The New Risk Management

By Power, Michael | European Business Forum, Spring 2000 | Go to article overview

The New Risk Management


Power, Michael, European Business Forum


In a compelling analysis of the decision to launch the Challenger space shuttle on 28 January, 1986, Diane Vaughan has questioned the generally accepted explanation of that event. Instead of specific managerial wrongdoing combined with technological failure, she claims in her book The Challenger Launch Decision that 'no extraordinary actions by individuals explain what happened: no intentional managerial wrongdoing, no rule violations, no conspiracy. The cause of disaster was a mistake embedded in the banality of organisational life.' The message is that risks and their associated opportunities are rooted in specific institutions and practices, in daily operations which become organisational habits. If we are serious about risk management, we must be very cautious in assuming that legal, institutional and political demands to blame particular individuals and hold them responsible correctly identify the root causes of risk. Rather, the mundane transactional life of organisations deserves much closer practical and intellectual attention.

There is a long history of technical risk management practice in disciplines such as finance and engineering. Recently, the category of 'operational risk' has emerged in policy thinking. This was first a kind of dumping category for risks which can not be dealt with elsewhere, or are less amenable to technical analysis. Later it appears as a more fundamental challenge to the meaning and scope of risk management practice. Indeed, the 1990s witnessed far reaching changes in the conception of the way that large organisations should manage danger and opportunity; there was a new demand for the consolidation, coordination and systematisation of risk management practices. And as risk management practices in large organisations are becoming much more managerial and strategic in focus, management and regulatory practice is also being reinvented through a broadened concept of risk. This shift in the nature of management attention to corporate risk characterises the 'New Risk Management' (NRM).

[ILLUSTRATION OMITTED]

The NRM has its origins in two distinct but convergent pressures. First, it is well known that sellers of insurance seek to overcome moral hazards by giving the insured incentives to behave more as if they were uninsured. In part this is achieved by offering lower premiums in return for risk-reducing actions, such as installing window locks for home insurance or requiring environmental audits as a condition of liability cover. Over time, an important advisory domain for the insurance industry has been created, with a focus on the internal control and compliance systems of companies. In addition, many large organisations (like BP Amoco) have re-examined their insurance strategies and the self-insurance of some risks is increasingly rational where relevant internal control is good. Accordingly, both supply and demand side market pressures in insurance have been converging on the self-organising and self-regulating capacity of companies. Risk transfer in the form of insurance is being conceived as part of a broader risk management portfolio, even to the extent of regarding the decision to insure as a residual.

The second major pressure for change arises from the regulatory, professional and industrial reactions to corporate scandal, and the emergence of thinking about corporate governance. The original Cadbury Code in the UK (now the Combined Code) represented a formalisation of practice in the wake of the collapse of the Maxwell empire and provided a template for the rest of the world. Part of the concern is to improve shareholder power and the market for corporate control. Importantly, there is also a sustained emphasis on internal structure and control systems, which is intended both to motivate and constrain management. The Turnbull Report, which promotes principles of internal control and risk management for UK company directors, is the latest and most influential statement of this thinking.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

The New Risk Management
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.