Enterprise Risk Management: From Incentives to Controls

If the discipline of Enterprise Risk Management is an area of interest for you. James Lam’s book ‘Enterprise Risk Management 2nd Edition’ is a must read! It clearly set the stage by positioning, conveying and educating me on the critical importance Enterprise Risk Management plays within all business organizations and industries. Further driving this important point home, James continued to illustrate this with in-depth case studies representing lessons learned throughout the length of the book which simply helped me connect-the-dots. I found James’ book to be a sound road map of best practice embedded with complimentary step by step guidance on how to successfully integrate Enterprise Risk Management into the core business processes of any organization. I highly recommend this book and look forward to reading his next. - Lita Cuen

When the first edition of “Enterprise Risk Management; from Incentives to Controls” appeared in 2003, it seemed as if the business world – at least in the U.S. - was in disarray. The bankruptcy of Enron in 2001, the collapse of WorldCom in 2002, the shutdown of Arthur Anderson – the auditor of both companies - and the arrests of the senior management of Tyco were resonating in the marketplace. Risk management, previously something that might have been considered an accounting specialty, now demanded the attention of senior managers and their corporate boards. It had gotten to the point that even if board members and management might have been inclined to continue to hand off their risk-oversight responsibilities, the Sarbanes Oxley Act of 2002 wasn’t going to let them; and their outside auditors, the ones surviving after the vaporization of Arthur Andersen, were insisting that management take accountability so that no more scandals would crop up on their watches. Management was facing a risk-management learning curve and they needed guidance if they were to begin to make informed risk decisions across their organizations. It was into this environment that James Lam published his book, “Enterprise Risk Management; from Incentives to Controls” and it was a business best seller. It introduced the background and concepts that were wanting for most managers and the boards they answered to. In his book, Lam gave risk a business context, advanced a risk-management framework applied to business and then drilled down into the three principal forms of business risk: credit risk, market risk, and operational risk - all the while supporting his approach with references to real-life examples and case studies. Among the many valuable insights the author delivered in that first edition was the concept of the risk portfolio in which risks are treated like investments or assets. He showed how a portfolio of risks can recast the perspective and thus the approaches available to management. Grouped into a portfolio, some risks will likely offset each other and minimize aggregate risk, while others will correlate and amplify aggregate risk, and still others will offer opportunities for increased return on investment. The message was simple. Risks can be managed. And further, not all risks are bad because, in business, without risk there is no reward. In the second edition of his book, James Lam has built on the first edition starting with an expanded index, a bibliography, and an entirely new section, “ERM Implementation”. In the new section he addresses the practical implications of establishing an ERM program, from implementation to management to decision making to reporting, and includes a Risk Assessment Self-Evaluation List to help direct the effort. The new section rounds out the ERM story. Now all the most compelling questions, what should we do and how should we do it, are addressed in a single volume. But there are numerous other updates in this second edition to consider as well. They include the expansion of chapters, notably those on Line Management, Stakeholder Management, and Operational Risk Management, and the addition of new case studies including Ford and Airbus and Boeing. Furthermore, I can’t think of anywhere else you will find a better explanation of risk appetite, a term frequently employed by ERM practitioners but rarely if ever adequately explained. And that is not to overlook the inclusion of one of the best explanatory definitions of risk and enterprise risk management that you will find (see page 53). To my mind, “Enterprise Risk Management; from Incentives to Controls” remains the single best source of information for managers on every level and for board members contemplating risk management on an enterprise-wide scale. Up until the 21st century, risk might have been left to the finance department or managed heuristically, but the collapse in 2001 and 2002 of high-profile businesses that stood at the time for a new age of innovation led to demands for new accountability. The first edition of James Lam’s book arrived with impeccable timing and helped to lay the groundwork for risk management as a business practice, and the second edition has improved on the first. It is not a theoretical book. With its timely updates and additions and a new section on implementation, this book has made risk and risk management something that can be assimilated and practiced in any business in any industry worldwide.

A must read for those associated with ERM as profession. Clear lucid language and assists in clearing your way through an unknown terrain.

An excellent book combining both depth and breadth, in a very readable style. My only complaint is with the publisher - as with a number of Wiley books, it is printed on rather poor quality paper and the diagrams that are in colour in the Kindle version are monochrome. Given the cost of this book, and the high quality colour printing from other publishers' books costing far less, I expected more.

Excellent condition. Odd cover material.