Fundamentals of Risk Management for Accountants and Managers

Citation

Harb, T. (2010), "Fundamentals of Risk Management for Accountants and Managers", Qualitative Research in Accounting & Management, Vol. 7 No. 2, pp. 227-228. https://doi.org/10.1108/11766091011050877

Managers and accountants are tasked with the important responsibility of ensuring strategic, operational, and financial objectives are achieved in an environment that is characterised by various levels of uncertainty and many sources of risk. Just one unmitigated risk, or the realisation of a lethal combination of relatively moderate risks, can be enough to wipe out an organisations capital and/or reputation, sending it to the corporate graveyard. For this reason alone, Fundamentals of Risk Management for Accountants and Managers by Paul M. Collier is a must read book for people managing or directing a business or studying business. The book will help managers better understand risk management and enable them to effectively support their organisations' efforts in maintaining an effective risk management framework.

Collier blends a perfect cocktail comprising current and pertinent academic literature, best practice standards, relevant diagrams, landmark regulatory reforms, and real life case studies to help the reader understand and appreciate the key elements of risk management theory and practice.

The book is in four parts as follows. Part A introduces the concept of risk and risk management, the emergence and standardization of risk management and links risk management to corporate governance, financial statements, and financial regulation. There is an excellent overview covering the intricate differences in risk management in the public and private sector; Part B is dedicated to helping the reader understand the “nuts and bolts” of risk management. It outlines the key steps in risk management and examines the major approaches to managing risks. In line with current best‐practice in risk management, the book promotes the need for enterprise‐wide risk management; Part C is where this book really excels. Having helped the reader establish a solid understanding of risk management, Collier then applies risk management thinking to a number of key areas including financial reporting, financial decision making, business strategy, regulation, fraud, insurance, projects, and contracts. In doing so, he draws the reader's attention to the broader application of risk management thinking across an organisation. This reinforces that fact that risk management is not a discipline relegated to a few people, but it is something that every manager is responsible for and MUST do. Part D outlines the importance of monitoring and evaluating the risk management function.

The book has a number of strengths. First, Collier has brought together all the major developments from around the world that have shaped risk management thinking over the last 20 years into a concise, easy to read book. All major standards are covered ( I note however that the new ISO 31000 was still in draft at the time of publication). Introducing the major findings from many research papers means that even seasoned risk management practitioners will learn something new. Landmark reports and legislation from the four corners of the globe not only bring an international flavour to the book, but enable the reader to see some common and emerging themes in the area of risk and governance and provide some appreciation as to why certain risk management and governance processes are in place today.

Second, the book is rich in case studies that not only help the reader apply the principles outlined in the book to real life situations, but also remind the reader that this stuff is real – risk events do happen and failure to manage risk does impact a wide range of stakeholders including governments, shareholders, CEOs, and employees.

Third, Collier not only brings together the various pieces of risk management puzzle, but he also helps link risk management to other important disciplines. How is risk management linked to governance? What role should and could internal audit play in the risk management process? How does risk impact financial decisions?

For the risk management professional like myself, naturally there are areas in the book that will be very familiar. However, the book remains an excellent reference source and concise body of knowledge bringing together many areas of risk management, governance, compliance, and audit. Also, I found there are still many areas in the book where my understanding improved, particularly through the case studies and the academic research.

For CEOs, company directors, politicians, line managers or someone new to the areas of risk management (e.g. students), the book is easy to read, uncluttered, well structured, very informative, and comprehensive enough without being overwhelming. The book will bring a risk management novice up to speed in the area very, very quickly. In fact, knowledge that has taken a risk professional over 20 years to learn is now available in fewer than 300 pages.