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The Dimensions of Risk - December 1998

By Michael Vincent

28 December, 2006

We live in the age of information and technology, this is a risk as we can be overwhelmed by trivia and detail; there is in today's world far too much information for an individual to absorb readily.  Risk management is about management of the unexpected and in order to be prepared successful risk managers will have the skill in managing access to and identifying appropriate sources of information.

 

Even today risk management is in the eye of the beholder and largely discipline based, largely building on the individuals' background.  Still today the most commonly occurring indicator is the insurance background with a reporting channel through the finance area.   There is a slow recognition of the true value and place of risk management within an organisation, however by the work of a dedicated few the holistic approach to risk management is gaining wider acceptance as a legitimate form of business management.  The risk manager is he or she from, an engineering, a finance, an insurance, occupational health and safety, legal or security background.  All of these and more lay claim to the profession;  indeed all are right and all are wrong.

 

We seek information about the environment of risk in order to solve our problems but do we research widely enough, indeed what are the dimensions of the risks faced and what should we look at?

 

A successful risk manager will look at the business environment, the economic situation within the environment, the international environment and how that will impact on the firm.  They will also look at the legal aspects appropriate to their needs and have a good understanding of the role of politics within the decision making environment.  In order to set in place a working framework for risk manager they also need to understand the organisation and physical environment and have a good grasp on human behaviour.

 

Seems too hard, seems to ask too much of one individual, perhaps.  However by a disciplined approach to information an individual can add immense value to a firm and have a significant positive impact on the future.  Is that not an outcome of the role of the risk manager?

 

Information is multi-layered and an individual needs to have a strategy of access and a good knowledge of sources of information. 

Principle sources are:networking, conferences, educational courses, training courses, books, journals, magazines, on the job experience, the internet and organisation learning.

 

When commencing a search for information one needs to develop a discipline so as not to be overwhelmed by the result.   It is appropriate from an individual viewpoint to develop a layered approach to gathering so as to make the process manageable.  A suggested structure based on ease of gathering could be:

1. talking to others within a network

2. reading newspapers, magazines and professional journals

3. reading books on the issues

4. attending conferences and meetings

5. use of technology.

 

Technology has changed our lives sometime even for the better, however it is still in its infancy, the following factors need to be considered when embarking on a technology search:

           

1. The internet is still in its infancy, searches are still slow and a large number of people do not possess the necessary equipment.

2. Cable access is a quicker method of information access but still today relatively expensive. Even the fastest modem can be slow based on the quality of the telephone line being accessed.

3. The contents of the internet are varied and largely advertising or rubbish. The ability to discriminate in the search process is still slow and mechanical based on the user's ability to enter search information and refine that search until success.

4. The absolute size of the internet means that even the most powerful search engine will probably not have access to more than 40% of the whole, accordingly two or more searches via different engines are necessary for a wide coverage of the available sources of information.

 

An internet search will give you joy and heartache, if you prepare yourself then the blood pressure can be controlled.

Frustrations:     

1. Expectations of the outcome of searches.

2. Computers are basically stupid, we should dominate them, not the other way.

3. The speed of access and reply.

4. Inability to find or refine the search enough to gain meaningful information.

5. Time as a resource issue.

Highs:                

1.Finding that someone else has solved your problem.                    

2. Growth of personal knowledge.

3. Demonstration of professionalism.

4. Contribute to the evolution of the discipline as a separate entity.

5. Add value to the organisation and industry.

 

Information is power, access to sources of information that are appropriate for you is the key to power and the key to power leads to influence.  The risk manager needs to have the ability to influence the decision makers within the firm.  Understanding the use of and the sources of information is the pathway and in order to find the path the following steps are recommended:

 

1. Define what you are looking for.

2. Decide the best source of information

3. Know the resource limitations.

4. Go searching.

5. Refine the quest.

6. Have a good network.

 

To you and your families have a happy and safe Christmas and may 1999 bring you success in risk management, I look forward to talking to you again then.     

 

 

About the Authors

Department of Accounting and Finance

Faculty of Business and Economics

Monash University

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