Recession...leading to Risk Management?

The recession is nothing new to us. In fact, we know that it has been happening for quite some time now. The time now is coming when companies are realizing that this state of economic crisis has a major effect on business and needs to be handled. It's because of this that firms have increased their interest in Enterprise Risk Management. The Association of Insurance and Risk Managers conducted a survey and noticed that 450 of its corporate members increased their focus on ERM during the past 2 years. In addtion to the economy, firms are trying to pick apart which recent investments might have turned out to be a disadvantage rather than the opposite. In finance, we are taught that good investment projects are those with a Net Present Value greater than 0. This is still true; however firms are starting to employ risk management background employees to help determine whether a project should actually be implemented, even if it's NPV >0.

The current economic state has proven that better risk management needs to be in place. From having to bail out various companies, ranging from insurance firms to financial firms, we should see that not everything that glitters for a moment is gold for a lifetime. To better understand and truly discern which investments are beneficial, we have to look at the long run. Professor Grace once said that, "Risk management is not a technique for the short run. Nor is it something that you can look at in the middle and say, 'No, it's not working. Let's change it now.' Instead, it is something that you implement in the beginning for a long term." So I say to those firms who are still doing good and want to stay that way, determine the value that risk management can create for you and let it do just that. Do it before the recession wave catches YOU!

(The article I got this topic and some stats from was titled "Recession forces risk risk management rethink" by Samantha Pearson. It was posted on Feb. 8, 2009 on Financial Times.com.)