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Honeywell Integrated Risk

In: Business and Management

Submitted By shawnding
Words 8476
Pages 34
Harvard Business School

9-200-036
Rev. July 12, 2000

Honeywell, Inc. and Integrated Risk Management
I. Introduction
In one week, on July 10, 1997, the Finance Committee members of Honeywell Inc.’s board of directors would vote on whether to proceed with a new risk management program. For the past two years, members of Honeywell’s Treasury Management Team, in conjunction with insurance specialists J&H Marsh & McLennan (now Marsh Inc.), auditor Deloitte & Touche, and later with insurance underwriter American International Group (AIG) had worked to create a new, more costefficient method for managing some of Honeywell’s risks. Their proposal, the first of its kind, provided combined protection against Honeywell’s currency risks along with other, more traditionally-insurable risks, in a multiyear, insurance-based, integrated risk management program. Honeywell had a long history of product innovation; this new proposal would extend its innovation to the financial arena. While a significant amount of time and effort had been invested in developing this new concept and in simulating program results, the absence of a precedent was a source of concern. The Finance Committee’s vote depended, in part, on whether the anticipated savings of the program would be realized, and whether the coverage provided by the new contract would be adequate. Because Honeywell viewed the proposed plan as a first step in a firm-wide integrated (sometimes referred to as enterprise) risk management program that would extend to cover all of Honeywell’s financial and operational risks, the Finance Committee’s decision would establish Honeywell’s risk management strategy for some years to come.

II. Business Description
Honeywell was a multibillion-dollar, international corporation, employing 53,000 people and managing operations in 95 countries. It was the largest producer of control…...

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