Silabus enterprise risk management

B8840-001: Enterprise Risk Management Spring 2011 Mondays 10:45am - 2:00pm Syllabus Sim Segal, FSA, CERA 917 699-3373 mobile call, vmail or text less than 160 characters please anytim

B8840-001: Enterprise Risk Management

Spring 2011 Mondays 10:45am - 2:00pm

Syllabus

Sim Segal, FSA, CERA

(917) 699-3373 (mobile) call, vmail or text (less than 160 characters please) anytime

(212) 496-6479 (home) up until midnight; no vmails please

simcolumbia@spamex.com

Contents

 Course description

 Course objectives

 Textbooks and materials

 Method of evaluation

 Conduct policies

 Office hours

 Detailed schedule

1) Course description

Traditional risk management, while well-established, has its limitations Traditional risk

management approaches are typically done on a “silo” basis Each risk type is usually handled in isolation: financial risk in the investment department; technology risk in the I/T department; talent management risks in the H.R department; etc In addition, only the financial risks have commonly received robust quantification

As a result, what has generally been lacking is the ability for companies to address all their key risks on a consistent, integrated basis and in a quantitative manner Without this, companies have struggled to:

 Prioritize and manage their individual key risks;

 Understand the integrated impact of multiple risks occurring simultaneously;

 Aggregate risk exposure metrics to the enterprise level

 Determine the overall risk appetite of the organization, and manage risk exposures to within the risk appetite

 Provide appropriate risk disclosures to investors and other stakeholders

Enterprise risk management (ERM) is a significant advancement in the field of risk management, and provides a process for companies to identify, measure, manage, and disclose all key risks to increase value to stakeholders ERM solves the challenges discussed above In addition, ERM provides a better framework for fundamental risk-return decision-making at the highest levels, elevating ERM to an advancement in business management

This course will cover the latest methodologies in ERM and how they are implemented in practice The material will address all major aspects of ERM, including the following topics:

• Introduction to ERM

o Evolution of ERM

o Challenges to ERM

• Defining ERM

o Definition of risk

o Definition of ERM

 Basic definition

 Key criteria

 ERM process cycle

 Fundamental benefits

• ERM framework

o Challenges of traditional ERM frameworks

o Value-based ERM framework

o Overcoming the challenges with a value-based ERM framework

o Lessons from the financial crisis

• Risk identification

o Risk categorization and definition

o Qualitative risk assessment

o Emerging risk identification

o Killer risks

• Risk quantification

o Practical modeling

o Calculate baseline company value

o Quantify individual risk exposures

o Quantify enterprise risk exposure

• Risk decision-making

o Defining risk appetite and risk limits

o Integrating ERM into decision-making

 Decision-making with ERM

 Risk-priority decision-making (e.g., mitigation)

 Return-priority decision-making (e.g., strategic planning and other business decision-making)

• Risk messaging

o Internal risk messaging

 Integrating ERM into business performance analysis

 Integrating ERM into incentive compensation

o External risk messaging

 Shareholders

 Stock analysts

 Rating agencies

 Regulators

• ERM for non-corporate entities

o Objectives-based ERM

o Non-profit organizations (e.g., charities)

o Government bodies (e.g., homeland security)

o Individuals (e.g., retail financial planning)

For a sample of some of the topics/content for this course, as well as the communications style of the professor, follow the links below to short videos of the professor discussing ERM topics:

http://risk.mashnetworks.com/player.aspx?channelGUID=5328db08-e9d9-45d9-941d-18f0cfd47fbf&clipGUID=d0646087-a10b-475f-8c3b-76b41508d0f3

http://risk.mashnetworks.com/player.aspx?channelGUID=5328db08-e9d9-45d9-941d-18f0cfd47fbf&clipGUID=071f59b1-2726-412f-aa4f-e0fba17ea5d1

http://risk.mashnetworks.com/player.aspx?channelGUID=5328db08-e9d9-45d9-941d-18f0cfd47fbf&clipGUID=9e56e970-324d-4051-837c-405ad94e1635

http://risk.mashnetworks.com/player.aspx?channelGUID=5328db08-e9d9-45d9-941d-18f0cfd47fbf&clipGUID=8818010e-ea8b-4a25-91bd-d80939faceab

Sessions will be a combination of lecture and in-class exercises The in-class exercises are critical

to gaining practical expertise in some of the key skills of ERM, e.g.:

 Extracting information from risk experts

 Converting information from risk experts into quantitative ERM information

 Quantifying risks using a value-based ERM model

There will be no homework assignments

2) Course objectives

The goals of the course are that students will be able to:

 Articulate the definition of ERM, its 10 key criteria, the ERM process cycle and the fundamental benefits of ERM

 Understand the value-based ERM framework, and how it addresses shortcomings of traditional ERM frameworks

