Fundamentals of Risk Management for Accountants and Managers

Citation

Subramaniam, N. (2010), "Fundamentals of Risk Management for Accountants and Managers", Qualitative Research in Accounting & Management, Vol. 7 No. 2, pp. 228-230. https://doi.org/10.1108/11766091011050886

This is a well‐written introductory book on risk management. It targets financial and non‐financial managers, namely those responsible for performance, as well as accounting undergraduate and postgraduate students intending to study the basics of enterprise risk management (ERM). The book comprises four parts: Part A provides a general introduction to risk management; Part B discusses the structure of ERM including the process of risk identification, categorisation, assessment, evaluation treatment, and reporting; Part C covers a wide variety of topics in relation to applications of risk management in organisations; finally, Part D deals with evaluating risk management, particularly the role of audit committees and the audit function.

In recent times, the concept of risk management has dramatically widened in scope and form. The approach towards risk management has moved from a narrow set of tools aimed at managing negative outcomes through assessing probabilities and mitigation strategies, to a broader enterprise‐wide perspective that aims to deal with uncertainty in a more pro‐active and holistic manner. Much of this dramatic escalation in the changing role and expectations of risk management is also driven by global economic events and large corporate scandals and subsequent pressure arising for better corporate governance through regulatory and governance reforms. Collier captures the key factors related to these developments in the first part of the book in a comprehensive and interesting manner using recent examples such as the sub‐prime crisis and major corporate reforms in the UK and USA. One of the claims made by the author in the introduction is that the book has international appeal. Yet, the majority of the examples provided throughout the book were from developed economies, particularly the UK. It would have been beneficial to see more examples from other global economies, particularly regulatory and practice developments in Asian countries such as China and India where considerable efforts appear to be put into improving corporate governance quality as a whole in recent years. Particularly since Collier identifies national culture (see Chapter 6 – Strategy, culture and risk appetite) as a possible variable affecting organisational and managerial understanding and responses to risk, such examples could provide further insight into cultural imperatives.

Part B of the book, although titled Structure of Enterprise Risk Management, provides a succinct and comprehensive explanation of the structure as well as the many complex inter‐related processes involved in an ERM system. This part of the book is well‐organised and deals with the “softer” issues related to establishing and managing risk management, including the strategic and cultural imperatives involved in developing a shared understanding and acceptance of risks. The use of short case examples at the end of the chapters is also interesting and effective, although in some instances the reader is left wants to know more. For example, the case of Gamma Holding at the end of Chapter 16 requires a more detailed explanation of linkage between the firm's strategy and its ERM system.

Part C of the book evidences the broad range of areas to which risk management can and is being applied. Managers will find this section quite a useful list of topics in gaining an introductory, cursory view of the key issues with regards to applying risk concepts to a wide variety of functional areas within an organisation.

In Part D, Collier takes on a more evaluative stance from three distinct yet inter‐related perspectives. In doing so, multiple issues are brought to the fore ‐ both for research and for further contemplation at the practical level. For student readers in particular there are many ideas in this section that are open for further research. Chapter 23, for instance, highlights the need to examine risk management as part of a larger system of corporate governance, while Chapter 24 hones in on the inextricable link between risk management and assurance.

Chapter 25 is rather brief and somewhat repetitive in the definitions of ERM and internal controls. The format of asking a question and providing suggested answers does not align with the chapter's overall objective, which is to provide an assessment as to whether ERM is “just another management fad”. Given that the area of risk management is an emerging area, Collier could have taken the opportunity to ask more in‐depth and urgent questions such as: Why is ERM assumed fully adopted by some firms and not others? How cost‐effective has the adoption of a more ERM approach been in organisations? How well does an ERM approach contribute to firm resilience to economic, social, and environmental changes? What roles do leadership, organisational culture, and firm economic performance play in supporting ERM? The future of ERM is undoubtedly tied to the answers to some if not all of these questions.

In conclusion, I applaud Collier for producing this book which is timely and much needed in an emerging area that has global implications. The book is highly recommended for those wanting to gain a basic yet comprehensive understanding of the structure, process and culture of risk management. It is unpretentious, well‐organised and written in simple, easy to understand language and a writing style that keeps the reader engaged and informed.