Risk Management — The Revealing Hand

28 Pages Posted: 10 Mar 2016

See all articles by Robert S. Kaplan

Robert S. Kaplan

Harvard Business School

Anette Mikes

Harvard Business School

Date Written: March 4, 2016

Abstract

Many believe that the recent emphasis on enterprise risk management function is misguided, especially after the failure of sophisticated quantitative risk models during the global financial crisis. The concern is that top-down risk management will inhibit innovation and entrepreneurial activities. We disagree and argue that risk management should function as a Revealing Hand to identify, assess, and mitigate risks in a cost-efficient manner. Done well, the Revealing Hand of risk management adds value to firms by allowing them to take on riskier projects and strategies. But risk management must overcome severe individual and organizational biases that prevent managers and employees from thinking deeply and analytically about their risk exposure. In this paper, we draw lessons from seven case studies about the multiple and contingent ways that a corporate risk function can foster highly interactive and intrusive dialogues to surface and prioritize risks, help to allocate resources to mitigate them, and bring clarity to the value trade-offs and moral dilemmas that lurk in those decisions.

Suggested Citation

Kaplan, Robert S. and Mikes, Anette, Risk Management — The Revealing Hand (March 4, 2016). Harvard Business School Accounting & Management Unit Working Paper No. 16-102. Available at SSRN: https://ssrn.com/abstract=2744133 or http://dx.doi.org/10.2139/ssrn.2744133

Robert S. Kaplan (Contact Author)

Harvard Business School ( email )

Soldiers Field
Accounting & Control
Boston, MA 02163
United States
617-495-6150 (Phone)
617-496-7363 (Fax)

Anette Mikes

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States

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