Surviving and Thriving in Uncertainty

FREDERICK FUNSTON is a principal with Deloitte & Touche LLP and has more than thirty years of experience working with leaders of numerous global companies. In 2000, Rick created the concept of risk intelligence for value creation and value protection. He is a frequent speaker and writer on leveraging risk intelligence for competitive advantage in complex, global organizations. STEPHEN WAGNER is a nationally recognized thought leader on corporate governance. In 2009, Steve retired as the managing partner of Deloitte LLP's Center for Corporate Governance, where he led the firm's integrated strategy for governance services. He is a frequent speaker at governance conferences and directors' colleges and has authored or contributed to numerous articles on governance and risk.

"The authors propose a more holistic approach of "risk intelligence," in which leaders acknowledge and prepare for a wide range of potential threats. The authors isolate ten essential risk intelligence skills-such as abandoning familiar assumptions, anticipating causes of failure, and sustaining operational discipline-and provide in-depth guidelines for how executives and board members can hone these skills. They understand that there is no reward without risk - but only if the risks are properly managed." (BizEd, July/August 2010)

• Acknowledgments xiiiForeword xvPreface xixIntroduction xxiConventional Risk Management xxiA Risk Intelligent Approach xxiiThe Approach of This Book xxiiiThe Structure of This Book xxvPart I When Risks Become Brutal Realities 1Chapter 1 To Survive and Thrive: A Matter of Judgment 3The Revolving Door to the Corner Office 4Barriers to Board Effectiveness 8The Imperatives of the Enterprise 11Chapter 2 Conventional Risk Management Has Failed 17What Goes Up Must Come Down 19The Evolution of Finance, Market, and Risk Management Theory 24Taking a (Random) Walk 26Chapter 3 An Unconventional Approach to Risk Management 33Calculated Risk Taking Creates Value 35Calculated Risk Taking and Risk Aversion 44Risk Intelligence: An Unconventional Approach 46Part II Ten Essential Risk Intelligence Skills 51Chapter 4 Check Your Assumptions at the Door 53Fatal Flaw #1: Failing to Challenge Your Assumptions 55Risk Intelligence Skill #1: Check Your Assumptions at the Door 61Chapter 5 Maintain Constant Vigilance 73Fatal Flaw #2: Lack of Vigilance 73Risk Intelligence Skill #2: Maintain Constant Vigilance 83Chapter 6 Factor in Velocity and Momentum 93Fatal Flaw # 3: Failure to Consider Velocity and Momentum 95Risk Intelligence Skill #3: Factor in Velocity and Momentum 101Chapter 7 Manage the Key Connections 111Fatal Flaw #4: Failure to Make Key Connections and Manage Complexity 112Risk Intelligence Skill #4: Manage Your Key Connections 117Chapter 8 Anticipate Causes of Failure 131Fatal Flaw #5: Failure to Anticipate Failure 132Risk Intelligence Skill #5: Anticipate Causes of Failure 137Chapter 9 Verify Sources and Corroborate Information 149Fatal Flaw #6: Failure to Verify Sources and Corroborate Information 150Risk Intelligence Skill # 6: Verify Sources and Corroborate Information 158Chapter 10 Maintain a Margin of Safety 165Fatal Flaw #7: Failing to Maintain a Margin of Safety 166Risk Intelligence Skill #7: Maintain a Margin of Safety 170Chapter 11 Set Your Enterprise Time Horizons 183Fatal Flaw #8: Short-Termism 184Risk Intelligence Skill #8: Set Your Enterprise Time Horizons 190Chapter 12 Take Enough of the Right Risks 203Fatal Flaw #9: Failure to Take Enough of the Right Risks 204Risk Intelligence Skill #9: Taking Enough of the Right Risks 208Chapter 13 Sustain Operational Discipline 219Case Example: The U.S. Submarine Force 220Fatal Flaw #10: Lack of Operational Discipline 222Risk Intelligence Skill #10: Develop and Sustain Operational Discipline 227Part III Creating the Risk Intelligent Enterprise 235Chapter 14 Risk Intelligence Is Free 237A Closer Look at Costs 239The Rewards of Risk Intelligence 253Chapter 15 Risk Intelligent Governance 257The Risk Intelligent Board 258Committees of the Board and Risk Intelligence 271Where Does Risk Oversight End and Risk Management Begin? 277Chapter 16 Risk Intelligent Enterprise Management 281ERM and Risk Intelligence 282Developing Risk Intelligent Enterprise Management 284Act as One 287A New Way of Doing Business 291Chapter 17 The Way Forward: Creating the Risk Intelligent Enterprise 293The Benefits of Improved Risk Intelligence 294What’s Your Enterprise Risk IQ? 295Making the Transformation 298Conclusion 304Notes 307About the Authors 325Index 327