Corporate Value of Enterprise Risk Management

SIM SEGAL, FSA, CERA, is President and founder of SimErgy Consulting, which provides ERM consulting services and executive education seminars. With twenty- five years of experience in measuring and managing risk, Segal is a globally‑recognized ERM thought leader with experience in a variety of industry sectors, such as manufacturing, energy, entertainment, technology, services, telecommunications, banking, insurance, non-profit organizations, and government bodies. Prior to SimErgy, he led ERM consulting practices at Deloitte Consulting, Aon, and Towers Watson. Segal also serves as an adjunct professor at Columbia Business School, where he teaches an MBA/EMBA course on ERM. He has also led and co‑authored ERM research studies.

• Foreword ixPreface xiAcknowledgments xixPart I: Basic ERM infrastructureChapter 1: Introduction 3Evolution of ERM 4Basel Accords 4September 11th 5Corporate Accounting Fraud 7Hurricane Katrina 9Rating Agency Scrutiny 10Financial Crisis 11Rare Events 13Long-Term Trends 14Challenges to ERM 15Summary 16Notes 16Chapter 2: Defining ERM 18Definition of Risk 18Definition of ERM 24Summary 58Notes 59Chapter 3: ERM Framework 61Value-Based ERM Framework 63Challenges of Traditional ERM Frameworks 63Value-Based ERM Framework 65Overcoming the Challenges by Using a Value-BasedERM Framework 83Summary 109Notes 110Part II: ERM Process CycleChapter 4: Risk Identification 113Components of Risk Identification 113Five Keys to Successful Risk Identification 114Risk Categorization and Definition 114Qualitative Risk Assessment 129Emerging Risk Identification 153Killer Risks 155Summary 166Notes 167Chapter 5: Risk Quantification 168Practical Modeling 169Components of Risk Quantification 174Calculate Baseline Company Value 174Quantify Individual Risk Exposures 185Quantify Enterprise Risk Exposure 207Summary 223Notes 224Chapter 6: Risk Decision Making 226Defining Risk Appetite and Risk Limits 227Integrating ERM into Decision Making 239Summary 269Notes 270Chapter 7: Risk Messaging 271Internal Risk Messaging 271External Risk Messaging 280Summary 292Notes 293Part III: Risk Governance And Other TopicsChapter 8: Risk Governance 297Focusing on Common Themes 298Components of Risk Governance 298Roles and Responsibilities 298Organizational Structure 319Policies and Procedures 325Summary 327Notes 327Chapter 9: Financial Crisis Case Study 329Summary of the Financial Crisis 330Evaluating Bank Risk Management Practices 332Summary 342Notes 343Chapter 10: ERM for Non-Corporate Entities 344Generalizing the Value-Based ERM Approach 344Complexities of Objectives-Based ERM 350Examples of NCEs 351Summary 369Conclusion 369Notes 369Glossary 371About the Author 389Index 391