The way things are going, we will have to scrap the title "Risk Manager" and insert something completely new. Risk managers are in higher demand than ever before, and are being employed in far more ways than one would have imagined 15 years ago. The problem is that risk managers are performing such a wide range of services that it is impossible to say what a "risk manager" is.
It was not long ago that a risk manager was generally understood to be the person who managed the insurance program and also was responsible for overseeing safety and loss prevention. That this is no longer the case was brought home for me at the Enterprise Risk Management Symposium put on by the Society of Actuaries, Casualty Actuarial Society and Professional Risk Managers' International Association organizations. ERM generally refers to a broad array of risks at the strategic level. However, this symposium was focused on managing risks within insurance companies. No one mentioned workers' compensation or insurance except to the degree that issuing those policies could impact corporate capital.
I recently subscribed to several "risk management" newsletters put out by Wall Street-focused groups. Like the insurance companies' risk managers, these folks work with complex models that require an advanced degree in mathematics to comprehend. Trying to follow along with these formulas made me feel as if I were in a nightmare where I was taking a final exam in a class I had never attended . . . in my underwear. In spite of having 16 years of experience in risk management, I found what they were talking about completely foreign.
The same feeling arose at a class I took at Stanford University last fall. The professor teaching "risk management" was clearly very knowledgeable about managing risk. However, he lectured strictly on hedging strategies that employ futures contracts and options. Once again, I was lost. I have never once been asked to perform delta hedging as a risk manager. However, the risk managers from the oil industry sitting in the class thought that the material was a bit too basic.
"This is kid's stuff. I have been doing this every day for 12 years," commented one "risk manager" from an oil company.
Risk management is suffering from a Tower of Babel effect. What was once a profession with a single, general meaning has shattered into numerous professions that have little to do with one another. What is worse, groups that previously had no formal association with risk management are now recasting themselves in a new risk-oriented mold. Internal auditors, actuaries, information-technology professionals, security specialists, building engineers, attorneys and CFOs are taking on titles that indicate their commitment to managing risk.
The only danger in this evolution of our profession is that as the various groups go off in different directions, they might cease communicating with one another. That would be a shame. Each flavor of risk management has solved certain challenging problems and developed highly valuable techniques. When taken together, there is almost no problem, no matter how complex, that cannot be solved. But if the solutions remain guarded by individual risk silos, none of us will be more than hyperfocused technicians.
Risk management is at a stage where we must start bringing all of these risk management schools together to share solutions. Doing so will make all of us smarter, more effective and far more valuable to our employers. Hopefully, a leader will step forward before these different breeds of risk management evolve into completely different species.
BEAUMONT VANCE manages risk for Sun Microsystems Inc.
June 1, 2007
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