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In business and investing, risk has traditionally been viewed negatively: investors and companies can lose money due to risk and therefore we typically penalize companies for taking risks. That’s why most books on risk management focus strictly on hedging or mitigating risk.

But the enterprise’s relationship with risk should be far more nuanced. Great companies become great because they seek out and exploit intelligent risks, not because they avoid all risk. Strategic Risk Taking: A Framework for Risk Management is the first book to take this broader view, encompassing both risk hedging at one end of the spectrum and strategic risk taking on the other.

World-renowned financial pioneer Aswath Damodaran–one of BusinessWeek’s top 12 business school professors–is singularly well positioned to take this strategic view. Here, Damodaran helps you separate good risk (opportunities) from bad risk (threats), showing how to utilize the former while protecting yourself against the latter. He introduces powerful financial tools for evaluating risk, and demonstrates how to draw on other disciplines to make these tools even more effective.

Simply put, Damodaran has written the first book that helps you use risk to increase firm value, drive higher growth and returns, and create real competitive advantage.

•   Risk: the history and the psychology

The non-financial realities you must understand to successfully manage risk

•   Risk assessment: from the basics to the cutting edge

Risk Adjusted Value, probabilistic approaches, Value at Risk, and more

•   Utilizing the power of real options

Extending option pricing models to reflect the potential upside of risk exposure

•   Risk management: the big picture

Integrating traditional finance with corporate strategy–and using risk strategically

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About the Author

Aswath Damodaran, Professor of Finance at NYU’s Stern School of Business, has been profiled in BusinessWeek as one of the United States’ top twelve business school professors. His researchinterests include valuation, portfolio management, and applied corporate finance. He is the author of Damodaran on Valuation; Investment Valuation; The Dark Side of Valuation; Corporate Finance: Theory and Practice; Applied Corporate Finance; and most recently, Investment Fables.

Damodaran has published in The Journal of Financial and Quantitative Analysis, The Journal of Finance, The Journal of Financial Economics, and The Review of Financial Studies.

Back Cover

Beyond Traditional Hedging: How to Use Risk Management Financial Techniques Strategically!

•How to determine which risks to ignore, which to protect against, and which to actively exploit

•By Aswath Damodaran, leading finance authority and one of BusinessWeek’s top 12 business school professors

•For every corporate finance executive, manager, analyst, consultant, researcher, and student

In recent years, risk management has been defined as merely eliminating or reducing

risk exposure. Companies are learning today that is far too narrow and constraining a definition. Risk, exploited judiciously, is absolutely central to business success. In Strategic Risk Taking: A Framework for Risk Management, Aswath Damodaran covers both sides of the risk equation, offering a complete framework for maximizing profit by limiting some risks and exploiting others.

Damodaran presents a thorough and insightful review of the state-of-the-art in risk measurement, hedging, and mitigation. He covers a broad spectrum of risk assessment tools, including risk adjusted value, scenario analysis, decision trees, VAR, and real options. But Damodaran goes far beyond other treatments of the subject, helping you decide when to deliberately increase exposure to certain risks, and clearly assess the potential dangers and payoffs of doing so.

http://pages.stern.nyu.edu/~adamodar/

Amazon.com® Reader Reviews (Ranked by Helpfulness)

Average Amazon.com® Rating:  Based on 4 Ratings

Hey, I found the book to be very interesting. - 2007-10-09
Reviewer Rating:
Too often people consider risk a negative that is to be reflexively avoided. However, if we take the time to look we will see that this is really contrary to our everyday lives. We take risks all the time, but we think we understand them and we assume that the negative outcomes are low cost compared to the benefits we can gain. Businesses invest in projects with risk because they have have calculated a positive expected return. Also, we know that US Treasuries are all but risk free and their return is low. Junk bonds have a high risk and they must provide a possibility of high return to pay purchases for taking on their risk. The trick is to be able to learn about the true nature of the risk and to set up a situation where, to you, the expected return will be large enough to invite you to take on the risk of loss.

The book is in three parts. Chapters 1-4 discuss a definition of risk, why we care about risk, what do we think about risk (versus what do we think we think about risk), and ways of measuring risk (while all the chapters are good, this one is especially interesting).

Chapters 5-8 cover tools you can use to understand and evaluate risk and return. Risk adjusted value, Probabilistic Approaches (you know, scenario analysis, decision trees, simulations, and fitted distributions.) This is all explained in a way that a person with just basic mathematical skills can understand the discussion well. This is not a book limited to just quant oriented PhDs.

Chapters 9-12 take you through what the author calls "The Big Picture". First, he talks about the "conventional view" of discounted cash flows and other relative valuation models. However, the then presents an expanded analysis using the same DCF and Relative Valuation and then option pricing. Damodaran then gives a few pages on hedging and some comments on when risks pay off and what you should consider when developing your own strategy. Chapter 10 talks about risk profiling and hedging, chapter 11 finally lays out the author's concepts of Strategic Risk Management. That is, why you should exploit risk, how you go about it, and how an risk taking organization should be built. The last chapter is a kind of pep talk to get out there and do it right. He reviews the core ideas of the book and lays them out as principles to etch into your mind.

A very good book. It is interesting, useful, and clearly written with just enough math to explain the concepts without overwhelming those without deep math skills.

Reviewed by Craig Matteson, Ann Arbor, MI 48103

Risk as a Two-Sided Coin - 2007-10-27
Reviewer Rating:
Too many of the books I have read on risk deal with the subject as something to be avoided.

Risk, properly assessed and entered into with open eyes, is essential to business and investing success. In Strategic Risk Taking: A Framework for Risk Management, Aswath Damodaran covers both sides. He offers a framework to limit some risks and exploit others.

The New York University finance professor draws a thorough portrait of risk measurement, hedging, and mitigation. He discusses the broad range of risk assessment tools, including risk adjusted value, scenario analysis, decision trees, VAR, and real options. Damodaran goes further. His discussion of when to increase risk exposure is insightful and rarely found in risk management texts.

Damodaran argues there are 10 principles that should govern all risk assessment and management. Risk:

1. Is everywhere.
2. Is threat and opportunity.
3. Evokes mixed feelings about its existence.
4. Is not created equal.
5. Is measurable.
6. Measurement and assessment leads to better decisions.
7. Should be apportioned. The key to risk management is deciding which risks to avoid, to pass through and to exploit.
8. Management results in value creation.
9. Management is everyone's job.
10. Taking organizations that are successful do not arrive there by accident.

Simply put, this is the most complete treatment of risk I have read. Proper implementation of its principles will help readers drive increased returns and value.

BIG picture corporate risk taking - 2008-01-10
Reviewer Rating:
Insightful of broad risk taking without going to deep into single subjects. Readers interested in gaining deeper knowledge can then find specific books on the subject. I found chapters 11, Strategic Risk Management, the most orginal. Again, no great depth but a great big picture view on fundamental issues in risk taking such as 'Value and Risk Taking', 'Evidence on Risk Taking and Value' and 'Building the Risk-Taking Organization'. It's not a book for traders rather for corporates excecutives/risk managers/consultants/students and ... maybe for for academically inclined entrepreneurs.

Strategic Risk Taking Review - 2008-03-02
Reviewer Rating:
This book provides an excellent over view of the risk management principles and explores rarely covered aspects like "how to measure the level of risk aversion".

This book should be on the shelf of every risk manager and safety engineer.

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