When Risk Management Becomes Risk Aversion


What is risk management really all about? What problem is risk management solving? Often when I hear the term risk management I think fear. And process. And the death of innovation. Risk management is about avoiding mistakes and not taking chances. It is a reaction to a bad situation. It is an attempt to regain control over a situation which has spiralled out of control- or has appeared to. We all know, or we should know, that strategies that are reactionary and fear-based rarely work and often take the organization down awhich is worse than the one they are trying to avoid.

Risk management makes sense in some situations. For example, the securities fiasco on Wall Street in the mid-2000 cried out for risk management- and the need to wrestle control away from companies and individuals who forgot that their jobs were to serve their clients. Risk management didn’t happen because there was too much money being made. Who was going to put a dent in that by enforcing compliance and risk control? When things began falling apart, the first reaction was outrage and then the quick passage of new regulation (Sarbannes-Oxley) , some of which didn’t address the fundamental issue. However, risk management was appropriate in this case.

When risk management, however, is integrated into your culture and into all of your decision-making, then it is a stifler of interesting thinking. When everything you dream about has to be assessed against the risk metrics, then how can you be free to create? Everything has a downside. No entrepreneur would ever forge ahead with a new business if he or she ran a risk assessment. If you only agreed to move forward with your business idea if you could mitigate the financial risk, pre-qualify a client base, ensure that your product or service was exactly what the market wanted (without a tweak)…. Well, you’d never launch anything. Some of the best businesses, the most successful entrepreneurs and the most interesting people launched failed products, ideas and services. If after their failures these entrepreneurs declared they needed a risk-management strategy, that would likely be the end of their entrepreneurial career.

So, be careful about risk management. When you find yourself reacting to a bad situation by reaching for the risk management bromide, stop and ask yourself why you are about to head down this particular road. Is it fear? Is it reducing real risk- or perceived risk? What is the consequence for your team, your organization and your customers if you run all new ideas and actions through a risk management lense? I I challenge you to ask yourself these questions. And be willing to tell yourself the truth.

So, what do you think ?