Risk Management Learns from Sun Tzu
Usually risk managers do not think of themselves as being at war. But a risk manager is facing a number of foes. And failure to succeed against those foes can result in the end of the enterprise. So maybe the risk manager can learn from The Art of War.
Sun Tzu’s The Art of War has 11 chapters. Each of these topics can be seen to have a lesson for risk managers.
- Laying Plans explores the five fundamental factors that define a successful outcome (the Way, seasons, terrain, leadership, and management). By thinking, assessing and comparing these points you can calculate a victory, deviation from them will ensure failure. Remember that war is a very grave matter of state. The risk manager of course needs plans. Remember that risk management is a grave matter for the enterprise.
- Waging War explains how to understand the economy of war and how success requires making the winning play, which in turn, requires limiting the cost of competition and conflict. Risk management does not run on an unlimited budget. In some cases risk managers have not completed their preparations because they have gone forward as if they could spend whatever it took to fulfill their vision for risk management. Of course risk management spending needs to be at a sensible level for the enterprise. Excessive risk management spending can harm an enterprise just as much as an unexpected loss.
- Attack by Stratagem defines the source of strength as unity, not size, and the five ingredients that you need to succeed in any war. The risk manager succeeds best if they are able to get the entire organization to support the risk management efforts, not just a large corporate risk management department.
- Tactical Dispositions explains the importance of defending existing positions until you can advance them and how you must recognize opportunities, not try to create them. The risk manager needs to build organizational strength to support risk management opportunistically. A risk management program that does not wait for the right opportunities will create internal enemies and will then be fighting both the external risks as well as the internal enemies.
- Energy explains the use of creativity and timing in building your momentum. The risk manager also needs to be creative and needs to build momentum. The best risk management program fits well with the culture of the organization. That fit will need to be developed by creatively combining the ideas of risk management with the written and unwritten parts of the organizational imperatives.
- Weak Points & Strong explains how your opportunities come from the openings in the environment caused by the relative weakness of your enemy in a given area. Quite often the risk manager will know the right thing to do but will not be able to execute except at extreme danger to their position in the firm. The openings for a risk manager to make the moves that will really lake a difference in the future of the firm come infrequently and without warning. The Risk manager must be looking at these openings and be ready and able to act.
- Maneuvering explains the dangers of direct conflict and how to win those confrontations when they are forced upon you. Some thing that the risk managers job is the direct conflict with the important people in the firm who would put the firm in an excessively risky position. This in inadvisable
- Variation in Tactics focuses on the need for flexibility in your responses. It explains how to respond to shifting circumstances successfully. Risk Management tactics will be the most successful if they are alligned with the actual risk environment. See Plural Rationalities and ERM.
- The Army on the March describes the different situations in which you find yourselves as you move into new enemy territories and how to respond to them. Much of it focuses on evaluating the intentions of others. Rational Adaptability is the process of assessing the risk environment and selecting the risk management strategy that will work best for the environment.
- Terrain looks at the three general areas of resistance (distance, dangers, and barriers) and the six types of ground positions that arise from them. Each of these six field positions offer certain advantages and disadvantages. The risk environment has four main stages, Boom, Bust, Moderate and Uncertain.
- The Nine Situations describe nine common situations (or stages) in a campaign, from scattering to deadly, and the specific focus you need to successfully navigate each of them. Companies must determine their risk taking strategy and their risk appetite by looking at the risk environment as well as at their risk taking capacity.
- The Attack by Fire explains the use of weapons generally and the use of the environment as a weapon specifically. It examines the five targets for attack, the five types of environmental attack, and the appropriate responses to such attack.
- The Use of Spies focuses on the importance of developing good information sources, specifically the five types of sources and how to manage them.
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