University of Illinois at Urbana-Champaign
College of Business
Department of Finance
Finance 526, Spring 2014
Enterprise Risk Management
Section: C
Mon and Wed, 2:00 – 3:20 pm
226 Wohlers Hall
Prof. Mark Vonnahme
Office: 106 Wohlers Hall
Telephone: 217-244-0350
Cell: 630-770-3642
Office Hours: Tues and Th, 1:003:00pm ; Mon and Wed, 1:002:00pm; By Appointment
Course Texts and Materials-Required
Lam, James, 2003, “Enterprise Risk Management: From Incentives to Controls”
(John Wiley & Sons) Lam
Case Materials in Risk Management
Additional readings will be assigned. You will be expected to access and purchase Case
Materials directly from either Darden Business Publishing or HBR Publishing as
necessary. Darden’s Publishing site may be accessed at: http://store.darden.virginia.edu/
Optional Textbook and Readings
There are numerous books and articles that have been written on the topic of ERM over
the past few years. Books that you may find useful include:
Hampton, John J., 2009, “Fundamentals of Enterprise Risk Management “
(AMACOM) Hampton
Barton, Shenkir , Walker, 2002, “Making Enterprise Risk Management Pay Off: How
Leading Companies Implement Risk Management” (Prentice- Hall) BSW
Harrington and Niehaus, 2003 , “Risk Management and Insurance” (McGraw-Hill) HN
Segal, Sim , 2011, “ Corporate Value of Enterprise Risk Management” (John Wiley &
Sons) Segal
All are good resources providing a solid balance of the quantitative and qualitative
features of managing risk. I have used the Hampton and BSW texts in my courses in
ERM in the past. Textbooks on Risk Management and Insurance will also provide
background on the profession of risk management and its growth over the past several
decades. I am not requiring them for the class but recommend those with little familiarity
with insurance to purchase a basic insurance text or utilize library resources to gain
background knowledge in risk management and insurance. Lectures on these topics early
in the class will have PowerPoint and handouts. Early on I also cite chapters from the HN
text but other risk management and insurance textbooks will provide background as well.
Articles will be provided on a regular basis on various topics in risk management and
ancillary fields.
Course Objective
Enterprise Risk Management (ERM) is the application of basic risk management
principles to all risks facing the organization. ERM integrates hazard, financial, strategic
and operational risks under a single framework. Some may feel that ERM was initially
associated with aspects of compliance partially in response to Sarbanes- Oxley and issues
involving Corporate Governance that puts greater responsibility on board of directors for
managing all of an organization’s risks. You will realize very quickly that ERM is not
compliance. It is about a shift in thought process and culture. ERM is now developing as
a tool that can be used to optimize firm value.
This course will provide students with a conceptual framework for making risk
management decisions to increase business value. We will review the legal and
regulatory environment that sets the stage for ERM, cover the technical tools used in risk
analysis, exam data integration processes and show how risk measures relate to strategic
and tactical business decisions.
The required text and case packet are available at the Illini Union Bookstore or other
campus bookstores and will be supplemented on a regular basis by recent articles and
analysts’ reports on various components of risk management. You can also obtain the
textbooks electronically through Amazon and other e-book providers. All three of books
mentioned are available electronically. One website that will be very useful particularly
to those with little background in risk management is provided by the International Risk
Management Institute (IRMI) at www.irmi.com.
Class attendance and participation will be extremely important in this class. Much of the
value will come from our dialogue. Consequently participation in the class discussion
will represent a significant portion of your grade.
Throughout the class we utilize case studies to discuss components of risk management
in practice. There will be several team based case assignments in the class. Teams will
work together on all case assignments and will have responsibility for presentation of one
during the semester. Team based two page executive summaries will be required on all
cases. Those presenting will provide a PowerPoint presentation related to key risk
management and related issues for class discussion that day. More detail will be provided
during the first class of the semester. Although team grades will be important to success
in the class, individual grading opportunities will be weighted more heavily in the final
grade process.
We will also have guest speakers throughout the class. This may require flexibility in the
timing of topics. Adjustments in our schedule will be provided with as much lead time as
possible.
Grading
Grading opportunities will be valued as follows:
Participation and current events discussion
Case Study discussions and presentation
Mid-term exam
Final Exam
20%
30%
20%
30%
Tentative Schedule of Class Topics
Although the scheduling and discussion for class will be impacted by current topics as
well as the direction the class and instructor set, the following will represent a general
outline. The professor will update the schedule as necessary. Readings provide
background for each topic. Case study materials will be distributed for analysis, write- up
and discussion as required. We will also have guest speakers on various facets of risk
management. The schedule will be announced in class or via e-mail. We will not have a
class website. Check your university e-mail account regularly.
Schedule of Classes
Class Date
Topics
Background Readings
Jan. 22
Introductions, course organization
What risks are business Execs worried about? Handouts and PPT
Classes of Risk and Risk Management
HN
Jan. 27
Traditional Risk Management
Objectives, Risk Identification,
Intro to Hazard Risk and its Management
Jan. 29
Overview of the Property Casualty Industry
Insurance Marketing and Distribution
Handouts and PPT
Handouts and PPT
HN
Jan. 28
Insurance Company- Financial and
Operational Structure –Regulation
Handouts and PPT
Jan. 30
Capital Requirements /Solvency II
S&P and ERM
Handouts and PPT
Feb. 3
Commercial Insurance Products
Managing Risk with Insurance
Handouts and PPT
Feb. 5
Corp Risk Management
Handouts and PPT
Case due: Insurance Company Case Analyis
Feb. 10
ERM: The Basics , ERM in Context
Concepts and Processes
Lam Ch. 1-4
Feb. 12
ERM: Lessons Learned , Value Lessons
BSW Ch 1-2
Feb. 17
Concepts and Processes
ERM Framework
Portfolio Management
Case discussion: Wal-Mart: 2005
Feb. 19
Leadership Risk/ Management Risk
Corporate Governance
Feb. 24
Case Discussion: Astral Records , Ltd.
Feb. 26
ERM Analytic Tools: Simple and Complex
Tools in Corp Risk Management
Mar. 3
Mid-term Exam
Mar. 5
Discussion of Mid Term
Credit Risk Management
Mar. 10
Case Discussion: Bumble Seafoods, Inc.
Mar. 12
Business Applications/Financial Institutions
Lam Ch. 3-4
Lam Ch. 5, 11
Lam Ch. 8-10
Lam Ch.12
Lam Ch. 16
Mar. 17
Market Risk Management
Mar 19
Case Discussion: Baker Adhesives, Inc.
Mar. 24 to Mar 28
Lam Ch.13
SPRING BREAK
Mar 31
Operational Risk Management
Business Applications Non- Financial Corp
Lam Ch.14, 18
Apr. 1
Strategic, Horizon and Emerging Risks
Apr. 7
Case Discussion: Deluxe Corp
Apr. 9
Financial Crisis of 2008
Black Swans
Apr. 14
Case discussion: Financial Crisis
Apr. 16
No Class- Campus Wide Risk Management Symposium
Apr. 21
Merger and Acquisitions
Are there really risks?
Handouts and PPT
Handouts and PPT
Hampton
Handouts and PPT
Apr. 23
Case Discussion: SunTrust Acquisition of National Commerce
Apr 28
What can we learn from Risk Management failures?
Presentation/Discussion
Apr 30
TBA
May 5
TBA
May 7
TBA
May
Final Exam, Date and Time TBA