The Universal Manager - Dossier 01 - Risk Management

from preface by Darren O'Conor

Dealing with risk has burgeoned over the last few decades into an important and distinctive area of management and one that is increasingly being recognized as an essential part of any successful enterprise.

In some ways, we might be forgiven at expressing a little surprise at the speed of this development; after all, we all know that 'risk' accompanies all of our activities, both personal and professional and we have all learned to live with it, more or less successfully. So far as our private lives are concerned, we know there are statistical risks associated with such commonplace activities as flying, driving a car, playing a contact sport, eating certain foods and so on but are usually willing to accept these as a necessary price of convenience or pleasure. We might also, without realizing it, apply some simple, everyday risk management by, for example, deciding not to drive on a busy motorway in bad weather or choosing to fly only with airlines we consider 'reputable'. The Plan B approach - 'If I'm not there by 4 o'clock, I'll meet you back at the car' - is another example of every-day risk management.

On a professional level, we are used to associating risk with such activities as insurance, speculative investments, working with hazardous chemicals and so on. Some of us, in fact, might view 'risk management' as a normal, every day part of our job. Certainly, we will all, almost without thinking, add a contingency factor to any estimates we are required to make although few of us on these occasions will actually attempt to identify and assess what exactly we are guarding against.

Risk management goes far beyond the simple acceptance of risk and now embraces every modern-day enterprise, from the commercial worlds of banking, insurance, IT, and marketing through to medicine, health and safety, hi-tech industries such as nuclear and chemical plants and off-shore oil and gas installations to all major aspects of public and political life. It is an increasingly integral part of design, development and project management, the siting of factories and public utilities and, through growing public awareness, influences much of our lifestyle and many of our personal decisions.

With such a wide-ranging field, it is well nigh impossible to develop an all-inclusive definition, one that will apply equally well to all areas of industry and commerce. But broadly, it embodies a style of management that seeks first to determine and then either to minimize or control tangible risks such as fire, mechanical or systems failure, security, etc. or to avoid, or enhance the benefits from, speculative risks such as financial or commercial investment.

Risk management involves two distinct but inseparable components:

• First, we have to identify and then quantify risks. Unless we do so, we have no means of deciding if a risk is worth taking or which of a number of courses of action offers the greatest chance of success. This is part of the risk assessment stage and is seldom a simple process, not least because the methods we use and the form in which we need the information will depend very heavily on the nature of our business.
• Second, there has to exist a business environment that makes risk analysis an integral part of its operation and adopts a positive, proactive attitude to generating and using the information. This is the essence of the risk management phase.

These two halves must be treated as one single requirement if the overall process of risk management is to succeed. From an organizational standpoint, a 'risk assessment' unit might well exist as a distinct department but its whole ethos - its way of thinking about risk so as to avoid it, or control it, or seek maximum benefit from it - needs to permeate the management function throughout the entire organization.

From Risk Management (UMDP01), The Universal Manager ISBN 0 948672 72 2
Published by Scitech Educational Ltd.

Available September 2000