The Failure of Risk Management, 2nd Edition

CHAPTER 13The Risk Community: Intra- and Extra-organizational 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 how to fix risk management. The continued use of risk assessment methods 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.

We will wrap up this book with a few important notes about organizing the team, managing the model, incentivizing the desired performance, and developing solutions ...