PurposeThe purpose of this paper is to introduce the concept of an Enterprise Risk Scorecard.Design/methodology/approachWith the accelerating growth in global risk levels leading to an intense current demand for risk management solutions, an analysis was conducted on whether a scorecard framework could be applied to risk measurement. This analysis included a survey of Kaplan and Norton's voluminous and seminal writings on the Balanced Scorecard, in which, surprisingly, relatively little on the measurement of risk was found.FindingsThe findings suggest that a scorecard framework could be an effective risk measurement, management and communication tool. For both design and organizational reasons it is recommended that risk scorecards be separate from performance scorecards.Research limitations/implicationsUtilizing two scorecards – one for performance and a separate one for risk – could provide strategy‐focused organizations with a more comprehensive diagnostic control system. The research implications of this approach could be significant, as it essentially opens up a new field of research.Originality/valueThis is assumed to be the first formal paper on risk and a scorecard framework. Previous work on integrating risk measurement frameworks is very different from the approach proposed here.
ven though the ''metrics wars'' of the past decade have subsided [1], corporate strategists remain avidly interested in effective new performance management tools and techniques. Given the ongoing popularity of the subject, and how well covered it has been in both the practical and academic literature, it is impressive that authors Robert B. Carton and Charles W. Hofer offer fresh insights in their new book Measuring Organizational Performance -Metrics for Entrepreneurship and Strategic Management Research (Northampton, MA: Edward Elgar, 2006). Because this work is aimed only at academicians it will likely not receive widespread attention from business practitioners. This is unfortunate because the book contains a number of findings -especially the results of their research into performance measurement models -that deserve the attention of corporate leaders as well as their academic allies.
Purpose – Many firms did not have mechanisms in place prior to 2007 to identify and track the weak signals of an impending financial crisis, and as a result they were not prepared for the stresses and opportunities the crisis generated. The author aims to offer a guide to identifying these weak signals and a system for mitigating the risk of being hurt by another such crisis. Design/methodology/approach – This is a guide to strategic risk management (SRM), which defines a process of identifying, assessing and economically managing potentially enterprise-threatening losses. It is a way to mitigate developing ambiguous threats before they manifest themselves and then spiral out of control. Findings – Corporate leaders can follow the example of savvy investors who use risk management insights to mitigate the effects of a potential crisis and to profit from one if it develops. Practical implications – Market pressures can cause firms to loosen product or investment standards incrementally, which over time can radically change a business model’s risk profile without anyone acting to mitigate it. Originality/value – This guide to Strategic Risk Management provides insight into how corporate leaders can identify the “weak signals” of a financial crisis well before the actual crisis develops and also describes how they can mitigate financial risk in their portfolios and make opportunistic investments and adopt hedging strategies at very favorable price levels.
PurposeMany insurance companies vigorously pursue top‐line growth, even though it has the potential to develop unprofitably over time. The time lag (or tail) between when insurance is sold and when claims are paid generates risks unique to insurance companies. Furthermore, the insurance market is both mature and efficient (i.e. its level of competitive risk is very high), which means that profitable opportunities are both rare and untenable unless protected by competitive advantage. There is currently no practical measure available (of which the authors are aware) at the business unit level to evaluate insurance premium growth in the face of the industry's risks, impairing executives' ability to assess segment opportunities (and hazards), thus hampering strategic decision making. The purpose of this paper is to introduce a practical measure developed by the authors called Underwriting Return (UWR) which aims at helping to alleviate this situation.Design/methodology/approachThe paper introduces UWR which was developed during the course and scope of the authors' work in the insurance industry, and their research into applying value‐based management to that industry.FindingsThe paper finds that UWR is a practical measure that property and casualty executives can use at the business unit level to help quantify market segments to grow, hold, harvest and abandon.Originality/valueA variety of strategic analysis tools, such as the popular Boston Consulting Group matrix, are utilized today. In general, the application of such tools is hampered by an imprecision of measurement but each can add a level of insight to executives' resource allocation options. UWR can further aid insurance executives in strategic analysis by helping to quantify in which segments to compete, and which ones to abandon. The paper demonstrates the utility of the measure in an example based on an actual analysis.
The performance of the property and casualty (P&C) insurance industry has suffered in recent years, even prior to the losses incurred in the tragic events of September 11th. Part of the industry's difficulties stems from its focus on premium generation, as measured by the combined or underwriting ratio, at the expense of overall operational performance. In this regard, the underwriting ratio is an incomplete measure of operating performance since it ignores two critical P&C operational functions: investment return and reinsurance results. 2002 Morgan Stanley.
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