Columbia University School of Professional Studies

Master’s of Science in Enterprise Risk Management

Value-Based Enterprise Risk Management ERMC PS5100

Instructor: Sim Segal, FSA, CERA

President, SimErgy Consulting
Academic Director and Senior Lecturer in Discipline, ERM Program, Columbia University
Contact: Phone: 917-699-3373 (mobile) / Email: [email protected] or [email protected]

Office Hours: Associate office hours: Thursdays 4:45-5:45pm; instructor office hours by appointment

Course Overview
Summary course description
Foundational ERM course. Addresses all major ERM activities: risk framework; risk governance; risk identification; risk quantification; risk decision making; and
risk messaging. Introduces an advanced yet practical ERM approach based on the integration of ERM and value-based management that supports integration of
ERM into decision making. Provides a context to understand the differences between (a) value-based ERM; (b) traditional ERM; and (c) traditional "silo" risk
management.

Detailed course description

Traditional risk management, while well-established, has its limitations. Traditional risk management approaches are typically done on a “silo” basis. Each risk type
is usually handled in isolation: financial risk in the investment department; technology risk in the I/T department; talent management risks in the H.R. department;
etc. In addition, only the financial risks have commonly received robust quantification.

As a result, what has generally been lacking is the ability for companies to address all their key risks on a consistent, integrated basis and in a quantitative manner.
Without this, companies have struggled to:
• Prioritize and manage their individual key risks;
• Understand the integrated impact of multiple risks occurring simultaneously;
• Aggregate risk exposure metrics to the enterprise level
• Determine the overall risk appetite of the organization, and manage risk exposures to within the risk appetite
• Provide appropriate risk disclosures to investors and other stakeholders.

Enterprise risk management (ERM) is a significant advancement in the field of risk management, and provides a process for companies to identify, measure,
manage, and disclose all key risks to increase value to stakeholders. ERM solves the challenges discussed above. In addition, ERM provides a better framework for
fundamental risk-return decision-making at the highest levels, elevating ERM to an advancement in business management.

This course will cover the latest methodologies in ERM and how they are implemented in practice. The material will address all major aspects of ERM, including
the following topics:
• Introduction to ERM
• Defining ERM
• ERM framework
• Risk governance
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Master’s of Science in Enterprise Risk Management

• Risk identification
• Risk quantification
• Risk decision-making
• Risk messaging
• ERM for non-corporate entities

For a sample of some of the topics/content for this course, as well as the communications style of the professor, go to www.simergy.com and view the two short
videos of the professor discussing ERM topics.

Sessions will be a combination of lecture and in-class exercises. The in-class exercises are critical to gaining practical expertise in some of the key skills of ERM,
e.g.:
• Extracting information from risk experts
• Converting information from risk experts into quantitative ERM information
• Quantifying risks using a value-based ERM model

There will also be graded homework assignments.

Learning Objectives

Learning Objectives Graded Elements Demonstrating Your Abilities In These Areas

• Group Home Exercise: Analyzing case study against 10 key ERM criteria
1) Articulate the definition of ERM, its 10 key criteria, the ERM process cycle • Homework exercises (individual): Chapters 1 & 2, Companion Guide to
and the fundamental benefits of ERM Corporate Value of Enterprise Risk Mgmt., Spring 2018 University Edition
• Midterm exam
• Homework exercises (individual): Chapter 3, Companion Guide to
2) Understand the value-based ERM framework, and how it addresses
Corporate Value of Enterprise Risk Mgmt., Spring 2018 University Edition
shortcomings of traditional ERM frameworks
• Midterm exam
• In-class exercises 1 and 2
• Homework exercises (individual): Chapter 4, Companion Guide to
3) Properly define and categorize risks Corporate Value of Enterprise Risk Mgmt., Spring 2018 University Edition
• Case assignment, risk identification
• Midterm exam
• In-class exercise 3
4) Conduct effective qualitative risk assessments
• Midterm exam
• In-class exercises 4, 5, and 6
5) Quantify all types of risk, including financial, operational and strategic risks
• Case assignment, risk quantification
a) Conduct risk scenario development interviews
• Homework exercises (individual): Chapter 5, Companion Guide to
b) Build an ERM model and customize it to a specific organization
Corporate Value of Enterprise Risk Mgmt., Spring 2018 University Edition
c) Quantify individual risk scenarios and aggregate enterprise risk exposure
• Final exam
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Master’s of Science in Enterprise Risk Management

6) Use the value-based ERM process for decision-making • In-class exercise 7

a) Define an organization’s risk appetite • Homework exercises (individual): Chapter 6, Companion Guide to
b) Managing risk exposures to within risk appetite Corporate Value of Enterprise Risk Mgmt., Spring 2018 University Edition
c) Strategic planning and other business decisions • Final exam
• Homework exercises (individual): Chapter 7, Companion Guide to
7) Implement proper risk messaging, including integration of ERM into
Corporate Value of Enterprise Risk Mgmt., Spring 2018 University Edition
business performance analysis, incentive compensation, and risk disclosures
• Final exam
• Homework exercises (individual): Chapter 10, Companion Guide to
8) Understand how to apply ERM concepts to other entities Corporate Value of Enterprise Risk Mgmt., Spring 2018 University Edition
• Final exam
9) Understand the lessons learned from the financial crisis • Final exam

Pre-requisites
Students should have a basic ability to work with Excel spreadsheets, which will be needed in the latter half of the course.

