In the face of the coronavirus, mass unemployment, and unstable financial markets, are companies still able to effectively calculate risk? Look to risk education, one of the three components of risk intelligence.
There are three components of risk intelligence, writes David Ingram, MAAA, FSA, CERA, EVP at Willis Re, in Contingencies, the magazine of the American Academy of Actuaries. “To define ‘risk intelligence,’ I adapted a standard definition of intelligence,” Ingram writes. “Risk intelligence is the ability to reason, plan, solve problems, think abstractly, comprehend complex ideas, learn quickly, and learn from experience in matters involving risk and uncertainty.” Ingram also defines the three components of risk intelligence: risk experience, risk education, and risk analysis.
Risk education is a much less expensive option than experience—companies making risky bets that fail can lead to financial disaster. Case studies and analytical techniques can be taught in a classroom, providing necessary tools to calculate risk in an organizational setting.
Ingram cites Columbia’s Enterprise Risk Management program as an example of quality risk education. “This program, founded and led by an actuary, Sim Segal, offers courses in management and assessment of financial, insurance, operational and strategic risk, including ERM framework, risk governance, and the full risk management cycle (identification, quantification, decision-making, and communication). It also provides a comprehensive look at a very wide range of risks, including insurance, financial, operational, and strategic. Segal will tell you that ‘60% of the big threats to firms relate to strategic risks.’"
Business communications and interaction skills are really critical to making you a successful ERM professional.— Sim Segal, Academic Director and Senior Lecturer in Discipline, Enterprise Risk Management
Ingram asks Segal how the program teaches risk evaluation. “Segal says that choosing the right risk metric is extremely important. He suggests using a ‘value-based ERM approach—a synthesis of value-based management and ERM—which measures risk as deviation from what the organization values, such as company value for corporations. This generates buy-in and aligns ERM with strategic planning and decision-making in general.’”
The article also notes the program’s faculty of experienced practitioners, “who can pass along their versions of the stories and legends of famous risk management misadventures.”