One fundamental task of any manager is to create sustainable value in a timely way that guarantees the survival of the company. So it is surprising to see how frequently companies make decisions that underestimate the importance of risk – an essential component of economic value. They confuse apparent profitability with real profitability, note Francisco J. López Lubián and Pablo García Estévez, finance professors at the IE Business School, in their new book, How to Manage Corporate Risks.
Their book, written from the viewpoint of a manager of a non-financial company, offers useful tools for identifying, quantifying and analyzing the key components of managing risk properly, and preventing risk from becoming a problem. Companies run a risk whenever there is volatility in projected results, but history can offer managers some strong signals about what to expect in the future. History enables managers to analyze risky scenarios using statistical data to estimate such key parameters as the mean, the variation about the mean, and so forth.
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