Risk Management
02-046
Copyright © 2002 Lisa K. Meulbroek
Working papers are in draft form. This working paper is distributed for purposes of comment and discussion only. It may not be reproduced without permission of the copyright holder. Copies of working papers are available from the author.
Integrated Risk
Management for the
Firm: A Senior
Manager's Guide
Lisa K. Meulbroek
Harvard Business School
Soldiers Field Road
Boston,MA 02163
The author gratefully acknowledges the financial support of Harvard Business
School's Division of Research. Email: Lmeulbroek@hbs.edu
Abstract
This paper is intended as a risk management primer for senior managers. It discusses the integrated risk management framework, emphasizing the connections between the three fundamental ways a company can implement its risk management objectives: modifying the firm's operations, adjusting its capital structure, and employing targeted financial instruments. "Integration" refers both to the combination of these three risk management techniques, and to the aggregation of all risks faced by the firm. The paper offers a functional analysis of integrated risk management using a wide set of illustrative situations to show how the risk management process influences, and is influenced by, the overall business activities and the strategy of the firm. Finally, the paper provides a risk management framework for formulating and designing a risk management system for the firm, concluding with a perspective on the future evolution of risk management.
2
Introduction
Managers have always attempted to measure and control the risks within their companies.
The enormous growth and development in financial and electronic technologies, however, have enriched the palette of risk management techniques available to managers, offering an important new opportunity for increasing shareholder value. "Integrated risk management" is the identification and assessment of the collective risks that affect firm
Copyright © 2002 Lisa K. Meulbroek
Working papers are in draft form. This working paper is distributed for purposes of comment and discussion only. It may not be reproduced without permission of the copyright holder. Copies of working papers are available from the author.
Integrated Risk
Management for the
Firm: A Senior
Manager's Guide
Lisa K. Meulbroek
Harvard Business School
Soldiers Field Road
Boston,MA 02163
The author gratefully acknowledges the financial support of Harvard Business
School's Division of Research. Email: Lmeulbroek@hbs.edu
Abstract
This paper is intended as a risk management primer for senior managers. It discusses the integrated risk management framework, emphasizing the connections between the three fundamental ways a company can implement its risk management objectives: modifying the firm's operations, adjusting its capital structure, and employing targeted financial instruments. "Integration" refers both to the combination of these three risk management techniques, and to the aggregation of all risks faced by the firm. The paper offers a functional analysis of integrated risk management using a wide set of illustrative situations to show how the risk management process influences, and is influenced by, the overall business activities and the strategy of the firm. Finally, the paper provides a risk management framework for formulating and designing a risk management system for the firm, concluding with a perspective on the future evolution of risk management.
2
Introduction
Managers have always attempted to measure and control the risks within their companies.
The enormous growth and development in financial and electronic technologies, however, have enriched the palette of risk management techniques available to managers, offering an important new opportunity for increasing shareholder value. "Integrated risk management" is the identification and assessment of the collective risks that affect firm