When risk management was in its infancy, it was firmly rooted in the financial sector. Investment banks advised their clients on financial and market risks, and referred them to insurance brokers to cover the rest.
That was risk management in a nutshell.
In the wake of high-profile market fraud cases and the global financial crisis of 2008, new legislation and controls in the financial world resulted in accountants and auditors bringing the language of their professions to the practice of risk management.
Phrases like “paid loss retrospectivity” and “catastrophe call option spread” found their way into the risk management lexicon. Such language can be confusing and intimidating (not to mention dull) for those outside the financial professions, and, quite frankly, effective risk management at the small- and medium-size business level usually doesn’t require it.
Enterprise Risk Management (ERM) now resides at the centre of effective business planning and decision-making. Insurance and hedge funds still play a part, but risk management now concentrates squarely on the uncertainties surrounding the goals and objectives of the organization:
What are you trying to accomplish?
What might go wrong?
Are you ready to pursue unexpected opportunities?
(For an interesting discussion on the evolution of risk management and Enterprise Risk Management in particular, see James Lam’s Next Frontier: Performance-Based Continuous ERM.)
Want to know more? I’d love to hear from you. If you have questions, comments or want to geek out about risk management, contact me: