Editor: James Pickford
This 2005 book addresses the enduring issue of uncertainty faced by businesses and financial organizations regarding risks and uncertainties in the market. It offers a number of insights with which these organizations can attempt to master their uncertainties, capture and exploit opportunities, and recognize threats in time.
A selection of the facts included:
Political risk deters companies from investing in unstable regions. If they do so, they should engage with the communities where they conduct their activities. The situation in the insurance market shows how managing the risk of terrorism has become a challenge for the business world.
There is a delicate balance between risk and reward: while most think that risks should be avoided, taking risks is also a source of opportunities. “Knowing more than others about the nature of a system offers a crucial advantage. The question remains how much attention executives pay to the external characteristics of their business environment.
Diversification protects companies against unforeseen events that threaten one of their core activities. The price is a higher complexity of the company and the risk that limited resources are spread too thin. It is, therefore, a good idea to keep reserves on hand.
Sometimes failing can be better than always succeeding in your endeavor, but you must be able to learn from your lessons to come back stronger. Success narrows the field of vision, and then you can no longer soberly evaluate your own capabilities. However, successes are usually overvalued and often confirm the management’s strategy too much. If you only learn from success, failure becomes inevitable in the long term. So, some focus on small and medium-sized failures is a good thing.
Risk management usually relies on tangible and quantifiable things. But scenario thinking – “remembering a range of future possibilities” – is also important. Based on this, you can devise measures to avoid or even utilize major potential risks.
Enterprise Risk Management considers the potential impact on the entire company, rather than the classic risk management that was previously developed per ‘pillar’. The problem with this is primarily a lack of integration. Risks are too often viewed in a fragmented way at a micro level (Vinaya Sharma), and there is often poor or no linkage between risk assessments and strategy.
Differences in culture and risk orientation in mergers and acquisitions are usually a source of friction. As a result, great successes in this area often fail to materialize.
Innovation is inherently risky: you innovate by undertaking something and making changes. This involves managing uncertainties by a. accepting this fact.
A measure that only accounts for downward sensitivity can be an instrument for insight into the performance of assets.