by Rick Nason, PhD, CFA
Partner, RSD Solutions Inc.
As a professor and lecturer on risk and enterprise risk management I see and take the time to study a lot of different risk frameworks. However there is one risk element that I rarely ever see mentioned. That risk is political risk – and I do not mean elected officials risk, but instead the mundane but ever present day to day water cooler office politics risk.
An organization is a collection of people that interacts with other organizations which are also a collection of people. (I am assuming that your company or organization is not 100% machines and that all of your customers are also not 100% machines.) Whenever you have people interacting with people – either internally or externally – you will have politics. Whenever you have politics you have political risk. Where does that show up on your ERM system?
A perhaps even bigger form of political risk is the games played by senior management as they jockey for position. Does your ERM system capture that inherent risk?
What risk mitigants does your firm have in place to identify, measure and manage political risk? Is it getting better or worse at your organization? Do you know?
Oh – and by the way – there is also the risk of elected officials doing something silly that effects your plans and forecasts as well.
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