
Instructions: Please click on the link above, and view the lecturein its entirety to learn how to leverage value-driven ERM to align risk management with business strategies.  In this lecture, leading risk managers describe strategies to balance value creation and value protection in ERM. 
 
Viewing this lecture should take approximately 1 hour to complete.
 
Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

  • Lecture: YouTube: Stanford University: Strategic Decisions Group’s “ImprovePortfolio Results with Value-Based Management” Link: YouTube: Stanford University: Strategic Decision Group’s “Improve Portfolio Results with Value-Based Management”(YouTube)
     
    Instructions: Please click on the link above, and watch the video in its entirety.  In this video, leading risk managers share their ideas on value-based management.  This video will help you improve your decision-making abilities when presented with an individual project for a larger portfolio.  You will also learn to minimize ad hoc decision-making. 
     
    Watching this lecture should take approximately 1 hour to complete.
     
    Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

5.6 Case Study: Risk Management in Health Care   - Lecture: YouTube: Stanford University: Strategic Decision Group’s “Taking Healthcare ERM to the Next Level—Strategic Decisions and Risk Management Program” Link: YouTube: Stanford University: Strategic Decision Group’s “Taking Healthcare ERM to the Next Level—Strategic Decisions and Risk Management Program” (YouTube)
 
Instructions: Please click on the link above, and watch this video lecture in its entirety to learn about a variety of potential risks in health care.  In this lecture, risk managers describe ERM for healthcare organizations. 
 
Watching this lecture should take approximately 1 hour to complete.
 
Terms of Use: Please respect the copyright and terms of use displayed on the webpage above.

Unit 5 Assessments   - Activity: Pearson Education: George E. Rejda's Principles of Risk Management and Insurance: "Chapter 4: Advanced Topics in Risk Management:” “Web Exercise” The Saylor Foundation does not yet have materials for this portion of the course. If you are interested in contributing your content to fill this gap or aware of a resource that could be used here, please submit it here.

[Submit Materials](/contribute/)
  • Assessment: Pearson Education: George E. Rejda's Principles of Risk Management and Insurance: “Chapter 4: Advanced Topics in Risk Management:” “Self-Assessment Quiz” The Saylor Foundation does not yet have materials for this portion of the course. If you are interested in contributing your content to fill this gap or aware of a resource that could be used here, please submit it here.

    Submit Materials

  • Assessment: The Saylor Foundation's "Unit 5 Assessment" Link: The Saylor Foundation's "Unit 5 Assessment" (PDF) and "Unit 5 Assessment Answer Key" (PDF).

    Instructions: Complete this assessment after you finish the readings of Unit 5. Write down your answers before checking with the Answer Key.