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. 

Reactions or Decisions?

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

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Winston Churchill said that, “Fear is a reaction.  Courage is a decision.”  Much of what passes for risk management is undeniably fear based.  It unfortunately is not based on a proactive basis of making courageous decisions about moving forward.

As I have written many times, risk management should not be about preventing bad things happening, but instead risk management should be about how we can do things better so as to take advantage of uncertainty – that is managing so as to increase the possibility and magnitude of good events happening while mitigating the probability and severity of bad things happening.  If fear is the basis of risk management, not only is it missing half of the equation, but it is also simply just reacting to the last crisis, and not allowing the organization to intelligently go forward.

Ultimately it comes down to if your risk management is fearfully reacting or courageously deciding.

Illiterate

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

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The futurist Alvin Toffler passed away last month.  He is perhaps best known for his book Future Shock, or for coining the term “Information Overload”.  He was an astute observer of how technology was changing the workplace and indeed our everyday lives.

Often asked about the characteristics and skills needed to succeed in our evermore technological world, Mr. Toffler had this to say; “The illiterate of the 21^st century will not be those who cannot read or write, but those who cannot learn, unlearn and relearn.”

In risk management I fear that we may have forgotten how to learn, unlearn and relearn.  Perhaps it is time to take stock of what assumptions, strategies, tactics and measures of risk management that you need to learn, unlearn and relearn.