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Sunday, October 25, 2009

HBR: Spotlight on Risk

Harvard Business Review: This week, I’ll be reviewing the highlights of the October issue of the Harvard Business Review. Worth the read if you’re interested in managing risks in an uncertain economy. Suggest subscribing, especially for senior, strategic teams. Here’s the SECOND in a series of posts:

Spotlight on Risk

1. HBR Roundtable: Editor interviews 6 prominent experts in enterprise risk management answer a number of key questions like: Did new tools for assessing risk give us a false sense of security?

2. Mapping Your Fraud Risks by Bishop and Hydroski The authors argue that boards and senior management should request analysis of potential fraud/risk maps. The tool used has as a y axis = significance and x axis= likelihood.

3. The Six Mistakes Executives Make in Risk Management by Taleb, Goldstein, and Spitznagel Managers make six routine mistakes—they try to study the past, disregard advice about what not to do, use standard deviation to measure risk, fail to recognize that math equivalents can be psychologically different, think there’s no room redundancy if being efficient. Note: Taleb is the author of The Black Swan (about the unpredictability of major change events).

4. Making the Financial Market Safe (A conversation with Robert Merton) Merton won the 1997 Nobel Prize for economics by developing a new method to value derivatives—one of the assumed culprits of the 2009 recession. But Merton say “no.” He says that derivatives are not THE problem—only a tool for good or bad. In this recession, I’m thinking bad.

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