Readings

Required textbooks and materials

1) Corporate Value of Enterprise Risk Management: The Next Step in Business Management (Wiley, March 2011)

If the midterm and/or final exam have “open book” portions, then this textbook will be the only item allowed (not photocopies and not a Kindle version)
You can purchase this at the bookstore or Amazon, but the following might be your least-expensive option: Purchase at https://www.simergy.com/university
and apply Purchase code “columbia” for a 10% discount.

2) Companion Guide to Corporate Value of Enterprise Risk Management, Spring 2018 University Edition (ABACUS by SimErgy)

Homework will be assigned from this guide and graded. All students must purchase an individual copy, because homework is an Individual assignment.

Purchase at https://www.simergy.com/university. When purchased in combination with the textbook, you may apply Purchase code “columbia” for a 10%
discount on both the book and guide.

Materials for in-class exercises will be provided, usually on the day of the exercise. Some of these materials, such as Excel spreadsheets, will need to be loaded
onto the student’s laptop. All other supplemental materials will be provided in class, as needed. Laptops will be required for some of the in-class exercises.

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Resources
Columbia University Library
Columbia’s extensive library system ranks in the top five academic libraries in the nation, with many of its services and resources available online:
http://library.columbia.edu/.

SPS Academic Resources

The Office of Student Life and Alumni Relations (SLAR) provides you with academic counseling and support services such as online tutoring and career coaching:
http://ce.columbia.edu/student-life-and-alumni-relations/academic-resources

Course Requirements (Assignments)

Assignments and Exams
The course will include:
• One (1) case assignment (with two parts)
• Homework assignments from (8) chapters of the book
• Eight (8) in-class exercises
• Canvas discussions (impacts participation grade)
• Midterm exam
• Final exam

Evaluation/Grading
The evaluation will be based on the following weights:
a. Attendance, preparedness and participation in class discussions – 5%
b. Homework – 5%
c. In-Class Exercises (both Group and Individual) – 15%
d. Case project/presentation – 20%
e. Midterm examination – 25%
f. Final examination – 30%

Peer grading: By the end of the day of each session involving a group exercise, students must send an email to the TAs with a peer grade for each of the fellow
students within their group, reflecting the level of that member’s contribution to the team. The peer grade will be one of the following:
• (M) – Met expectations (this is expected to be the most common grade assigned)
• (E) – Exceeded expectations
• (B) – Below expectations

Up to 25% of the grade for each group exercise will be based on these grades from fellow team members. The most common grade expected of students is “M.”

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Master’s of Science in Enterprise Risk Management

Course Policies
Participation and Attendance
Students are expected to attend all sessions, be fully prepared (e.g., have read the chapter assignments in advance), participate in class and online discussions and
actively contribute to in-class group exercises. If you need to miss a session for any reason, excused absences and make-up of work missed will be considered only if
(a) for a valid reason; and (b) the instructor is notified in advance. Late arrivals or early departures must also be approved in advance.

The seat chosen on the day of the second session will become the student’s permanent seat for the remainder of the course.

Late work
Late assignments are permitted only with advance notice and permission from the instructor, and point deductions may apply.

Course Schedule

Session Topics and Activities Readings [due date in brackets] Assignments [due date in brackets]

• Canvas Discussion (individual) on your objectives for the course [due

1 a) Course Overview Chapter 1, Corporate Value of prior to Session 2]
b) Introduction to ERM Enterprise Risk Management [due • Homework exercises: (Individual): Chapter 1, Companion Guide to
Jan 18 c) Defining Risk prior to Session 1] Corporate Value of Enterprise Risk Management, Spring 2018 University
Edition [due prior to Session 3]

• Group Home Exercise: Analyzing case study against 10 key ERM criteria
2 Chapter 2, Corporate Value of [due prior to Session 3]
a) Defining ERM Enterprise Risk Management [due • Homework exercises (individual): Chapter 2, Companion Guide to
Jan 25 prior to Session 2] Corporate Value of Enterprise Risk Management, Spring 2018 University
Edition [due prior to Session 3]
3 Chapters 3 and 8, Corporate Value Homework exercises (individual): Chapter 3, Companion Guide to
a) ERM Framework
of Enterprise Risk Management [due Corporate Value of Enterprise Risk Management, Spring 2018 University
b) Risk Governance
Feb 1 prior to Session 3] Edition [due prior to Session 4]
• In-class exercises #1 (group) and #2 (individual): Identifying risks by
source [due during Session 4]
4 Chapter 4 up to page 129, Corporate • Case risk identification deliverables [due the day prior to Session 6]
a) Risk Identification, Part 1
Value of Enterprise Risk • Case risk quantification deliverables [due the day prior to Session 12]
b) Case Assignment
Feb 8 Management [due before Session 4] • Homework exercises (individual): Chapter 4, Companion Guide to
Corporate Value of Enterprise Risk Management, Spring 2018 University
Edition [due prior to Session 6]
5 Chapter 4 from page 129 onward,
In-class exercise #3 (group): Conducting QRA interviews [due during
Risk Identification, Part 2 Corporate Value of Enterprise Risk
Session 5]
Feb 15 Management [due before Session 4]

