Book Review

What is risk management?

No, it's not a brainteaser. It's the driving question behind , a new book from authors Shirley S. Savage and Peter R. Savage that offers a risk primer for energy company employees and executives.

Understanding risk management is no longer an option, it's a necessity, the authors say. "Throughout the power industry, there's still a fundamental lack of understanding of what risk management is about," they write. "Billions of dollars are at risk, simply because many companies have failed to grasp the basic point: that [risk management] is not about making money, but how to insure against losing it. Risk management will always tend to clip the peaks of success, but it will always minimize the penalties of failure."

Why a book on risk management? Given the recent upheaval in the market, the scrutiny is understandable. But the spotlight on risk management isn't due just to the energy trading scandals. Instead, it owes much to deregulation. "For a hundred years, utilities relied on regulators as their risk managers," the Savages write. "So it is not surprising that regulated utilities, who relied on guaranteed rates of return on virtually all of their investments, did not consider risk management as a core competency."