How Risk Management Options Can Change A Corporate Culture

The purpose of risk management is to help managers better understand the risks (and opportunities) they face and to evaluate the options available for their control. In fact, advanced analytics is hard to explain to management. So, how do you get risk management accepted as the norm in a corporation, especially if your industry is highly conservative? In such a case, it is almost a certainty that an analyst showing senior management a series of fancy, mathematically complex and computationally sophisticated models will be thrown out of the office and have the door slammed in his face. The purpose of this paper is to help a manager understand what a risk analysis is and how it can help in decision-making. Explaining results and convincing management appropriately go hand in hand with the characteristics of the advanced analytical tools, which if they satisfy certain change management requisites, the level and chances of acceptance become easier. Our scope is to find some tools to make more clearly the importance of risk management in changing a corporate culture. In order to accept a new set of advanced analytical approaches (simulation, forecasting, real options and portfolio optimization) the models and processes themselves must have applicability to the problem at hand and not merely be an academic exercise. In this paper we propose several criteria for the case in which we want present this risk management options to someone new in the field, or worse, to upper management.