B-Schools Tackle Risk Management

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Heightening the urgency for more academic offerings in the field is a new requirement issued by Standard & Poor's this spring. The credit-rating agency (like BusinessWeek, a unit of The McGraw-Hill Companies (MHP)) plans to implement a new risk management review for nonfinancial companies beginning in the third quarter of 2008. The results will be factored into a company's credit rating, S&P said.

Another external impetus is coming from the New York Stock Exchange (NYX), whose corporate governance rules require audit committees to perform risk assessments for public companies listed on the exchange, as well as discuss policies related to the subject. Research firm Kennedy Information predicts risk consulting will grow at a compound annual growth rate of nearly 17% through 2011, roughly twice the rate of the overall consulting market.

Overall Risk Assessment

Risk management has come a long way from its low-key beginnings. Business schools have offered classes in the subject for more than 70 years, and most originally were geared to those who wanted to be insurance risk managers. The traditional approach to risk management was to delegate risk oversight to certain areas of a business, such as human resources or IT, where risks were managed in isolation, said Terry's Hoyt.

Today, Hoyt says, students are expected to understand the overall risks facing a company and how those risks are interrelated. Through risk simulation maps and exercises, they learn how to pinpoint credit, market pricing, and reputation risk and understand how those all combine into aggregate risk for a company.

Kevin Blakely, president and chief executive of the Risk Management Assn., a Philadelphia industry association representing 3,000 banks, said: "Risk can no longer be thought of in silos, but as one big potential threat to the organization. There is now a much more holistic approach to the field, and I think the universities are beginning to adapt to that."

Students Help Local Biotech

At the University of Wisconsin-Madison's School of Business, risk management classes are becoming more hands-on and interactive than ever before, officials said. This past semester, a group of MBA students in the school's risk assessment program conducted a broad risk assessment for TomoTherapy, a biotechnology company based in Madison. The company had just gone public a year before and hadn't developed a formal risk management plan, said Christy Kaufman, a risk management consultant and Wisconsin graduate who taught the class. They were eager to have the students help out and gave them access to nearly every department in the company, Kaufman said.

By the end of the semester, the students had helped the top executives at the company understand potential risks such as competitive dynamics, new technologies, and globalization, as well as define what their risk tolerance should be.

"It was a great opportunity for us because the company had just gone public in the last year, so they were forced into the realm of transparency by having to disclose everything to shareholders," Kaufman said. "It was a perfect timing for them and for us because the company hadn't had to think about it before."

Meanwhile, Cooper, the Terry "worrywart", has become so enamored of risk management he decided to apply for a master's degree in the subject at Georgia State University. His ultimate goal is to become a chief risk officer for a financial company, he said.

"One joke my friends always had with me was that I think too much," he said. "I've always been the one guy who just wants to make sure we cover all the bases."

Damast is a reporter for BusinessWeek.com.