Two. Risk Management and Operational Hedging: An Overview

  1. Panos Kouvelis2,
  2. Lingxiu Dong2,
  3. Onur Boyabatli3 and
  4. Rong Li3
  1. Jan A. van Mieghem

Published Online: 11 OCT 2011

DOI: 10.1002/9781118115800.ch2

The Handbook of Integrated Risk Management in Global Supply Chains

The Handbook of Integrated Risk Management in Global Supply Chains

How to Cite

van Mieghem, J. A. (2011) Risk Management and Operational Hedging: An Overview, in The Handbook of Integrated Risk Management in Global Supply Chains (eds P. Kouvelis, L. Dong, O. Boyabatli and R. Li), John Wiley & Sons, Inc., Hoboken, NJ, USA. doi: 10.1002/9781118115800.ch2

Editor Information

  1. 2

    Olin Business School, Washington University, St. Louis, Missouri, USA

  2. 3

    Lee Kong Chian School of Business, Singapore Management University, Singapore

Author Information

  1. Kellogg School of Management, Northwestern University, Evanston, Illinois, USA

  1. The author is grateful for the thoughtful and constructive suggestions by the the three anonymous referees.

Publication History

  1. Published Online: 11 OCT 2011
  2. Published Print: 4 NOV 2011

ISBN Information

Print ISBN: 9780470535127

Online ISBN: 9781118115800



  • crisis management;
  • financial hedging;
  • operational hedging strategies;
  • operational risk;
  • risk assessment;
  • risk management;
  • strategic risk mitigation;
  • tactical risk decisions;
  • tailored operational hedging


This chapter presents an introduction and overview of risk management and the techniques that operation managers can use to mitigate risks. It describes the concept of risk management and views it as an ongoing four-step process and integral part of operations strategy. The chapter outlines the various operational risks that companies are exposed to. It then reviews methodologies to assess and value those risks both qualitatively and quantitatively. The chapter also reviews tactical risk decisions, including risk discovery and risk recovery, and illustrates strategic risk mitigation. It describes four generic strategies to mitigate risk using operational instruments, and explains financial hedging of operational risk using options and derivatives. The chapter illustrates how operational hedging can be tailored to the specific operations strategy of the firm using techniques such as: tailored redundancy, dynamic pooling with allocation flexibility, chaining, and multisourcing. It summarizes some guidelines for operational risk management.

Controlled Vocabulary Terms

crisis management; operational risk; risk management