Sunday, May 11, 2008

Risky compared to what?

The risk management approaches typically employed by companies seem off base to me. (I think financial services companies usually do this well when not caught in the throes of the lunacy that overtakes them every few years.)

The error is in the baseline assumption they make. That assumption is usually one of a risk-free world. Therefore, any initiative they are considering can only increase their risk profile. If they perceive the reward as higher than the risk, they proceed.

But I think this sets too high a bar. Because they do not consider the risk of doing nothing. Risk is just a part of life. In a dynamic world you are always at risk of obsolescence. In other words, you must run forward just to stay in place.

By forcing ourselves and our managers to answer the "compared to what?" question, we can hopefully adjust the baseline so that more initiatives will be approved.

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