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ARIA: put RM into business school curriculum.

All undergraduate business students would be required to learn the basic principles of risk management decision-making, according to a proposal released recently by the American Risk and Insurance Association (ARIA), a group devoted to furthering risk management through education, research, literature and communications.

The proposal, which is incorporated in an ARIA position paper, "Risk Management: An Essential Part of the Common Body of Knowledge for Business," was endorsed by the RIMS Executive Council at its October meeting in New York. RIMS is further demonstrating its support by funding the publication and distribution of the paper.

The paper reviews the significance of the cost of risk and the risk management process from a microeconomic and macroeconomic perspective, citing numerous examples in which operational goals can be adversely impacted by poor risk management decisions.

According to the paper, "Each year organizations spend hundreds of billions of dollars in connection with pure risk' exposures. ... Some of these dollars are spent wisely, as part of formal management programs that analyze alternative ways to deal with a particular organization's loss exposures. In other cases, management is less aware of alternative methods for handling pure risk exposures."

Consequently, the paper concludes, an organization's goals can be adversely affected by uninformed decision-making. At worst, the very survival of the company may be placed at risk due to management's slighting of significant loss exposures. One example is A.H. Robins Inc., which went bankrupt in 1985 due to liability losses arising out of its Dalkon Shield.

The paper cites that in 1990 alone U.S. companies will spend nearly $150 billion in premiums for insurance to guard against property and liability losses. In addition, these companies will spend almost $100 billion on risk handling techniques that are alternatives to commercial insurance.

"To these figures can be added the unreimbursed costs and nonquantifiable elements of property losses and adverse liability judgments for which organizations were not prepared, as well as the rapidly increasing costs for employee health care and workers' compensation benefits," the paper states.

The cost to U.S. employers in 1988 for just health care benefits was estimated by the U.S. Chamber of Commerce at more than $77 billion, representing nearly 9 percent of all payroll expenses, with a growth rate of 19 percent over the previous year.

"Clearly, in this environment, knowledge not only of loss exposures and employee-related obligations but also of the alternatives for handling risk is essential for effective management," it states.

ARIA argues that students who cannot recognize potential sources of risk such as these are inadequately prepared for their future management roles. To remedy this situation, the organization is proposing that management education include the study of risk management as an integral element.

"Students who cannot recognize potential sources of risk are inadequately prepared to participate fully in management processes intended to achieve basic organizational goals such as profit maximization, earnings stability and growth," according to the paper. "At best, these future managers may learn basic risk management principles in an ad hoc manner over time as they perform their jobs. At worst, such individuals may endanger the very survival of the organizations they are attempting to manage.

The proposal is of particular interest now because accreditation standards are being revised by the American Assembly of Collegiate Schools of Business (AACSB), which is the sole accrediting body for U.S. business schools.

The first draft of the new standards, released in September, did not mention the study of risk management. Through its paper, ARIA hopes to increase awareness of the importance of risk management in both business and society.

"The paper is intended especially to inform business school deans who are unfamiliar with the nature of risk management," says Gerald Ciardelli, RIMS vice president-education. As part of the RIMS educational effort, Mr. Ciardelli is asking all chapter members to write to the AACSB as soon as possible.

A potential outcome of greater awareness might be the inclusion of risk management within the final business school accreditation standards, expected to be adopted by the AACSB in April.

"In many cases," according to the paper, "risk management principles could be integrated into already-required courses in management, finance, accounting, marketing and business law." Furthermore, the paper argues that such integration would minimize the need to hire additional faculty.

Copies of the paper are available free to interested individuals, organizations and professional associations. Contact ARIA President Sandra Gustavson, 206 Brooks Hall, University of Georgia, Athens, GA 30602; (404) 542-4290.
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Title Annotation:American Risk and Insurance Association and risk management
Publication:Risk Management
Date:Jan 1, 1991
Previous Article:RIMS/RIMAS Singapore conference examines RM issues on the Asian and global scenes.
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