Most people think of risk management as an insurance policy, the price paid to help prevent potentially negative outcomes from being realized by their company. Such a view leads to the conclusion that risk management is a business expense with a highly subjective value proposition.
We at StrategyDriven would suggest the insurance view of risk management is far too narrow. Instead, effective risk management enables a company to accelerate its business operations and to become more aggressive in the marketplace; approaches that in today’s fast paced environment is immeasurably valuable.
An analogy we use is that instead of correlating risk management to an insurance policy, leaders should think of it in terms of a high performance automotive breaking system. High performance breaks, such as those on racing cars, enable the driver to reach higher rates of speed while still maintaining the same level of safety as slower drivers whose cars have less capable breaking systems.
In the case of an effective risk management program, earlier warning of potentially adverse events occurs such that less costly adjustments can be made to avoid those risks; allowing the organization to speed its decisions and actions while maintaining the same risk profile as a company employing a less effective risk management program. Thus, an effective risk management system serves as both an insurance policy and a performance enhancer.
About the Author
Nathan Ives is a StrategyDriven Principal, and Host of the StrategyDriven Podcast. For over twenty years, he has served as trusted advisor to executives and managers at dozens of Fortune 500 and smaller companies in the areas of management effectiveness, organizational development, and process improvement. To read Nathan’s complete biography, click here.
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