How to Integrate Risk Management

Risk management forms the core of effective corporate strategy, but is subject to a number of procedural obstacles, it has been asserted.

The MIT Roundtable on Corporate Risk Management in the Morgan Stanley Journal of Applied Corporate Finance addresses the issue of risk management for modern business.

According to the panel of experts, minimizing risk financially carries its own threat as organizations tend to increase their risk-taking in other areas as a result.

They suggest that this is an inevitable trade-off between different areas of risk that anyone in the industry must attempt to balance.

Andrew Lo, professor of finance at the MIT Sloan School of Management, adds that risk management is a misnomer for many companies.

Instead, he suggests that risk management practitioners frequently measure risk without providing any clear instructions on how it should be managed.

They may also assess risk based on probable events - leaving the company exposed should anything unexpected occur - he contends.

But this could leave the business exposed to major catastrophes more than minor disruptions - which may seem opposed to logic for many company directors.

The journal has been published since 1988 and counts a number of senior decision makers in corporate entities among its readership.