Why Risk Management Is Mostly Misunderstood

Steven P. Greiner, PhD

When we hear the term risk management (RM), our thoughts are instinctively directed to muse about the subject from what we know about insurance, drafted from the multitude of car insurance commercials on television. That is, we search our memories for accidents that occurred in our own lives, such as car collisions, falling down stairs, our grandmother tripping over the runner down the central corridor of her old home in South Wherever. If we’re slightly educated in a field where that term is vaguely familiar, we may entertain deeper thoughts about the subject simply because we recognize the distinction between the words risk and management, which to some is an oxymoron in the first place. However, if we’re deeply involved or employed in finance, the insurance industry, or asset management, this term has major consequences when its application fails. It’s the failure of risk management that is inherent in the fear that registers cognitively upon hearing the term. The emphasis of the word risk often overwhelms the second word, management. If instead we sort this phrase so that it’s termed management of risk, the fear subsides a bit and one can concentrate on the purpose of the phrase. It is from this perspective—the management of risk—that this book is written.

There have been calls for better and more comprehensive risk reporting for some time now, accentuated by the credit crisis of 2008 and the even ...

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