Measuring and Envisioning Risks: Boundary-Work in Risk Management
42 Pages Posted: 6 Aug 2010 Last revised: 22 Dec 2010
Date Written: August 6, 2010
Abstract
For two decades, risk management has been gaining ground in banking, despite a series of corporate failures, large-scale losses, regional crises, and a worldwide financial crisis that have been cast as risk-management failures. Power (2004a) explained this with his model of the cyclical “metrological drama” of counting, control, and calculation punctuated by cycles of innovation, crisis and reform and, in light of the recent financial crisis, he and others concluded that the continuing expansion of risk measurement is dysfunctional (Taleb, 2007; Power, 2009). Neither the model nor its ultimate dysfunctionality, however, have been empirically scrutinized.
This paper asks whether the expansion of measurement-based risk management in banking is as inevitable and as dangerous as Power and others speculate. Based on two detailed case studies and 53 additional interviews with risk-management staff at five other major banks over 2001-2010, this paper shows that while the risk functions of some organizations have a culture of quantitative enthusiasm and are dedicated to risk measurement, others, with a culture of quantitative scepticism, take a different path, focusing instead on risk envisionment, aiming to provide top management with alternative future scenarios and with expert opinions on emerging risk issues.
In order to explain the dynamics of these alternative plots, I show that risk experts engage in various kinds of boundary-work (Gieryn, 1983, 1999), sometimes to expand and sometimes to limit areas of activity, legitimacy, authority, and responsibility.
Keywords: Risk management, performance measurement, financial crisis, control systems
JEL Classification: M46
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Recommended Papers
-
A Descriptive Analysis on the Implementation of Balanced Scorecards in German-Speaking Countries
By Gerhard Speckbacher, Jürgen Bischof, ...
-
Risk Management and Calculative Cultures
By Anette Mikes
-
By Habib-uz-zaman Khan, Halabi Halabi, ...
-
By Habib-uz-zaman Khan, Abdel Karim Halabi, ...
-
Evolution of Flexible Strategy Game-Card: A Framework Rooted In Dual Perspective of Performance
By Neetu Yadav, Sushil, ...
-
The Use of Balanced Scorecard Measures in Executive Incentives and Firm Performance
By Raili Pollanen and Kenneth Kangwu Xi
-
Measuring Transparency of Corporate Transitional Performance in Egypt: A Quantitative Approach
-
Measuring Transparency of Corporate Transitional Performance in Egypt: A Quantitative Approach