All this suggests that the modern risk management profession has developed methodologies and professionals that allow firms, especially financial service companies, to effectively manage their exposure to financial and, to a lesser extent, hazard risks. However, it also points to the need for firms in all industries to develop tools that will allow us to model all the risk drivers and to study the impact of these on the cash flows/earning of the company. The importance of managerial processes that effectively use this information formulating corporate strategy and policy cannot be understated.

ACCREDITATION STANDARDS:

The standards for accreditation promulgated by ERM-II are founded on the premise of improving the competence of those entering the risk management profession by ensuring a minimum level of technical competence and enough breadth across the mathematical, economic and statistical tools required to conduct sound quantitative risk analysis as applied in any industry. The guiding principles that underlie the development of the standards are as follows:

• The successful integration of risk management as a process fundamental for the success of the corporation requires graduates have a sound understanding of business principles. Thus, students must be exposed to accounting theory, managerial economics, corporate finance, and the functioning of financial markets.
• University-based educational programs are uniquely capable of providing students the rigorous technical training in the mathematical, statistical, and economic fundamentals necessary for them to enter risk management careers in a variety of industries.
• University-based programs provide the time and opportunity for students to engage in real-life experiences, appropriately supervised and designed to encourage reflection by students on their experiences and the development of one's ability to assess his or her performance and level of competence.
• University-based programs are uniquely capable of continually adopting new research and technologies into their curriculum as new findings are often developed and become known more quickly within the academic community and can therefore be adopted by professional educators into their existing educational materials without first seeking approval through lengthy bureaucratic processes.
• Graduates of accredited programs will be technically proficient enough to allow them to expand the set of corporate risk exposures that can be more efficiently identified, modeled, priced and managed using quantitative methods.
• ERM-II standards are designed to provide graduates partial qualification for the certificate requirements of various professional and technical societies representing more narrowly defined industry-specific areas of the risk management profession.
• The accreditation standards should be flexible enough to allow for specialization within university programs and thus serve a broad set of missions.

OUTLINE OF ACCREDITATION STANDARDS:

The following provides an outline of the standards that would be required for a university program to be accredited by ERM-II. The implementation of the standards and details regarding how these standards will be assessed will ultimately be determined by a committee appointed by the Board of Directors of ERM-II.

Standard 1: Program Level

Accreditation standards will apply to graduate level university programs only.

Standard 2: Foundational Requirements

Students entering accredited programs should have prior course work in the following areas:

1. Financial accounting.   2. Micro-economics including consumer theory, the laws of supply and demand, firm production theory.   3. Principles of corporate finance.   4. Mathematics through multivariate calculus and linear algebra.   5. Calculus-based probability theory.   6. Calculus-based statistical inference including random variables, distribution theory, sampling distributions, hypothesis testing, parameter estimation, etc.

Many students entering accredited programs will have some if not all of the course work required of Standard 2 from their undergraduate degree program. Accredited programs must provide students access to these courses if they have not already been exposed to these topics from their previous academic experience.

Standard 3: Curriculum

Accredited programs will provide students substantial instruction in the following areas:

1. Stochastic processes including, but not limited to, compound distributions, convolutions, Brownian motion, Ito’s formula and martingale theory, discrete and continuous Markov chains.   2. Econometric modeling including cross-sectional regression theory and time series modeling and forecasting.   3. Overview of the markets for financial assets and risk management products, instruments, trading patterns and behaviors, and regulation.   4. Financial economics including dynamic programming and asset pricing in both discrete and continuous time.   5. Application of financial economics and stochastic processes to determine equilibrium asset prices in complete markets settings including, but not limited to, derivative pricing, term structure modeling, and credit risk modeling.   6. Application of financial economics and stochastic processes to determine equilibrium asset prices determined in incomplete market settings including, but not limited to, insurance and other non-hedgeable risks, capital investment projects, etc.   7. Risk management theory including the economics of risky corporate decision-making, the risk management process, capital allocation models, asset based market-risk management models (e.g., VaR), cash-flow based risk management models, etc.   8. Implementation of risk management models including Monte-Carlo simulation, computational methods used in finance and insurance, numerical methods including finite difference methods, and computer programming skills using relevant programming languages (VBA, C++, etc).

In addition to the curriculum topics, standards should be established for the minimum number of credit hours that students must complete to graduate from an accredited program, a minimum time period for academic instruction (e.g., the minimum number academic semesters or academic quarters), and a maximum amount of credit that can be awarded for studies conducted prior to entering an accredited program.

Standard 4: Student Quality

Specific standards should be developed to establish minimum quality for students entering accredited programs. The specific details should at least specify that students have a bachelor’s degree from a higher educational institution recognized by the Department of Education or other equivalent national governmental organization. The details should also specify that students complete a valid, reliable, and widely accepted admissions test to determine eligibility for the program. Examples of entrance exams considered to be valid, reliable and widely accepted include the Graduate Management Admissions Test (GMAT) or the Graduate Record Examination (GRE). Finally, accredited programs will be required to demonstrate that the average level of competence for students entering an accredited program on one or more of the approved entrance exams must meet minimum threshold requirements.

Standard 5: Academic Record of Affiliated Faculty

Specific standards will be developed to ensure that the faculty associated with an accredited program should have a high degree of competence teaching and conducting research on topics relevant to the risk management profession. The standards should recognize that in many programs faculty will likely be housed in multiple departments and possess a variety of educational backgrounds and specialties. The standards should specify the role of full-time tenure track faculty involved in programs versus adjunct faculty and/or graduate student teaching. In addition, the standards should require that the educational and/or professional experiences of both academic and professional faculty are appropriately aligned with the faculty member’s teaching assignments. Finally, the standards should specify a minimum level of support that should be provided faculty to conduct research relevant to the risk management profession and a minimum level of research productivity that should be expected from faculty affiliated with the program.