Risk Journal Volume 1

Complex risks increasingly define the global competitive landscape. Volatile commodity prices, recent political unrest in the Middle East and Japan’s earthquake all underscore how the pace, scale and impact of risks are increasing. In many ways, rapidly changing risks put on hold by the financial crisis are returning with a vengeance, as reflected in commodity prices that have rebounded back to the historical highs they first reached in 2008.

While not all of these prices may spike up much further, it’s clear their volatility will continue and possibly even increase, creating new threats and opportunities for companies across the board. Companies can develop a significant competitive advantage if senior executives make risk-adjusted decisions and anticipate how these risks will reshape their industries. For this reason, it has never been more important for senior executives to consider how they will respond to risks and their knock-on effects.

In recognition of this new reality, we are pleased to introduce our inaugural edition of the Oliver Wyman Corporate Risk Journal. This publication is a collection of perspectives on what we consider to be key risks that will determine many companies’ futures. Oliver Wyman’s Global Risk & Trading practice is launching this publication, which includes contributions from many different parts of the organization. It reflects our firm’s broad expertise in risk management as well as the research we produce with the Oliver Wyman Global Risk Center and top professional associations, non-governmental organizations and academic institutions on issues that involve multiple industries and countries.

Many of the topics in this journal are intensely urgent. Our issue opens with a discussion of how volatile commodity prices are rewriting the rules of industries ranging from airlines to food manufacturers by introducing unpredictability in their earnings. We then examine how commodity trading paradigms must change — and swiftly—if trading organizations hope to benefit from the return of volatility to the markets.

Other stories explore how companies can better prepare for a number of other significant risks, such as supply chain disruptions and information technology failures, or emerging risks that may initially appear unrelated to a company’s business until an unanticipated event occurs. We also examine the difficult trade-offs that countries and companies face when they pursue clean energy, the risks inherent in large investment projects and a fundamental reason why banks still struggle to achieve their financial goals— the data on which they base decisions is often faulty.

In each case, the authors offer practical advice on how to tackle trends that are increasingly redefining the rules for business. Our goal is for these articles to inform as well as to provoke a reexamination of how your organization conducts risk-adjusted decision making. I hope you will enjoy reading these perspectives and that this publication will spark some interesting thoughts along these themes that we can discuss.

Risk Journal Volume 1