B-Schools Tackle Risk Management

With the debt market meltdown, the specialty examining exposure to risk is in the spotlight at business programs across the country

It's often said there's a career out there for everyone.

Aaron F. Cooper II, a self-described worrywart, never thought his penchant for devising foolproof backup plans could translate into a calling. But that all changed when he signed up for an elective in risk management while at the University of Georgia's Terry School of Business executive MBA program last fall. "It entails pretty much everything I've always been interested in my entire life, even before I knew risk management existed," said Cooper, 27, a telecommunications engineer at AT&T (T).

Cooper is part of a new wave of students hitting business school campuses. For years, risk management—the process of analyzing exposure to risk and determining how best to handle it—occupied a sleepy corner in business schools, a subject mainly of interest to those who want to enter the insurance field. But with the recent turmoil in the financial markets and a push for more accountability, risk management has rocketed in status at business schools.

In the past decade, a growing number of B-schools have added concentrations in the subject, ramping up the number of classes they offer. Executive MBA programs are also incorporating risk management electives into their curriculum, responding to increased demand from executives and companies. In some instances, schools such as Georgia's Terry are developing custom programs on the topic for top executives and boards of directors.

Huge Increase in Courses

"Certainly, the attention seems to increase," said Robert Hoyt, who runs Terry's risk management program. "We're real bullish now about what the opportunities will be for the future."

Hard statistics on enrollment in risk management courses aren't easy to find, but the Association to Advance Collegiate Schools of Business says that 58 business schools reported offering a concentration in risk management in the 2006-07 academic year, up from 11 in 2005-06. At the University of Texas at Austin's McCombs School of Business, enrollment has doubled in the past decade, with classrooms filled to capacity at 120 students. Executive MBA students are clamoring for more courses in the area. Nearly 70% of the executive MBA students at the Terry College of Business sign up for the enterprise risk management elective, the school said.

Despite the increased attention focused on risk management deficiencies at some companies, several professors at business schools specializing in the field said they are not making major changes to how they teach the subject. However, they plan to incorporate lessons learned from the subprime credit crisis and recent natural disasters into class discussions and assignments this fall.

The Importance of Risk

The collapse of investment firm Bear Stearns (JPM) and the recent floods in the Midwest (BusinessWeek.com, 4/17/08) provide real-life case studies for students, said Patrick Brockett, director of the risk management program and insurance program at McCombs.

"All of these things have heightened the awareness of how important a factor risk plays in running a business," Brockett said. "I think the students, even the students who don't want to concentrate in risk management, recognize they need to understand something about risk management in order to adequately run a firm."

Heightening the urgency for more academic offerings in the field is a new requirement issued by Standard & Poor's this spring. The credit-rating agency (like BusinessWeek, a unit of The McGraw-Hill Companies (MHP)) plans to implement a new risk management review for nonfinancial companies beginning in the third quarter of 2008. The results will be factored into a company's credit rating, S&P said.

Another external impetus is coming from the New York Stock Exchange (NYX), whose corporate governance rules require audit committees to perform risk assessments for public companies listed on the exchange, as well as discuss policies related to the subject. Research firm Kennedy Information predicts risk consulting will grow at a compound annual growth rate of nearly 17% through 2011, roughly twice the rate of the overall consulting market.

Overall Risk Assessment

Risk management has come a long way from its low-key beginnings. Business schools have offered classes in the subject for more than 70 years, and most originally were geared to those who wanted to be insurance risk managers. The traditional approach to risk management was to delegate risk oversight to certain areas of a business, such as human resources or IT, where risks were managed in isolation, said Terry's Hoyt.

Today, Hoyt says, students are expected to understand the overall risks facing a company and how those risks are interrelated. Through risk simulation maps and exercises, they learn how to pinpoint credit, market pricing, and reputation risk and understand how those all combine into aggregate risk for a company.

Kevin Blakely, president and chief executive of the Risk Management Assn., a Philadelphia industry association representing 3,000 banks, said: "Risk can no longer be thought of in silos, but as one big potential threat to the organization. There is now a much more holistic approach to the field, and I think the universities are beginning to adapt to that."

Students Help Local Biotech

At the University of Wisconsin-Madison's School of Business, risk management classes are becoming more hands-on and interactive than ever before, officials said. This past semester, a group of MBA students in the school's risk assessment program conducted a broad risk assessment for TomoTherapy, a biotechnology company based in Madison. The company had just gone public a year before and hadn't developed a formal risk management plan, said Christy Kaufman, a risk management consultant and Wisconsin graduate who taught the class. They were eager to have the students help out and gave them access to nearly every department in the company, Kaufman said.

By the end of the semester, the students had helped the top executives at the company understand potential risks such as competitive dynamics, new technologies, and globalization, as well as define what their risk tolerance should be.

"It was a great opportunity for us because the company had just gone public in the last year, so they were forced into the realm of transparency by having to disclose everything to shareholders," Kaufman said. "It was a perfect timing for them and for us because the company hadn't had to think about it before."

Meanwhile, Cooper, the Terry "worrywart", has become so enamored of risk management he decided to apply for a master's degree in the subject at Georgia State University. His ultimate goal is to become a chief risk officer for a financial company, he said.

"One joke my friends always had with me was that I think too much," he said. "I've always been the one guy who just wants to make sure we cover all the bases."

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