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4 - Extending the risk management perspective

Published online by Cambridge University Press:  05 June 2012

Torben Juul Andersen  and
Peter Winther Schrøder
Torben Juul Andersen
Affiliation:
Copenhagen Business School
Peter Winther Schrøder
Affiliation:
Copenhagen Business School
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Summary

Now the focus moves beyond conventional risk management approaches and takes the wider spectrum of risks into consideration, including commercial and strategic exposures. The focus is also extended from insurance and derivative contracts to include alternative risk-transfer mechanisms and operational flexibilities needed to cope with longer-term systemic risks and firm-specific economic exposures. There is a focused discussion of the real options logic where financial options analysis is extended to the context of option structures framed by firm-specific asset positions, dynamic capabilities and external market conditions. A framework to analyze specific business opportunities as potential responsive actions in a turbulent environment is outlined and its potential use is discussed in more detail.

Risk management in all of its aspects

The range of exposures considered in conventional risk management thinking includes various insurable hazards as well as market-related, operational and commercial risks. Insurable risks comprise a range of casualties, accidents and man-made disasters, such as fire, collisions, explosions, etc., and natural disasters caused by, for example, windstorm, flooding and earthquake events that may destroy productive assets and disrupt the production flows. Market-related risks comprise the effects of changes in various market prices, such as commodity prices, energy prices, foreign exchanges rates, interest rates and so forth, all of which have the capacity to affect corporate performance. There has been an increased focus on operational risks in recent years comprising events like processing failures, technology breakdowns, human errors, misreporting, fraud and the like.

Type
Chapter
Information
Strategic Risk Management Practice
How to Deal Effectively with Major Corporate Exposures
 , pp. 76 - 98
Publisher: Cambridge University Press
Print publication year: 2010

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References

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Womack, J. P. and Jones, D. T. (2005). Lean Solutions: How Companies and Customers can Create Value and Wealth Together. Simon & Schuster: LondonGoogle Scholar
Slywozky, A. J. (2007). The Upside: How to Turn Your Greatest Threat into Your Biggest Growth Opportunity. Capstone Publishing: Chichester, West SussexGoogle Scholar
Saunders, A. and Cornett, M. M. (2003). Financial Institutions Management: A Risk Management Approach. McGraw-Hill Irwin: Boston, MassachusettsGoogle Scholar
Eisenhardt, K. (1989). ‘Making Fast Strategic Decisions in High-Velocity Environments’. Academy of Management Journal 32(3), pp. 543–76Google Scholar
Thomas, L. G. (1996). ‘Dynamic Resourcefulness and the Hypercompetitive Shift’. Organization Science 7(3), pp. 221–42 among othersCrossRefGoogle Scholar
D'Aveni, R. A. (1994). Hypercompetition. Free Press: New YorkGoogle Scholar
Christensen, C. M. (1997). The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail. Harvard Business School Press: Boston, MassachusettsGoogle Scholar
Liebenberg, A. P. and Hoyt, R. E. (2003). ‘The Determinants of Enterprise Risk Management: Evidence from the Appointment of Chief Risk Officers’. Risk Management and Insurance Review 6(1), pp. 37–52CrossRefGoogle Scholar
Kleffner, A. E., Lee, R. B. and McGannon, B. (2003). ‘The Effects of Corporate Governance on the Use of Enterprise Risk Management: Evidence from Canada’. Risk Management and Insurance Review 6(1), pp. 53–73CrossRefGoogle Scholar
Porter, M. E. (1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors. Free Press: New YorkGoogle Scholar
Grove, A. S. (1997). Only the Paranoid Survive: How to Exploit the Crisis Points that Challenge Every Company and Career, HarperCollins Business: LondonGoogle Scholar
Burgelman, R. A. (2002). Strategy is Destiny: How Strategy-Making Shapes a Company's Future. Free Press: New YorkGoogle Scholar
Kogut, B. and Kulatilaka, N. (1994). ‘Operating Flexibility, Global Manufacturing and the Option Value of a Multinational Network’. Management Science 40(1), pp. 123–41CrossRefGoogle Scholar
Andersen, T. J. (2006). ‘Options Reasoning and Strategic Responsiveness: Discussion and Empirical Assessment’ in Andersen, T. J. (ed.), Perspectives on Strategic Risk Management. Copenhagen Business School Press: CopenhagenGoogle Scholar
Burgelman, R. (1988). ‘Strategy Making as a Social Learning Process: The Case of Internal Corporate Venturing’. Interfaces 18(3), pp. 74–85CrossRefGoogle Scholar
Leuhrman, T. (1998). ‘Strategy as a Portfolio of Real Options’. Harvard Business Review 76(5), pp. 89–99Google Scholar
Bowman, E. H. and Hurry, D. (1993). ‘Strategy Through the Options Lens: An Integrated View of Resource Investments and the Incremental Choice Process’. Academy of Management Review 18(4), pp. 760–82CrossRefGoogle Scholar
Burgelman, R. A. and Grove, A. S. (1996). ‘Strategic Dissonance’. California Management Review 38(2), pp. 8–28CrossRefGoogle Scholar
Miller, K. and Waller, H. G. (2003). ‘Scenarios, Real Options and Integrated Risk Management’. Long Range Planning 36(1), pp. 93–107CrossRefGoogle Scholar

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