Designing an Enterprise Risk Management Curriculum for Business Studies: Insights From a Pilot Program

• Date: 01 March 2014
• Published date: 01 March 2014
• Author: Madhu Acharyya,Chris Brady
• DOI: http://doi.org/10.1111/rmir.12019

Risk Management and Insurance Review

C

Risk Management and Insurance Review, 2014, Vol.17, No. 1, 113-136

DOI: 10.1111/rmir.12019

EDUCATIONAL INSIGHTS

DESIGNING AN ENTERPRISE RISK MANAGEMENT

CURRICULUM FOR BUSINESS STUDIES:INSIGHTS

FROM A PILOT PROGRAM

Madhu Acharyya

Chris Brady

ABSTRACT

The latest financial crises have highlighted the centrality of managing risks

across organizations. Internationally, Basel II/III, The VolckerRule of the Dodd–

Frank Act, and Vickers’ Ring-Fence all propose stronger management of risk

across banks and greater oversight of executive compensation to mitigate

generic risk. Given this situation, it might be assumed that academia would

also view risk as a central concern for its business programs. It seems not. There

is a little evidence that academic curricula are being specifically designed to

address this issue. This article examines an Enterprise Risk Management cur-

riculum delivered to graduate student cohorts over 3 consecutive years. Four

criteria were used to develop the new curriculum. First, it should take a holistic

view of risk; second, the theories related to risk needed to be transformed from

individual to group level; third, the dynamics of risk due to market factors

needed to be understood; and finally,the way firms respond to crises needed to

be observed and embedded in the curriculum.

INTRODUCTION

Risk management has traditionally been synonymous with insurance (Mehr and

Hedges, 1963; Witt, 1986; Garven, 2007). Over time, the complexity of products and

the market competition generated regulatory responses, such as Basel and Solvency.1

The insurance industry was unable to provide adequate coverage for the new degree of

risks (e.g., credit risk of the structured financial products) due to the lack of capacity and

Madhu Acharyya is with the Centre for Finance and Risk at Bournemouth University; e-mail:

macharyya@bournemouth.ac.uk. Chris Brady is with the Centre for Sports Business at Salford

University. We would like to thank Ortwin Renn, Robert Hoyt, Betty Simkins, and John Fraser

along with three anonymous reviewers for their comments on earlier drafts. We also thank the

students for participating in the survey as included in this research. The views expressed in this

study are the authors’ own and not the views of their affiliated institutions. This article was

subject to double-blind peer review.

1The banking and insurance products, for example, collateral debt obligations (CDOs) and credit

default swaps (CDSs), which are essentially the bundle of risks with the features of shifting risk

and opportunities from one investor to another.These products are complex as they are designed

with several layers of risks that are difficult to understand both in terms of measurement and

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insurability criteria (Sigma, 2001, 2006). The result was that businesses began moving to

capital and derivative markets (Hunter and Smith, 2002).

Following this trend, higher educational institutions (HEIs) developed courses to teach

theories of risk management and their application in practice but these remained in the

traditional academic silos (Dorfman et al., 2006). Meanwhile, in the businesses them-

selves these types of risk were located with middle management, and not considered as

threatening to the survival of the businesses. However,the fallacy of this view became ap-

parent with the bankruptcy of several large corporations, for example, Maxwell, World-

Com, and Enron (Stiles and Taylor, 1993; Rosen, 2003) in the nonfinancial sector,and Bar-

ings, LTCM, and so on (Hogan, 1997; Jorion, 2000; Stein, 2000) in the financial sector. The

sources of these emerging risks are not limited to traditional business functions and fail-

ures but range from sudden stock market crash to natural catastrophes, pandemic, tech-

nological, political, terrorism, systemic, reputational, and corporate social responsibility

failures. The 2007 financial crisis and the subsequent and continuing global ramifications

merely added weight to this development (Jorion, 2009). More businesses began to real-

ize that risk affected them holistically but there remained artificial boundaries between

different types of risk (Dickinson, 2001; Crockford,2005; Gordon et al., 2009). Eventually,

a more holistic approach emerged in the guise of Enterprise Risk Management (ERM)

(Dickinson, 2001; Ward, 2003; Gates, 2006; Hoyt and Liebenberg, 2011). However, de-

spite such developments in practice, HEIs continued with traditional segmental risk

management curricula concentrating on insurance, financial engineering, security, or

environmental silos.

The professional bodies (e.g., Institute of Risk Management, Institute of Actuaries, Soci-

ety of Actuaries [CAS, 2003]) are progressing with this development but owing to their

practice-based focus they naturally tend to be less interested in the theoretical aspects of

ERM. In order to produce experts in ERM, HEIs and professional bodies need to update

their risk management curricula from segmental to holistic.2

Continual revelations concerning the inadequacy and incompetence of risk avoidance

functions within the corporate world indicate that there is an urgent need for risk pro-

fessionals who understand the concept of risk in its entirety.The overarching purpose of

the pilot program studied for this article was to update the risk management curriculum

in the HEIs from a segmental to an interdisciplinary and holistic perspective. To that

end, the framework (curriculum) of an ERM course for business studies and its delivery

are analyzed as a case study.

management techniques. In insurance, the catastrophic bonds, which are designed to transfer

large-scale natural catastrophe risks, are also complex in terms of riskiness associated with

them. Over time, the Basel (in banking) and Solvency (in insurance) regulatory domains were

designed to address these complexities.

2Several HEIs, for example, Red McCombs School of Business of the University of Texas at

Austin; J. Mack Robinson College of Business of the Georgia State University; Terry College of

Business, University of Georgia; Poole College of Management of NC State University; Stanford

University in the United States; and Bournemouth University and the University of Kent in the

United Kingdom have been offering courses on ERM for the last few years. Within the domain

of professional bodies, the Society of Actuaries in the United States and Institute of Actuaries

and Institute of Risk Management in the United Kingdom are the pioneers of providing ERM

professional modules.