Best and Worst Practices in ERM

How enterprise risk management has improved since the global financial crisis, and where practices are still lagging.

Five years after the fall of Lehman Brothers, many financial industry analysts are reflecting on the lasting impact of the global financial crisis—and whether a similar situation could arise again in the future.

Treasury & Risk put that question to actuary and financial risk management consultant Max Rudolph. As the founder and principal of Rudolph Financial Consulting, he helps companies analyze how their myriad risks aggregate at the company level and how different risks interact with one another.

T&R:  Does that mentality generally come from the board?

MR:  For public companies, it’s hard. If you don’t meet your quarterly targets, you’ll have an activist investor after you, and you won’t stay in charge very long if you aren’t using practices that are common in the industry. It’s a little easier for a private firm or a family-owned firm to make those tough decisions.

T&R:  How can a company determine what sorts of scenarios to analyze if its time horizon is 20 or 30 years in the future? How should risk managers narrow down all the millions of different things that could possibly happen that would affect their business in some way?Max Rudolph headshot

MR:  It’s incredibly hard. The first step is to make sure the risk management team is not taking an insular perspective. They should talk to people who are experts in scenario planning, maybe follow some outside sources in the areas that they’re looking at. The World Economic Forum and our Emerging Risk Survey do some good work on emerging risks. Talking to a third party can help companies think about things in a different way that may not come naturally to most people.

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