Magazine article Risk Management

Decade of Risk

Magazine article Risk Management

Decade of Risk

Article excerpt

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Over the past 10 years, risk management has evolved from an often overlooked back office discipline to a vital component of securing every organization's future. Sure, many companies still have not actually embraced and cultivated the outlooks of the risk professionals on their payroll, but the events of the past decade have made the core concepts impossible to ignore any longer. From Y2K, 9/11 and Enron through Katrina, pandemic threats and the Wall Street collapse, the world has faced a relentless onslaught from all directions. And in looking back at recent history, there is only one logical conclusion: the world needs risk management now more than ever.

The past 10 years have been a period of unprecedented growth in the risks facing organizations. From the grim realities of international terrorism to the proliferation of environmental threats, a rapidly changing set of challenges jeopardized businesses in every sector.

The result has been a sea change for the risk management industry. In the past decade, business executives have recognized the need to implement new policies to confront these new risks--something that has led to the emergence of risk management as a critical support industry and the rise of risk management officers as vital to executive decision-making.

In 1999, risk managers were typically relegated to back offices, working alongside accountants and actuaries. They focused on two main issues: financial risk management and a technical glitch many at the time predicted would bring industry and government to a standstill, something they called the Y2K bug.

Flash forward to today. Risk management has evolved from an obscure function of finance and insurance to an approach necessary for organizational resilience. Risk management's rise over the past decade has dramatically altered the way organizations think about things like disaster planning and business continuity. What started as a niche department with little or no ability to influence organizational behavior has transformed into a critical source of strategic planning with a direct line to top management.

All of these changes were set in motion over fears about a computer programming glitch and some misplaced ones and zeros. Predictions about the impact of the Y2K bug were dire: Without intensive investment in IT infrastructure, updates and redundancies, the second January 1, 2000, hit the clocks, airplanes could fall from the skies, electric grids could shut down and bank accounts could be erased.

Instead, something much more unexpected happened--nothing. Aside from small, localized disruptions (150 slot machines at race tracks in Delaware stopped working, for instance) the year 2000 entered with a whimper and the risk manager's worst fears never materialized.

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Nevertheless, Y2K triggered a shift in how organizations thought about risk management, and investment in the space changed significantly. For the first time, risk managers were looking at how a single event could impact the entire operation. Focus shifted away from looking merely at financial risk implications, and internal investment flowed into IT risk management.

The after-effects of Y2K engendered two distinct views. The first argued that proactive investment in IT risk management and cooperative efforts across industries had averted disaster. The counter view suggested the entire saga was much ado about nothing. In the absence of a crisis, it was hard to tell if investment in risk management was working.

September 11, 2001 would irrevocably change the terms of the debate, however, permanently altering how organizations thought about threat assessments, preparedness and response. As the shock of the 9/11 tragedy slowly wore off, corporations realized that they were largely unaware of their employees' locations, whether traveling to offices, client sites or globally. …

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