Some More on Risk Management
By asparks on Nov 30, 2010
Trawling through my email folder of action items I cam across an unread MIT Sloan Management Review newsletter. Good value for the money (free!). An article on Risk Management caught my eye – read it here.
Not bad – it makes the point that “…the answer lies in the concepts and practices of traditional risk management, which tend to look for risk in all the wrong places.” The authors then go on to spend a lot of time praising the Bayesian approach to estimating risks over the Frequentist approach. OK as far it goes – and the reference list of books is also worth noting.
I liked Hubbard’s discussion on the subject better – particularly the point about maintaining a certain level of skepticism about the efficacy of your model and a healthy curiosity about off-model risks.
This does create a credibility problem for risk managers though.
If we prevent issues before they occur, it is easy for “the business” to become complacent and RM is easily accused of being pessimistic worrywarts. If the issue does occur – there is never any mileage in the “I told you so” approach.
So perhaps the biggest challenge facing RM is one of communication and awareness building – so that *everyone* keeps a weather eye on things that could go wrong, rather than just leaving it to RM to inspect it in. Much like the Quality revolution in manufacturing late last century.