of the individual portfolio managers, but rather measure risk for use by those with a vested interest in the process. The RMU cannot reduce or replace the decision methods and responsibilities of portfolio managers. It also cannot replace the activities of quantitative and risk support professionals currently working for the portfolio managers. Trading decisions and the related software and research that support these decisions should remain the responsibility of the portfolio managers and their support staffs. The RMU measures the extent to which portfolio managers trade in consonance with product objectives, management expectations, and client mandates. If the RMU finds what it deems to be unusual activities or risk profiles, it should be charged with bringing these to the attention of the portfolio managers and senior management so that an appropriate response can be developed and implemented. Examples of the Risk Management Unit in Action An effective internal control environment requires timely, meaningful, and accurate information flows between senior management and the rest of the organization. Information flows allow management to ask questions. Questions and the ability to probe into the process by which the business operates are fundamental to loss avoidance and profit maximization. Risk monitoring is principally concerned with whether investment activities are behaving as expected. This suggests that there should be clear direction as to what results and risk profiles should be deemed normal versus abnormal. It is our experience that the very best managers in the world achieve success in no small part because they have a time-tested conviction and a philosophy that has a stable footprint. For example, the best growth managers do not invest in value themes; the best U.S. fixed income managers do not take most of their risk in non-U.S. instruments; and so on. In fact, the premier managers remain true to their time-tested convictions, styles, and philosophies. Further, the best managers apply well-defined limits-expressed both in absolute terms as well as in marginal contribution to risk terms-on how they spend any given amount of risk budget. The result of this discipline is a portfolio that produces a return distribution that meets the following world-class standards: 11 It is consistent with client expectations. The risk capital consumed by the manager approximates the amount of risk budget the client authorized the manager to spend. II It is derived from organizational or individual strengths (e.g., stock selection, sectors of the market like growth or value, portfolio construction techniques, etc.). 11 It is high-quality in the sense that it is not the result of luck, but rather of sound organizational plans and decisions that have been executed in accordance with philosophy and conviction. II It is the result of a well-articulated and well-defined process and risk culture whose major elements are understood and embodied by the organization. II It is stable, consistent, and controlled. It produces results that can be explained and repeated across time with a high degree of confidence.