Perfect

 

*/By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc/*

What if everything was always perfect with a company?  In other words, what
if a company never made a mistake, never had a debacle, and never made the
front page of the business news for all of the wrong reasons?  Furthermore,
what if projections were very clear that this good fortune would continue
indefinitely into the future?   Such a company is obviously fictitious, but
would our fictitious company still need a risk management unit?

Those who argue that risk management is solely to take care of downside risk
would clearly answer no – the company would not need a risk management
unit.

Those who subscribe to the idea that risk is maximizing the probability and
magnitude of good risk events happening, while also managing so as to
minimize the probability and severity of bad risk events would argue yes.

Just because a company does not suffer downside risk does not mean that it is
perfect.  If anything it probably means that the company is stale and far
from maximizing opportunities.  In fact, it is likely that a company that
never experiences downside risk is a company most in need of a competent risk
management unit.