The Failure of Risk Management: Why It's Broken and How to Fix It

CHAPTER 12

The Risk Community: Intra- and Extraorganizational Issues of Risk Management

Take calculated risks. That is quite different from being rash.

 

—GEORGE PATTON

 

Prediction is very difficult, especially about the future.

 

—NIELS BOHR, NOBEL PRIZE-WINNING PHYSICIST

 

 

Most of this book is primarily focused on methods for the analysis of risks and decisions. That is certainly a key to answering why risk management is broken and how to fix it. The continued use of methods to assess risks in ways that are no better than astrology would make any improvement in risk management impossible. But if you were to implement better methods for measuring risks, then you would have much better guidance for managing risks.

To achieve an improvement, however, your organization has to have a way to deal with barriers that are not part of the quantitative methods themselves. You need to break organizational silos, have good quality procedures, and incentivize good analysis and good decisions.

The management side of the issue requires some larger-scale solutions that involve collaboration within the firm and may eventually need to go beyond the borders of the firm. Fixing risk management will involve a level of commitment from your organization that goes beyond superficial measures such as declaring that you have a “formal risk process” or even appointing a “risk czar.”

GETTING ORGANIZED

Dr. Sam Savage sees the organizational management and quality control issues to be at least as important ...