Is Your Company HQ located in Denial?
Denial is a popular place for companies to locate. That is because Denial is a much more economical location than living in reality.
Companies who are headquartered in Denial do not have to think consciously about risk management. It is inherent in their everyday business practices. They do not need to appoint anyone to be their risk officer. They do not need to schedule sessions with their board to ever talk about risk. They always talk about risk with their boards.
True ERM has a very difficult time getting started in a firm headquartered there. That is because of the cost structure in Denial. Those firms are used to paying exactly zero for risk management. They get to realize ALL of the profits of their choices, without deduction for risk management drag.
If you propose ERM to a firm that is located in Denial, you will have them ask for you to:
Show me how ERM adds to value.
Usually, with a smirk on their face, because they are sure that you cannot.
But for those who live outside Denial, they might ask the opposite question:
Show me how ignoring risk adds to value.
To them it is pretty obvious that a firm that has gone out of business has zero value. So any strategy that reduces the chance of going out of business has the potential to have a positive impact on firm value.
Some prefer to live all the time in Denial, some just visit occasionally.Enterprise Risk Management comment below, or link to this permanent URL from your own site.