Enterprise Risk Management: From Incentives to Controls, 2nd Edition

CHAPTER 6

Line Management

The key revenue-producing activities of a business enterprise are usually organized into strategic business units by geography, customer group, product, or some combination of all these. These business units account for the vast majority of assets and employees in most organizations, and can also be the primary source of business, financial, and operational risks. Those responsible for these units, and their risks, are the line management.

Line managers face a wide variety of risks. Most common are those associated with day-to-day operations, such as defects in supplies of components or raw materials, or errors, failures, and wastage in production processes. In addition, line managers will face periodic risks associated with strategic business decisions, including new product launches, potential mergers and acquisitions, and changes to incentive packages. Finally, they also face catastrophic risks from once-in-a-lifetime calamities—natural disasters like fires or earthquakes, as well as extraordinary litigation.

Much has been written on the management of each of these kinds of risk, although sometimes only under the rubrics of quality management, general business management and continuity and crisis management rather than risk management.

In this chapter, we will concentrate on the interaction of the line managers and the enterprise risk management function.

As the origination point for many of the risks faced by a company, line management plays a key ...