Post by Sapphire Capital on Aug 9, 2008 1:27:24 GMT 4
Risk Management and Calculative Cultures
Anette Mikes
Harvard Business School
June 2008
Abstract:
Enterprise risk management (ERM) has recently emerged as a widespread practice in financial institutions. A burgeoning literature of regulatory and practitioner texts is indicative of the daunting diversity of ambitions, objectives and techniques that constitute the ERM agenda.
Presenting field-based evidence from two large banking organizations, I argue that systematic variations in ERM practices exist in the financial services industry. The cases illustrate four risk management ideal types and show how they form the 'risk management mix' in a given organization. Further, drawing on the literature of the roles and uses of management control systems (MCS), the paper explores how ERM achieved organizational significance in the studied settings. The findings are indicative of the current co-existence of alternative models of ERM. In particular, two types of ERM models are postulated: one driven by a strong shareholder value imperative ('value-based' ERM), the other corresponding to the demands of the risk-based internal control imperative ('holistic' ERM). The paper explains the differences in the two risk management mixes pointing towards alternative logics of calculation (Power, 2007), which I conceptualize and describe as different calculative cultures.
The study suggests that calculative cultures, which in these cases shaped managerial predilections towards ERM practices, are relevant, albeit so far neglected, constituents of the fit between MCS and organizational contexts.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1138636_code362910.pdf?abstractid=1138636&mirid=4
Anette Mikes
Harvard Business School
June 2008
Abstract:
Enterprise risk management (ERM) has recently emerged as a widespread practice in financial institutions. A burgeoning literature of regulatory and practitioner texts is indicative of the daunting diversity of ambitions, objectives and techniques that constitute the ERM agenda.
Presenting field-based evidence from two large banking organizations, I argue that systematic variations in ERM practices exist in the financial services industry. The cases illustrate four risk management ideal types and show how they form the 'risk management mix' in a given organization. Further, drawing on the literature of the roles and uses of management control systems (MCS), the paper explores how ERM achieved organizational significance in the studied settings. The findings are indicative of the current co-existence of alternative models of ERM. In particular, two types of ERM models are postulated: one driven by a strong shareholder value imperative ('value-based' ERM), the other corresponding to the demands of the risk-based internal control imperative ('holistic' ERM). The paper explains the differences in the two risk management mixes pointing towards alternative logics of calculation (Power, 2007), which I conceptualize and describe as different calculative cultures.
The study suggests that calculative cultures, which in these cases shaped managerial predilections towards ERM practices, are relevant, albeit so far neglected, constituents of the fit between MCS and organizational contexts.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1138636_code362910.pdf?abstractid=1138636&mirid=4