Why do risk and risk management mean different things to different people? For some, risk implies exposure to the chance of injury or loss; for others, it signifies variation in the expected outcome. Some mistake it with uncertainty. For some it denotes events, expected or unanticipated, with an adverse impact on capital or earnings. For yet another set of people, it stands for anything that creates problems in meeting business objectives. This article enlists the various myths about risk management and lucidly demystifies them.
One topic that engages the instant attention of all decision-makers, from the cross section of public and private companies, profit making and non-profit making companies - established, start-ups and fast growing companies, these days is "risk management". The reason for the same can be assigned to over-exposure of companies to risks due to the pace of change, expanding business arenas and products, resource constraints and streamlining, growing openness and accountability, continual organizational change, regulatory attention and developments and well publicized loss and failure events like Enron and WorldCom. These events are adding new dimensions for creating risk awareness and managing risk among present day managers versus their counterparts a decade ago. But why is it that in spite of increasing importance of risk in the decision-making process at all levels of an organization, there is no consensus among decision makers on the correct interpretation of the word "risk" and on the topic of risk management. Why do risk and risk management mean different things to different people? For some, risk implies exposure to the chance of injury or loss, for others, it signifies variation of expected outcome. Some mistake it with uncertainty, for some, it denotes events, expected or unanticipated, with an adverse impact on capital or earnings. For yet another set of people, it stands for anything that creates problems in meeting business objectives. Similarly, some executives think of risk management as a value protection or value preservation mechanism, while others are of the opinion that risk management can be an effective framework for value generation and exponential growth. Whatever may be the case, the common features of risk and risk management include planning for a future event having an uncertain outcome and potential for loss (gain as well). That explains the need to review and reexamine the misconceptions about risk and risk management with an explicit objective of making available some broad conceptual understanding on the subject. |
