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The global banking system is facing a severe liquidity crisis: In the first half of 2008, major financial institutions wrote off nearly $400 billion, causing banks around the world to initiate emergency measures. Similar crises have occurred within recent memory: Think of S&Ls, the dot-com bust, and Enron. Risk is, quite simply, a fact of corporate life - but because risk-management research has increasingly emphasized mathematical modeling, managers may find it incomprehensible and thus shy away from powerful tools and markets for creating value. Buehler, Freeman, and Hulme, all with McKinsey, describe the evolution of risk management since the 1970s, show how new markets have changed the landscape in both financial services and the energy sector, and explain what it takes to compete in the current environment. To demonstrate how significant a factor risk can be when incorporated into strategy and organization, they take the case of Goldman Sachs - which, despite its reliance on highly volatile trading revenues, has so far avoided the big write-offs that have afflicted its leading competitors. The authors believe that this is because Goldman takes the antithesis of the typical corporate approach - its culture embraces rather than avoids risk. And, they say, Goldman very efficiently employs all four of the following factors: (1) quantitative professionals; (2) strong oversight; (3) partnership investment; and (4) a clear statement of business principles, with emphasis on preserving the company''s reputation. Staying on the sidelines of risk management may have shielded some companies from crisis, but it has also prevented them from growing as quickly as they might have. In their companion article, ''Owning the Right Risks,'' the authors outline a process that will enable executives in any company to incorporate risk into their strategic decision making.