If you can’t manage risk, you can’t control it. And if you can’t control it you can’t manage it. That means you’re just gambling and hoping to get lucky.
(J. Hooten, Managing Partner, Arthur Andersen & Co., 2000)
The increasing pace of change, customer demands and market globalisation all put risk management high on the agenda for forward-thinking companies. It is necessary to have a comprehensive risk management strategy to survive in today’s market place. In addition, the Cadbury Committee’s Report on Corporate Governance (1992) states that having a process in place to identify major business risks as one of the key procedures of an effective control system is paramount. This has since been extended in the Guide for Directors on the Combined Code, published by the Institute of Chartered Accountants (1999). This guide is referred to as the ‘Turnbull Report’ (1999) for the purposes of this book.
The management of risk is one of the most important issues facing organisations today. High-profile cases such as Barings and Railtrack in the UK, Enron, Adelphia and Worldcom in the USA, and recently Parmalat, demonstrate the consequences of not managing risk properly. For example, organisations which do not fully understand the risks of implementing their strategies are likely to decline. Marconi decided to move into a high-growth area in the telecom sector but failed in two distinct respects. Firstly, growth was by acquisition and Marconi paid premium ...