In New Zealand, when I ask business managers and workers what risk management means to them, I often hear responses like "stopping accidents," "keeping people safe," or even "a pointless admin burden." It doesn't seem to rate very highly with them.
However, when I pose the same question to my risk professional peers, the answers are very different. They say things like, "It's the process by which organisations manage the effect of uncertainty on their objectives," or "It's about preventing losses from non-compliance with legal and regulatory requirements," or "It's assessing risks from known hazards to minimise harm." All of them agree that risk management is incredibly useful and, when used correctly, very beneficial to an organisation's success. Naturally, risk managers and consultants might be a bit biased, but worldwide data shows that organisations with sound risk management tend to be more successful and resilient.
So why does risk management seem misunderstood and underappreciated in many New Zealand businesses and organisations?
At its core, risk management supports decision-making within the business by providing insights into potential outcomes of strategic or operational activities. It's something we all do naturally, often without even realising it. Identifying and mitigating potential blockers to your objectives should be straightforward, right?
Perhaps the term "risk" is too ambiguous. It means different things to different people, depending on the context. When talking about safety, risk is the chance of harm. When discussing laws and regulations, it's about the risk of breaking rules and facing fines or prosecution. In finance and investment, risk is about potential financial loss.
Many people also see risk management only in terms of what they can insure or pass on to a contractor or supplier. While this is partly true, it’s not the whole purpose or benefit of risk management.
Risk practitioners and consultants (me included) might have contributed to this perception by often treating risk management as a complex, rigid framework that requires a lot of admin. It’s sometimes seen as something only top consultancies or highly trained specialists can handle.
Recently, I attended the New Zealand Risk and Resilience Summit in Auckland. It was great to see that many risk practitioners are now realising that managing risk is a human-centric experience, not just about statistics and heat maps. People and their natural biases are at the centre of any risk-based decision-making. Many leading voices in risk management now talk about supporting better decision-making and enabling business growth, not about the application of rigid frameworks or arguing about whether you use heat maps or quantitative analysis. Well, some still argue.
Risk management is about the decision-makers, the information they have, and the types of decisions they need to make.
I like to use the analogy of a Formula One racing car. The car is designed and engineered to travel around the course as fast as possible, with a powerful engine balanced against mass and weight constraints. It has reactive suspension to adapt quickly when cornering or swerving and advanced brakes to reduce speed quickly. If I asked you which feature represents risk management, you might say the brakes or suspension. You'd be partially right, but it's actually the driver.
The driver decides when to accelerate, brake, and can even adjust the suspension to optimise grip. The driver takes in all the data from the car, their personal perceptions, and their knowledge and experience to make decisions that ensure the car achieves its goal of being the fastest around the track.
This is similar to how risk management should work in a business. Leaders and decision-makers use data from the business, its capabilities and weaknesses, and the external environment, along with their knowledge and experience, to make decisions on strategic direction, business changes, and operational controls. Risk management provides the data on the organisation's capabilities.
Fox-Risk understands all this and is here to help organisations, large and small, make the best possible decisions to achieve their objectives in an uncertain and changing future.
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