Enterprise Risk Management A First Principles Approach

This book is unique in that it recognizes that the fundamental problem with enterprise risk management (ERM) is that no one knows the answers to many basic risk management questions. For example: Is risk a qualitative concept, a quantitative concept or both, or something entirely different?  Is risk inherently bad and, if so, then what is “upside risk” and how can one be risk neutral?  Is there a difference between risk measurement and risk assessment?  Is there one overarching methodology that can be used to robustly quantify every type of risk? Can risk be quantified where there are little or no empirical loss data – perhaps using just expert opinion? And how much data are required to accurately quantify risk anyway?  What are the so-called black swan events; what issues underly this simple concept and why are they important to risk management?  In order to manage risk holistically, is it necessary to develop a comprehensive risk architecture or taxonomy and, if so, what then are the rules for such a structure?  And, finally, how can one use risk information to make more effective tactical and strategic business decisions?    

The book explains what is the meaning of risk and the important risk concepts, what are risk management and ERM, what is the most appropriate risk architecture/taxonomy for ERM, what are the most effective methods of quantifying risk and ultimately, how can one use risk information to make more effective tactical and strategic business decisions?  While these may appear to be simple questions, they have never been satisfactorily answered. Written for those who have no prior knowledge of risk management to seasoned risk professionals with years of formal training and experience in this field.  All the important terms are clearly defined so that virtually anyone eager to learn the subject matter should be able follow the discussion with ease.  The Executive Summary addresses all the core risk management issues at a high level.  More comprehensive explanations are provided in the body of the paper.  Appendixes are included to provide detailed explanations of the more technical points.

Alexander Khan is a Vice President at Stamford Risk Analytics, where his roles include risk methodology enhancement, software code validation, and user interface and process workflow improvement. His expertise in this field comes from working on several enterprise/operational risk management consulting engagements on a diverse range of topics including risk architecture and taxonomy, risk quantification, incorporating risk premiums into product prices, and risk-based decision analysis.