 Understand the lessons learned from the financial crisis

 Properly define and categorize risks

 Conduct effective qualitative risk assessments

 Quantify all types of risk, including financial, operational and strategic risks

o Conduct risk scenario development interviews

o Build an ERM model and customize it to a specific organization

o Quantify individual risk scenarios and aggregate enterprise risk exposure

 Define a firm’s risk appetite

 Use the value-based ERM process for decision-making:

o Managing risk exposures to within risk appetite

o Strategic planning and other business decisions

 Implement proper risk messaging, including integration of ERM into business

performance analysis, incentive compensation, and risk disclosures

 Understand how to apply ERM concepts to other entities

3) Textbooks and materials

All the information needed for this course will be provided via in-class lectures However, a textbook for this course is currently being authored by the instructor, and a draft manuscript may become available for purchase prior to the beginning of the course Materials for in-class

exercises will be provided, usually on the day of the exercise Some of these materials, such as Excel spreadsheets, will need to be loaded onto the student’s laptop All other supplemental materials will be provided in class, as needed

Laptops will be required for some of the in-class exercises

4) Method of evaluation

The evaluation will be based on the following weights:

a Attendance, preparedness and participation in class discussions – 10%

b In-class exercises (Types A, B and C) – 40%

c Midterm examination – 25% (will include material covered to-date)

d Final examination – 25% (will include material covered after the midterm)

By the end of the day of each session involving a group/group (Type A) or a group/individual (Type B) exercise, students must submit a grade for each of the fellow students within their group, separately for each exercise, by email, reflecting the level of that members contribution to the team The grade will be one of the following:

 (M) – Met expectations (this is expected to be the most common grade assigned)

 (E) – Exceeded expectations

 (B) – Below expectations

25% of the grade for each group exercise (either Type A or B) will be based on these grades from fellow team members

5) Conduct policies

Students are expected to attend all sessions, be fully prepared, participate in class discussions and actively contribute to in-class group/group (Type A) and group/individual (Type B) exercises (please bring your name card to class) The seat chosen on the day of the second session will become the student’s permanent seat for the remainder of the course

6) Office hours

Office hours are tentatively planned to be immediately before and after each Monday session, from 9:30am-10:45am and from 2:00pm-2:45pm In addition, the instructor will make reasonable efforts to be available at other times

7) Detailed schedule

This is a tentative schedule, though any variations will be minor

Session 1 – Jan 31

Reading assignment: Chapters 1 and 2 (of draft manuscript, if available)

• Course overview / method of evaluation

 Introduction

• Evolution of ERM

• Challenges to ERM

 Defining ERM

• Definition of risk

• Definition of ERM

o Basic definition

o Key criteria

o ERM process cycle

o Fundamental benefits

Session 2 – Feb 7

Reading assignment: Chapter 3 (of draft manuscript, if available)

 ERM framework

• Challenges of traditional ERM frameworks

• Value-based ERM framework

• Overcoming the challenges with a value-based ERM framework

• Lessons from the financial crisis

Session 3 – Feb 14

Reading assignment: Chapter 4 (1st portion; pages TBD) (of draft manuscript, if available)

 Risk identification

• The 5 keys to successful risk identification (2 of the 5 are discussed in this session)

• Risk categorization and definition

o Defining risks by source (key #1)

o Categorizing risks evenly (key #2)

Session 4 – Feb 21

Reading assignment: Chapter 4 (2nd portion; pages TBD) (of draft manuscript, if available)

 Risk identification (continued)

• Qualitative risk assessment

o Participant identification

o Advance communication

 Defining metrics clearly (key #3)

o Qualitative risk assessment surveys

 Gathering data appropriately (key #4)

 Identifying risks prospectively (key #5)

o Consensus meeting

• Emerging risk identification

• Killer risks

 Midterm exam prep

Session 5 – Feb 28

MIDTERM EXAM

Session 6 – Mar 7

Reading assignment: Chapter 5 (1st portion; pages TBD) (of draft manuscript, if available)

 Midterm exam review

 Risk quantification

• Practical modeling

• Calculate baseline company value

Session 7 – Mar 21

Chapter 5 (2nd portion; pages TBD) (of draft manuscript, if available)

 Risk quantification (continued)

• Quantify individual risk exposures

o Developing individual risk scenarios

o Quantifying individual risks

 Shocking the baseline company value and other key metrics

 Attribution of shocks

Session 8 – Mar 28

Reading assignment: None

 Risk quantification (continued)

• Quantify individual risk exposures (continued)

o Quantifying individual risks (continued)

 Shocking the baseline company value and other key metrics

 Attribution of shocks

Session 9 – Apr 4

Chapter 5 (3rd portion; pages TBD) (of draft manuscript, if available)

 Risk quantification (continued)

• Quantify enterprise risk exposure

Session 10 – Apr 11

Reading assignment: Chapter 6 (of draft manuscript, if available)

 Risk decision-making

• Defining risk appetite and risk limits

• Integrating ERM into decision-making

o Decision-making with ERM

o Risk-priority decision-making (e.g., mitigation)

o Return-priority decision-making (e.g., strategic planning and other business decision-making)

Session 11 – Apr 18

Reading assignment: Chapter 7 (of draft manuscript, if available)

 Risk messaging

• Internal risk messaging

o Integrating ERM into business performance analysis

o Integrating ERM into incentive compensation

• External risk messaging

o Shareholders

o Stock analysts

o Rating agencies

o Regulators

Session 12 – Apr 25

Reading assignment: Chapter 10 (of draft manuscript, if available)

 ERM for non-corporate entities

• Objectives-based ERM

• Non-profit organizations (e.g., charities)

• Government bodies (e.g., homeland security)

• Individuals (e.g., retail financial planning)

• Final exam prep

Date TBD

FINAL EXAM