Strategic Risk Taking: A Framework for Risk Management

Chapter 12. Risk Management: First Principles

If there is a theme that runs through this book, it is that risk underlies and affects every decision that a business makes, and that risk management is not just risk hedging. In this chapter, we review what we know about risk in general and how best to deal with it in practice, and we restate 10 principles that should govern both risk assessment and risk management.

1. Risk Is Everywhere

Individuals and businesses have only three choices when it comes to dealing with risk. The first choice is denial: we do not acknowledge that risk exists, and we hope it goes away. In this idealized world, actions and consequences are logical, and there are no unpleasant surprises. The second is fear: we take the ...