Research Project: Risk-based Performance MGT in Decentralized Enterprises

Research Problem

The research activities on risk-based performance management in investment center organizations uses mainly the portfolio theory that was developed by Markowitz 60 years ago. The core of this theory is the maximization of the one period risk return trade-off with respect to the portfolio weights. The application of this approach to the enterprise management context has substantial drawbacks as the assets of larger enterprises are not market traded financial instruments but instead they are illiquid business units mainly organized as investment centers.

Research Design

The portfolio theory of Markowitz corresponds to an open loop management system where the investor is maximizing each period her risk return trade-off. Theoretically the investor can go bankrupt within a couple of periods although she is optimizing each period. To produce viable management models the risk-based performance management is not only put upon an open loop management but also upon a closed loop management system where deviations from the expected objectives are used for reactive and proactive adjustments over time. Furthermore the illiquidity of the assets and the legal requirements for profit and risk measurement as well as management are explicitly taken into account.

Literature

  • Argyris Chr. [Argy77]: Double loop learning in organizations – By uncovering their own hidden theories of action, managers can detect and correct errors, Harvard Business Review, 55(5), 115-125
  • Arrow K. [Arrow64]: Control in Large Organizations, Management Science, Vol. 10, Number 3, April 1964 
  • Audits Directive [AuditsDirective06]: Directive 2006/43/EC of the European Parliament and the Council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council Directive 84/253/EEC
  • Basel Committee on Banking Supervision [Basel2-06]: International Convergence of Capital Measurement and Capital Standards – A Revised Framework – Comprehensive Version, http://www.bis.org/publ/bcbs128.htm
  • Basel Committee on Banking Supervision [Basel3-11]: A global regulatory framework for more resilient banks and banking systems, December 2010 (rev June 2011), http://www.bis.org/publ/bcbs189.htm
  • Basel Committee on Banking Supervision [Basel3-10a]: International framework for liquidity risk measurement, standards and monitoring, December 2010, http://www.bis.org/publ/bcbs188.pdf 
  • Black F./Scholes M. [BlSc73]: The Pricing ot Options and Corporate Liabilities, Journal of Political Economy, Vol. 7, 1973, 637-654
  • Boulding K. [Bould56]: General Systems Theory – The Skeleton of Science, Management Science, Vol. 2, Nr. 3, 1956, p. 197-208
  • Committee of Sponsoring Organizations of the Treadway Commission [COSOII04]: Enterprise Risk Man-agement - Integrated Framework, September 2004, http://www.coso.org/-ERM.htm 
  • Committee of Sponsoring Organizations of the Treadway Commission [COSOII04a]: Enterprise Risk Man-agement - Integrated Framework, Application Techniques, September 2004, http://www.coso.org/-ERM.htm 
  • Foerster H.v. [Foer03]: Cybernetics of Cybernetics, in: Foerster H.v.: Understanding Understanding – Essays on Cybernetics and Cognition, Springer, New York, 2003, S. 283-286
  • Hull J. [Hull10]: Risk Management and Financial Institutions, 2nd Edition, Prentice Hall, New Jersey, 2010
  • International Financial Reporting Standard [IFRS]: Download – November 2011
    http://ec.europa.eu/internal_market/accounting/ias/index_de.htm
  • Kaplan R./Norton D. [KaNo96]: The Balanced Scorecard - Translating Strategy into Action, Harvard Business School Press, Boston/MA, 1996
  • Markowitz H. [Mark52]: Portfolio Selection, Journal of Finance, Vol. 7, 1952, 77-91
  • Merton R. [Mert73]: An Intertemporal Capital Asset Pricing Model, Econometrica, Vol. 41, S. 867-887
  • Mesarovic M./Macko D./Takahara Y. [MMT70]: Theory of Hierarchical, Multilevel Systems, Academic Press, New York/London, 1970
  • Risk Management Standard [RMS09] (ISO 31000:2009): Risk Management – Principles and guidelines, 1st edition, 2009-11-15
  • Scott B. [Scott96]: Second-order Cybernetics as Cognitive Methodology, Systems Research Vol. 13 No. 3, pp. 393-406
  • Unified Modeling Language [UML07]: Superstructure, Version 2.1.1, 2007-02-03, www.uml.org 
  • Wiener N. [Wiener48]: Cybernetics: Or the Control and Communication in the Animal and the Machine, MIT-Press, Cambridge, 1948

Master Thesis (completed)

  • Risikointegriertes Innovationsmanagement - Best Practices für High-Risk-Produktinnovationen im Kontext des unternehmensweiten (Risiko-) Managements (2010)
  • Die Minimierung rechtlicher Risiken bei elektronischer Rechnungsstellung (2010)
  • Kundenfeedback als Basis kontinuierlicher Qualitätsverbesserung - Konzept zum systematischen Management von Kundenfeedback und den damit verbundenen Chancen und Risiken (2009)
  • Controlling Regelwerk für Investitionen: Prozessbasierte Gestaltung, exemplarische Veranschaulichung und Implementierung (2010)
  • Einbeziehung des Unternehmensweiten Risikomanagements in das Controlling von Betriebserfolgen unter Unsicherheit (2009)
  • Modellierung, Risikoanalyse und Erfolgsrechnung von Wertschöpfungsprozessen im Dienstleistungsbereich (2009)
  • Management: Design und Umsetzung in einem Mobilfunkunternehmen (2009)