"Using Risk Management to Beat the Downturn"

I received an email from the Society of Actuaries and found this article interesting. It is always fun to see how your future career is working in the real world today. You get to see what kinds of things you will be working with during your developing career.

The article is formatted as a Q and A to help you learn how to manage risk and how actuaries contribute to risk management. On the first day of class, Professor Grace asked who was a RMI major and who was an AS major. Most of the class was AS, but he went on to say that the school as well as the working world are trying to relate AS and RMI and tie the programs together. We need to realize how we work together and how our jobs can be similar. In marketing I learned that companies have threats and opportunities. Threats can be detrimental to business, and opportunities are ways to expand business. You would think risk would fall into a threat, but the article discusses that the risks our economy is facing in this recession should be considered opportunities. Risk Management can help the companies suffering today.

Through risk management, actuaries can help the companies identify what their risks are. Through exercises in class, we have seen how difficult it can be to identify all sources of risk, since there are so many. In class we decided the goal of risk management is not to minimize risk but is to maximize the value of the firm. Risk management should reduce the costs of risk to the firm to maximize the value of the firm. This article talks about ways to minimize risk by diversifying the firm's bank accounts. In a perfect ideal world all companies would have diversified portfolios because it is the best way to minimize the costs of risk. We also learned, however, that most people do not diversify enough. This reason is why risk should be reassessed often to discover new problems, or opportunities as the article states.

Some companies may think they can take on large risky projects to save their company in the end. The larger the risk the larger the return. However, this rarely works, and the company fails. For this reason, risk management should not be implemented just at the last minute. The article calls the recession (risk) an opportunity because without the bad times, companies simply see risk management as an unnecessary cost. The bad times help companies realize they need to manage their risk, which when done properly will maximize their value.

http://www.businessweek.com/smallbiz/content/jan2009/sb2009018_717265.htm?campaign_id=rss_topEmailedStories