The Story of Risk

Our Natural Inclinations

Every day of our lives we sum up situations and make decisions. Sometimes we make the right decisions and other times our decisions are less than optimal. Our decision making can be active and passive. Sometimes we decide to do something and other times we choose not to do something. Sometimes the passive choice is not a conscious choice but merely an omission.

Influencing the Outcomes of Our Daily Lives

There is so much more happening in our daily lives. We take more chances than our ancestors ever did. Just think of driving in a car or of children and electricity. We live in an information age - in a world that has many more people than yester-year. How often do we stop to consider whether our children know how to get out of the home if there is a fire.

Opportunities and Winners

In the early days of merchants and trading, people very quickly analysed the upside and down-side of business opportunities. Risk was recognised as an opportunity. There would be some people that would gravitate away from risky ventures and others who would discover ways to influence outcomes and seize the opportunity. Those who were able to identify the opportunities to influence outcomes usually tended to be more successful.

Influencing Outcomes

There are many situations that we cannot prevent. In some cases such as storms at sea we may not even be able to have any influence over the outcome. So insurance derived its origins from the concept of the many paying for the few. Given the comfort that this provided, merchants were able to take greater chances resulting in greater benefits.

Evolution of Risk Management

None knew better than insurers of what could happen and what could go wrong. This was because the business of insurance lay in paying for losses incurred by customers. In order for insurers to be viable there needed to be a way of encouraging customers to exercise reasonable care and by rewarding good performance. And so risk management evolved from natural intuition and analytical thinking into a more formal process of communication of the actions to influence outcomes. In other words how carefully opportunities were being managed.

Managing Performance

Today businesses are larger and more competitive than ever before. Society is far less tolerant of poor performance. Government services are subject to increased publicity and public scrutiny - voters punish poor performance. Globalisation of communication and trading has lead to the endless pursuit of competitive edge. The demand for quality service and value has led to diminishing margins for error. Investors are demanding more and more information on how companies are managed. Borrowing money has become ever more competitive and linked to sound management of opportunities. Share prices reward organisations that not only deliver results but install confidence in the future by demonstrating care and diligence.

Managing Confidence

Managing confidence is the challenge of business and governments beyond 2000. The very notion of confidence relates to trust and predictability. It also focuses on stakeholders who by their very perceptions of predictability/confidence/risk will exert ever-increasing influence by punishing unpredictability and increasingly rewarding the generation of confidence. It goes without saying that the best cure is prevention and in cases where outcomes are subject to pure uncontrollable chance such as earthquakes, the generation of confidence through demonstrating preparedness for the unexpected.

Managing Success

If we can understand the pulse of risk and understand its delicate balance with opportunity we can influence outcomes and increase the chance of achieving our objectives whether they be individual, corporate or community. So we need to make the right choices and do the right things free of omissions by taking care. This is all about strategic thinking, analysing and attention to detail. Strategic thinking is one thing but converting it into the right action is what separates winners from losers. After all, who would you leave your children or your money with - someone who takes care or someone who cuts corners? The common sense laws of everyday life are the keys to the logic of business. Risk management is so simple that it is almost impossible to describe.

This is the story of managing outcomes through doing the right things and building confidence. You could even shift the paradigm and call it managing success.

So what we really are talking about is the phenomenon of risk.

By Jonathan Sesel

CURTESY ROTIMI OLUKOREDE