How to sort out strategies and weather the storm.
Andrew S. Hyman, Michael J. Denton, Leonard S. Hyman, Bradford G. Leach, and Gary A. Walter are authors of Energy Risk Management: A Primer for the Utility Industry, published by PUR, and from which this article was excerpted. See http://www.pur.com/books/23.cfm for more details. Contact Hyman at firstname.lastname@example.org.
The chief executive of a failed corporation says, “I didn’t know what was going on. The chief financial officer made all those decisions. I couldn’t have been expected to understand them.” The collapsed energy merchant had a chief risk officer who had put in place an expensive risk-management system that did not protect the firm. The hedge fund with tight risk-management rules failed because it had violated its own risk rules. What went wrong?
Perhaps the corporate structure became too large and complex for anyone to know what was going on, a risk that deserves, but rarely receives, management attention. Perhaps the directors and managers viewed risk management as an administrative burden rather than as a tool for decision making, a window-dressing procedure to deflect criticism. Perhaps management decided to ignore guidelines because it had in front of it a deal too good to pass up.