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Master’s of Science in Enterprise Risk Management

6 • Case risk identification presentations [due during Session 6]

Case Presentations – Risk
None • Canvas Discussion on your lessons learned and surprises from case
Identification
Feb 22 work to-date and case presentations observed [due prior to Session 7]
7
Midterm Exam None None
Mar 1
• In-class exercise #4 (group): Developing a baseline ERM model [due
8 Chapter 5 up to page 185, Corporate during Session 8]
a) Risk Quantification, Part 1
Value of Enterprise Risk • Homework exercises (individual): Chapter 5, Companion Guide to
b) Mid-Course Evaluation
Mar 8 Management [due before Session 8] Corporate Value of Enterprise Risk Management, Spring 2018
University Edition [due prior to Session 12]
a) Midterm Exam Review
9 Chapter 5 pages 185-207, Corporate
b) Mid-Course Evaluation In-class exercise #5 (group): Quantifying individual risk scenarios [due
Value of Enterprise Risk
Feedback during Session 9]
Mar 22 Management [due before Session 9]
c) Risk Quantification, Part 2
10
Case Work – ERM Model None In-class case team work on ERM model with instructor guidance
Mar 29
Chapter 5 from page 207 onward,
11
Corporate Value of Enterprise Risk In-class exercise #6 (group): Quantifying enterprise risk exposure [due
Risk Quantification, Part 3
Management [due before Session during Session 11]
Apr 5
11]
12 • Case risk quantification presentations [due during Session 12]
Case Presentations – Risk
None • Canvas Discussion on your lessons learned and surprises from case
Quantification
Apr 12 work to-date and case presentations observed [due prior to Session 13]
• In-class exercise #7 (individual): Integrating ERM information into
13 Chapters 6 and 7, Corporate Value decision making [due during Session 13]
a) Risk decision making
of Enterprise Risk Management [due • Homework exercises (individual): Chapters 6 and 7, Companion Guide
b) Risk messaging
Apr 19 before Session 13] to Corporate Value of Enterprise Risk Management, Spring 2018
University Edition [due prior to Session 14]
a) ERM for Non-Corporate
14 Chapter 10, Corporate Value of Homework exercises (individual): Chapter 10, Companion Guide to
Entities
Enterprise Risk Management [due Corporate Value of Enterprise Risk Management, Spring 2018 University
b) Lessons from Financial
Apr 26 before Session 13] Edition [due two days prior to Final Exam]
Crisis
Final Exam
TBD
May 4−11

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Master’s of Science in Enterprise Risk Management

School Policies
Copyright Policy
Please note -- Due to copyright restrictions, online access to this material is limited to instructors and students currently registered for this course. Please be advised
that by clicking the link to the electronic materials in this course, you have read and accept the following:

The copyright law of the United States (Title 17, United States Code) governs the making of photocopies or other reproductions of copyrighted materials. Under
certain conditions specified in the law, libraries and archives are authorized to furnish a photocopy or other reproduction. One of these specified conditions is that the
photocopy or reproduction is not to be "used for any purpose other than private study, scholarship, or research." If a user makes a request for, or later uses, a photocopy
or reproduction for purposes in excess of "fair use," that user may be liable for copyright infringement.

Academic Integrity
Columbia University expects its students to act with honesty and propriety at all times and to respect the rights of others. It is fundamental University policy that
academic dishonesty in any guise or personal conduct of any sort that disrupts the life of the University or denigrates or endangers members of the University
community is unacceptable and will be dealt with severely. It is essential to the academic integrity and vitality of this community that individuals do their own work
and properly acknowledge the circumstances, ideas, sources, and assistance upon which that work is based. Academic honesty in class assignments and exams is
expected of all students at all times.

SCE holds each member of its community responsible for understanding and abiding by the SCE Academic Integrity and Community Standards posted at
http://ce.columbia.edu/student-life-and-alumni-relations/academic-integrity-and-community-standards. You are required to read these standards within the first few
days of class. Ignorance of the School's policy concerning academic dishonesty shall not be a defense in any disciplinary proceedings.

Accessibility
Columbia is committed to providing equal access to qualified students with documented disabilities. A student’s disability status and reasonable accommodations are
individually determined based upon disability documentation and related information gathered through the intake process. For more information regarding this service,
please visit the University's Health Services website: http://health.columbia.edu/services/ods/support.

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