Riskless?

By Rick Nason, PhD, CFA
Partner, RSD Solutions Inc.

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If asked, most managers will tell you that the goal of risk management is to reduce risk.  Ok – that is pretty simple.  However, what does it actually mean, and what are the logical consequences of this simple statement?

If the goal is to reduce risk, then reducing risk to zero presumably would be ideal.  However what does a riskless organization look like?  How successful would a riskless organization be?  What future would a riskless organization look like?  Would you like to work for a riskless organization?

I fully realize that I am employing the trick of taking an argument to its extremes, and I am also aware of many of the traps of doing so.   However in this case I think there is a strong case to be made to consider what exactly the consequences of a riskless organization would be – particularly as that seems to be the objective of many regulators.

A few quick observations of a riskless organization would be one that would be run by a computer – for without risk, there is no need to manage anything.  A second observation is an organization that would never implement anything or create anything new.  A third observation is that a riskless organization would be the riskiest of all as it would be existing in an island by itself in our inherently risky world that would quickly overtake it and crush it.

The goal of risk management should not be to eliminate risk, but to take on smart risks and to take on smart risks in an intelligent way.  Risk is not to be avoided, risk is to be embraced – albeit properly.