The House of Risk

Let me share a metaphor that illustrates my thinking about risk management – and how many only practice it partially.   Imagine a house. On a regular basis, inspections are conducted to identi…

Click on the following link for Norman’s discussion: normanmarks.wordpress.com

Dave Tate, Esq. comment.

Norman talks about risk management in everyday terms, bringing the discussion closer to home. In fact, risk management is almost in everything. Audit committee or board compliance with the business judgment rule, or with statutes, rules and regulations, for example, aren’t those also topics in risk management. Personal safety and safety processes – yes, those are risk management. Environmental safety and contamination – yes, those are risk management. Terrorism and related practices and processes to protect against and respond to – yes, those are risk management.

You can find several discussions about risk management in this blog, and in Tate’s Excellent Audit Committee Guide which you can find at the following link: Tate’s Excellent Audit Committee Guide 10242015

And, I have also pasted below a few of the comments that people have made to Norman’s post (with names redacted of course) – yes, risk management is not just adverse situations – instead it is uncertainty or risk that a situation or expected situation may or may not occur, including, for example, what if there are more people who want to buy your product than you have capacity or resources to produce:

These are all downside hazard/depreciation risks. What about the house as an asset/business enabler. Use for business leverage perhaps the existing triple play technology, provide customer entertainment and use tax laws in place for many years. Business is virtual and digital. Think outside the walls!

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I would always define a risk as resulting in a loss when it occurs. So, in your example I would say that the householder has an objective of maximizing the house’s value (in addition to the unstated objective of keeping the occupants safe). This brings new risks into play, such as ‘new business objectives are not identified’, ‘not all tax benefits are claimed’, ‘customers are bored and go elsewhere’.

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I respect your view of risk but agree with ______ that risk is the effect of uncertainty on objectives. It is not limited to adverse situations.

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A good analogy. The only problem is that more often than not the house people are too engrossed with day to day running of the house that an all-around check does not appear in the priority list. Even if somebody else does this reality check and presents the laundry list, the house people takes it as fault-finding and may not fix it until the roof starts really falling down.

 

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