Risk Management Roundtable Discusses Varied Approaches
August 25, 2010
Participants (L - R) Roni Avissar, dean of the Rosenstiel School; Robert Cowen,
“We have an opportunity at the University of Miami to develop thought leadership and become a world leader in risk management,” said Dean Barbara E. Kahn during the roundtable. “This is just the beginning of our discussions on the ways to think about and assess risks.”
Brian Rice, executive vice president and CFO of Royal Caribbean Cruises and a member of the School's Board of Overseers, spearheaded iniatives to develop the roundtable and kicked it off by explaining the importance of risk management in today’s business culture. He pointed to the familiar crises Toyota and BP faced this year, and stressed how corporations are charged with preparing for the inevitable.
“Risk is a big part of our culture. It’s something we’re very focused on at Royal Caribbean,” Rice said. Henry Pujol, the company’s principal accounting officer and a member of the School's Accounting Advisory Board, explained the cruise line’s top-down approach to risk management in the first presentation. Royal Caribbean has moved from a once-a-year risk management process to an around-the-clock audit.
“Some risks are easy to identify, like the price of fuel,” Pujol said. “Others are more difficult to recognize. The biggest challenge is the unknown. We’ve learned that we may not be able to prevent every risk, but we can react so there is not a panic moment. We prepare ourselves for the unexpected using what-if scenarios.”
David Kelly, an associate professor of economics, introduced the concept of prediction markets — speculative markets created for the purpose of making predictions. He discussed the value of prediction markets over other forms of predictive models, such as consulting experts, conducting surveys and doing audits.
“Prediction markets give us a very low-cost way to measure risk precisely and continuously,” Kelly said. “In most cases, it’s more accurate than expert opinions and surveys.”
Wrapping up the roundtable, Hernan Awad, assistant professor of management science, offered insights into the progress toward quantifying risks using approximations and simulation. And Robert Cowen, professor and associate dean of research at Rosenstiel, shared UM’s efforts in helping decision-makers assess risks related to the recent BP oil spill.