There is no doubt anymore that risk management has been the buzz world ever since the financial crisis broke out. Poor risk supervision was the cause of blaming and shaming of the high and mighty of the big corporation.
The risk factors that a multinational needs to take into account are many from health and safety issues, environmental hazards to events out of their control such as changes of the exchange rate or of the political environment. Although risks are difficult to assess, companies have become better at analyzing the present and predicting the future. This is why for most of them risk management is no longer a luxury, but a necessity.
The recent crisis has revealed that one of the biggest risks that corporations face is the high level of debt they took on. The question that comes to mind when we talk about risk managers in general is How can a company achieve an unbiased assessment of risks if the incentives for the top management to take on leverage at the expense of sound management are so high Conventional wisdom says that too much debt should sound the alarm; instead managers who knew that they come and go more quickly than they could predict, chose to circumvent the normal rules of caution.
Risk-management being such an embedded concept, managers tend to think that they are routine and thus largely predictable. The conventional approach is to make a list with what could happen and the negative impact on the business based on past events. The insufficiency of this thinking was clearly shown by the recent volcanic ash cloud which brought the European flights to a halt.
This is where external risk management consultants come into play. Their job is basically to identify the risks, assess their impact on the company and put together strategies to help companies overcome events when they happen. They are as familiar with the line of business for which they provide consultancy as the in-house employees, without running the risk of being pressured into making the wrong decisions just to please the boss. The virtues of good risk-management were obvious in the aftermath of devastating catastrophic events like Katrina. Companies that took risk management seriously were better placed to deal with the hurricane consequences.
Tags: buzz world, european flights, poor risk, risk management consultants, volcanic ash cloud