TaxPersonal TaxThe importance of taking risks.

The importance of taking risks.

One thing to come out of the fuel crisis is the highlighted need for risk management. But for it to be a success it needs support at the very top.

Mention the word ‘risk’ to most people and they immediately think of danger and the potential losses that will be incurred.

It’s a very human reaction linked to self-preservation of course, but there is an alternative view. There is the obvious downside to risk but equally there is a risk upside. Risk can also produce beneficial change and opportunity – if it is managed properly.

In my view risk management is everyone’s problem and of course everyone’s opportunity. No-one can claim total ownership or mastery of risk because it affects every aspect of business life. Because of the diverse and widespread nature of risk, the role of risk management has imprecise boundaries.

Although at its core as a function, there are basic disciplines such as risk identification, risk assessment, risk control and risk strategy, a risk manager can often find the management of a specific risk project will require knowledge and expertise from other business functions.

To manage risk well, I believe risk managers (and their organisations) need to liaise and consult with fellow professionals within their company on a regular, almost constant basis.

Corporate functions that may be disparate or insular need to rid themselves of the silo mindset of ‘doing their own thing’. Organisations need to break down barriers to co-ordination and harness the full range of skills, knowledge and resources available in order to manage a risk concern well.

I see the management of risk as a virtuous circle – ‘a beneficial recurring cycle of cause and effect’, as The Oxford English Dictionary defines it.

This concept relates to the process and culture of risk management.

The virtuous circle concept breaks down barriers by creating a partnership approach among professional disciplines that can result in a risk management strategy that is greater than the sum of the parts.

Co-operation, co-ordination and communication should become the watchwords of professional disciplines involved in risk – whether it is accountancy, risk management, health & safety, quality control or internal audit, or any others. And I see the risk manager acting as driver of the concept, acting as facilitator and as a reporting focus. Some organisations actively support this sharing of risk knowledge and awareness by establishing a Risk Committee or Risk Council, drawn from representatives of relevant management functions.

Either way, the concept needs support from the highest level of management to succeed; from directors who see and appreciate the strategic value of integrated risk management; from people who don’t view risk with fear but treat it with respect, understanding and an upbeat view.

Alex Fleming is chairman of the Association of Insurance and Risk

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