The consequences of taking on risk can be ruinous to personal finances, professional careers, corporate survivability, and even nation states. Yet many risk managers do not have a clear understanding of the basics. Requiring no statistical or mathematical background, The Fundamental Rules of Risk Management gives you the knowledge to successfully handle risk in your organization.
The book begins with a deep investigation into the behavioral roots of risk. Using both historical and contemporary contexts, author Nigel Da Costa Lewis carefully details the indisputable truths surrounding many of the behavioral biases that induce risk. He exposes the fallacy of the wisdom of experts, explains why you cannot rely on regulators, outlines the characteristics of the "glad game," and demonstrates how high intelligence or lack thereof can lead to loss of hard-earned wealth. He also discusses the weaknesses and failures of modern risk management.
Moving on to elements often overlooked by risk managers, Dr. Lewis traces the link between corporate governance and risk management. He then covers core lessons surrounding the role of risk managers as well as the difficult subject of integrated, single lens analysis of risk. The book also explores aspects of spreadsheet risk and draws on lessons learned in the information systems and software engineering communities to provide guidance on selecting the right risk management system. It concludes with a discussion on the most dominant of risk measures—value at risk.
Having a clear understanding about risk separates successful professionals, companies, and economies from history’s forgotten failures. Through examples and case studies, this thought-provoking book shows how the rules of risk can work to protect and enhance investor value.
Nigel Da Costa Lewis is a speaker, writer, and researcher on the uncertainty, risk, and irrational bias found in investing. Dr. Lewis has authored four books as well as numerous articles in international publications, such as the Journal of Investing, Journal of Wealth Management, and Pensions. He earned four master’s degrees from the University of London and a PhD from the University of Cambridge. His current research focuses on asset allocation, impact of fees on retirement savings, maximization of retirement accounts, new forms of diversification, life-cycle investing, intelligent portfolio optimization, and post-retirement optimal asset allocation. Visit www.nigeldlewis.com for more information.
Section I: The Behavioral Foundations of Risk ManagementUnreason Is the Even Eviler Twin Brother of GreedA Word to the Wise—You Cannot Rely on the Flynn EffectThe Unintended Consequences of the Glad GameBut You Have to Remember Ivar Kreuger of Kalmar!
The Maleficent Hand of the Men in Gray SuitsUnreason Abounds in Places Where It Must NotThe Conspiratorial RegulatorThe Apathetic Regulator
The Unpalatable Truth about Risk ManagementA Rather Vulgar, But Common, Perception of Risk ManagementThe Emperor of Risk, His Lyre, and the PalatineThe Utter and Total Redundancy of Financial Risk ManagementThe Risk Manager as a "Quivering Dastard"Perception and Reality about Risk ManagementFor Further ThoughtAdditional ResourcesAppendix
Section II: What You Need to Know, but Nobody Wants to Tell YouWhat the Textbooks Will Not Tell You about Corporate GovernanceThe Essence of the Governance IssueThe Superficiality of ComplianceWhy "Gentleman’s" Agreements Do Not WorkThe Role of Criminal PenaltyThe Benefit of Wolf Pack CapitalismThe Inherent Ethos of Risk ManagementThe Cost of Corporate GovernanceWhy Governance Failures Are InevitableFor Further ThoughtAdditional Resources
The Most Important Lesson a Risk Manager Must KnowOdysseus and the Sirens’ SongThe Consequence of Ignoring the Golden RuleAn Immutable Condition for Success in Risk ManagementFor Further ThoughtAdditional Resources
A Powerful Secret from Henry FayolThe Great Work: General and Industrial ManagementThe Rise of Fayol’s "Strategic Security Director"The Warren Buffet Principle of Risk ManagementCan Chief Risk Officers Add Value?For Further ThoughtAdditional Resources
The Incredible Advantage of a Monocle on RiskWhat Is a Monocle on Risk?The Hidden Dangers of Risk Management SilosThe Need for Better Risk ManagementThe ChallengeThe Three Essential Elements of Successful Risk IntegrationFor Further ThoughtAdditional Resources
Benefit from the Fable of Spreadsheet CityDon’t Be a Victim of Spreadsheet HellWhy Spreadsheet Failure Costs Big Time!How to Bring Spreadsheet Risk under ControlUnderstanding the Nature of Spreadsheet ErrorThe Principles of Spreadsheet EngineeringThe Potential of Compilable SpreadsheetsSeven Rules for Superior Spreadsheet DesignHow to Minimize Risk through Formal TestingFor Further ThoughtAdditional Resources
How to Guarantee Success by Understanding the Nature of FailureThe Value Added of Vendor Risk Information SystemsHow to Guarantee Success by Understanding the Nature of FailureDeveloping a Winning Game PlanCreating a High Performance TeamThe Important Lesson of ½ × n × (n − 1)The Critical Role of Executive Buy-InClarifying Your RequirementsThe Truth about Project ManagersFor Further ThoughtAdditional Resources
Snake Oil Salesmen, Goat Gonads, and Value at RiskVaR ExplainedThe Joyous Exclamation of SimonsThe Tipping PointWhat the Rocket Scientists May Not Tell You, But You Need to KnowFor Further ThoughtAdditional Resources
Notes appear at the end of each chapter.