ERM Education: Role of MBA Programs

Moving Into Enterprise Risk Management

Risks are unavoidable for any business enterprise.  But, by implementing a framework to identify possible risks, the negative effects of risks can be lessened.  In today’s business world, corporations are developing new systems to protect their assets and prevent the serious consequences of risk.  The traditional risk management system of having specialists assess risk in a particular area, are no longer working well.  The idea of integrating an enterprise risk management initiative is led by research studies which revealed that improved risk management resulted in higher share value due to lower earnings volatility.

Leaders of Enterprise Risk Movement

Financial institutions are leading the enterprise risk management movement today.  The Basel Committee on Banking Supervisions is establishing new guidance with which banks will have to comply.  The committee wrote the Basel Capital Accord II, which changes bank requirements and the current supervisory oversight.  Any bank that does not develop an enterprise risk management system will receive a low “fitness score” that may cost them trillions of dollars.  Along with financial institutions, utility companies are expected to implement enterprise risk management programs.

Lagging Academic Institutions

Currently, most of the academic community does not place weight on teaching or researching enterprise risk management.  Most research is completed by accounting associations and consultant firms.  There are schools in some countries, such as Canada, Australia, and the United Kingdom, which have begun looking into this topical area.  The United States, however, is likely to remain lagging behind due to its litigious nature. 

Enterprise risk management is a rapidly emerging issue that should be addressed not only by the corporate world, but also by colleges and universities.  By not teaching risk management in the schools, students are being sent into the working world unprepared for the challenges that corporations face today.

Original Article Source: “Risky Business” Lawrence R. Quinn, Journal of Accountancy. June 1, 2002.