Grant Purdy, Roger Estall: The label ‘risk management’

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Grant Purdy and Roger Estall have recently published a book on decision-making called Deciding. Written to help decision makers (they call them Deciders) to make ‘even better decisions’ it goes directly to the two big challenges for every Decider – ensuring that each decision will contribute to (rather than detract from) achieving the purpose of their organisation, and being sufficiently certain that the outcomes that result from the decision, are those they intend.

It has only been in the past few decades, and even then, rather by accident, that some of the ideas and practices to improve decision making, acquired the label of ‘ risk management’.

An explanation for these particular words lies in the practice. of insurers – probably the earliest source of institutional advocacy for improved decision making – to refer to whatever was being insured as ‘the risk’.

In advocating different approaches to decision-making (for example, in the choice of building materials) insurers sought to change ‘the risk’ to their advantage. They did this via client selection, incentive pricing and policy wording to make the outcome of their contracts with their clients more predictable. With greater certainty about what might happen, insurers could be more confident that their price (i.e. the ‘premium’) would allow them to still make a profit after paying the claims made against them.

By describing the myriad of practices that they were coercing their clients to adopt as ‘risk management’, insurers shifted the focus from their own interest to something ostensibly associated with their client’s management of their organisation. Furthermore, this new compound noun, ‘risk management’ acquired the appearance of something of substance that was tangible, definitive, beneficial and noble.

The ‘risk management’ label caught on, and in a generally random way, became adopted by others such as legislators, regulators, and advocacy groups to label their own decision-making ‘wisdom’.

The ‘risk management’ expression was also seized on by consultants because it prompted the illusion of something of substance and authority which could therefore be sold to their clients in the form of advisory services.

In the same way that the ‘risk management’ label became attached to many different ideas, so too, inevitably, did the word ‘risk’ acquire many meanings. This created the odd situation that the core word of an increasingly popular, yet ill-defined, expression was effectively meaningless – as was the expression itself!

Hence, rather than being a descriptor of a solid foundation of tested academic endeavour, the expression ‘risk management’ has never been much more than an informal label for diverse, constantly changing and often conflicting concepts and methods that are vaguely related to uncertainty.

At the heart of the problem is that it has been the advocates of ‘risk management’, rather than the organisations and their Deciders at which it is targeted, who have become ‘master’.

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