Risk Risk Analysis

The other day, my boss asked me for the risk risk analysis report. You know, the one that shows the ratio between risk and risk for all of the activities of the firm. We are planning to make some important strategic decisions and we want to make sure that we are planning for enough risk, but do not want to be exposed to too much risk.
This report is being prepared for the Chief Marketing officer. Her job is to make sure that the company meets its risk goals each quarter, while the Chief Risk Officer is responsible for making sure that she does not expose the company to too much risk while doing that.

Of course, no one actually talks like that.  But many risk managers will adamantly claim that the definition of Risk must include both upside and downside.  That is usually followed with a statement about the importance of Risk and Reward management.  They do not seem to notice that it only took them one sentence to go back to the old definition of risk as downside potential.

There is nothing wrong with having risk and reward as separate ideas.  In fact, that is pretty much how the English language works.  Risk Managers who are trying to force people to think otherwise are fighting a losing battle.  And they actually lose it with the words out of their own mouth, thereby appearing foolish.

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One Comment on “Risk Risk Analysis”

  1. riskviews Says:

    The idea of “defining” risk to mean something other than the common usage of the word has always struck me as at best counterproductive and at worst Orwellian. There are plenty of good English words that can be used to express the concepts that you are using.
    It sounds like a janitor who is in charge of sweeping up, so he tells everyone that “sweeping” really means managing the Asian division.
    The ORGANIZATION needs to attend to both the upside and the downside. When the person who has been assigned to look after the downside starts to focus more attention on the upside, then the organization should hire another person to pay attention to the downside and then must decide whether to retain that former risk manager or not.
    If the firm never wanted to actually pay any attention to the downside, they will be happy that the risk manager has discovered this idea of redefining the word risk. But that does not make what they are doing actually risk management.


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