Strategy and Risk Management

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WHY Is Risk Management Important to Us?

Reasons Why Formal Risk Management Is Vital to Success

“I take smart risks! That’s why we are successful.” Dana P.

New parents quickly discover that their child masters a one-word sentence that tests the parents’ wisdom: “Why?” No matter what you tell a child under the age of three, the response you get is, “Why?” The question itself is forceful because you are challenged to come up with a reasonable answer (other than, “Because I said so!”), and doing this keeps your brain synapses functioning.

It was a 41° Celsius May morning when I next met with PJ Investment’s (PJI’s) management team. I knew the managers of PJI were eager for me to answer the HOW question: “How do we practise risk management?” However this does not logically follow the WHAT question. You must accept the two reasons why formal risk management is vital to your business’s success before you learn the process and tools.

Reason 1

You already understand a generic reason using the mental image of a pitfall and the analogy of Murphy’s Law, but to correctly implement this strategy for longevity in business, you need more context or grounding. Children are always asking “why” questions because they know nothing about life as you the adult know it. So they ask you to provide them with an understanding (context) of the crazy, dynamic world they are encountering. Because you know very little about enterprise risk management (ERM), you too need a deep understanding of this perilous ...