Effective risk management is an integral part of value creation and preservation
In the “good old days” of the post-World War II era, buffers of space and time gave organizations more leeway to react and adapt. Events in remote places seemed to have little impact and were more insulated. Information was available to a relative few, whose power came from their specialized knowledge. Centralized systems of management and control seemed to work. Problems could be reduced to their components and managed separately. Most assets were thought to be tangible and could be protected. Most risks were thought to be known or knowable, and their likelihood predictable. Risks appeared to be far less interdependent.
This is an excerpt of Surviving and Thriving in Uncertainty, Creating the Risk Intelligent Enterprise by Frederick Funston and Stephen Wagner (Wiley Books, 2010).
Conventional risk management focused on asset protection, typically in the form of insurance. It was also believed that risks could be identified and managed within silos and that risk aversion would maximize shareholder value. Risk was typically seen as a cost, not an opportunity. Risk management programs took “one size fits all” forms. For these and many other reasons, conventional risk management has failed.
In the turbulent and uncertain 21st century, the buffers of space and time no longer exist. Information has become instantly available. It still confers power, but now everyone has it. Communities of interest can form overnight. Centralized control often fails in the face of turbulence. Fixing pieces no longer solves problems. Many assets are now intangible and cannot be protected in traditional ways. Many risk events are unknown and perhaps unknowable. Read more >