Where is risk management going?

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Theoretical scientists spend many hours considering the universe and everything in it, about it and around it.  They ponder the very fabric of how things are made and also determine the theories around everything scientific in nature.

Does this have anything at all to do with risk management?

Without a doubt the answer is yes, but the current expectations of risk management are about frameworks, tools, advice and assurance.  When people get together and talk about improving risk management practice they generally spend all their time on these 4 areas.

But how do these areas predict the greatest events of all time that have impacted the corporate world?  Does providing a risk management framework containing risk and controls stop a global financial crisis? Does implementing a new enterprise risk management tool predict the invention of the personal computer? Do techniques in providing risk advice predict a terrorist attack? And finally, does checking the effective operating of business controls predict that electronic books and music will become the norm?

Before you call me a heretic, I am not saying these 4 areas are not required.  On the contrary, they are the core and backbone of running a good business.  Not a great business, or an innovative business, but just a good, solid business.  Of course it is risk management, and if to make it happen in your organisation you need to label it that way, then if it achieves that purpose, it is correct to do so.

However, is that the future of risk management?

I propose a 5th area for risk management – let’s call it theoretical risk management.  For those that love acronyms, TRM.

TRM should be something all Universities provide time to consider and provide potential Nobel Prizes or Academic credentials, such as being a Professor, when someone devotes their life to this.  Quite simply, if this was the case, maybe, just maybe, someone would have predicted some of these future events.  Maybe not the exact date, or even the exact outcome, but the attributes of the events.  This information could then have been used to prepare better for the future.  As time progresses perhaps what is a theory could be supported by historical evidence that even does predict future events and their nature.

We all know if we stepped back in a time machine we all could have predicted the death of the CD.  The writing was on the wall.  The personal computer (PC) was growing in popularity and software was being written at astonishing rates.  The PC was providing a way of turning thousands of pieces of information into electronic messages that could be shared across the globe.  Music, is just information.  Music could be converted to electronic data.  Electronic data can be shared across the globe.  Of course, this is a very simple explanation of a complicated series of events.  But what exactly are those events?  What are the attributes of those events?  Who was involved? When? What rules were driving outcomes? Where is this analysed, sifted and documented?  What happens if we lay that over books? What about the provision of mortgage products? Or, the elements of greed? Is there anything in common across all these areas?

So many questions?

Theoretical Risk Management (TRM).

The time is now.  Let’s create a new world for risk management.  Let’s leave those who want to focus on tools, frameworks, advice and assurance to continue to deliver these basics.

Let’s step onto the boundary of the very existence of our being.

The future is but a lot of thinking ahead of us.

 

 

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Scott North has extensive experience in enterprise risk management, internal audit, operational risk and compliance, risk strategy, scenario planning, technology risk, technology business analysis, systems design, financial accounting, and management accounting. Scott is a Fellow of the Australian Institute of Chartered Accountants with a Masters Degree from the University of Melbourne in Business and Information Technology. Scott is also a Fellow of the University of Melbourne.

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  1. Thank you for the great article!

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