Corporate Risk Management

CHAPTER 1Risk Management: Definition and Historical Development

Risk management began to be studied after World War II. Several sources (Crockford, 1982; Harrington and Niehaus, 2003; Williams and Heins, 1995) date the origin of modern risk management to the 1955–1964 period. Snider (1956) observed that there were no books on risk management at the time, and no universities offered courses in the subject. The first two academic books were published by Mehr and Hedges (1963) and Williams and Hems (1964). Their content covered pure risk management, which excluded financial risk. In parallel, engineers developed technological risk management models. Operational risk partly covers technological losses; today, operational risk has to be managed by firms and is regulated for banks and insurance companies. Professionals and academics also consider the political risk of projects.

Risk management has long been associated with the use of market insurance to protect individuals and companies from various losses associated with accidents (Harrington and Niehaus, 2003). In 1982, Crockford wrote: “Operational convenience continues to dictate that pure and speculative risks should be handled by different functions within a company, even though theory may argue for them being managed as one. For practical purposes, therefore, the emphasis of risk management continues to be on pure risks” (p. 171). In this remark, speculative risks were more related to financial risks than to the current definition ...