The ‘risk management’ millstone

“Risk management” is a much-heard expression these days. Despite having no consistent meaning or form, organisations are encouraged by its advocates to adopt its complicated structures and language, ostensibly to address uncertainty. And yet, despite the investment and inconvenience that is involved in pursuing “risk management,” achieving sufficient certainty is seldom the result.

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 to refer to whatever was being insured as “the risk.” When an insurer agrees to provide insurance, they describe themselves as being “on risk.”

In advocating different approaches to decision-making, 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. By describing the myriad of practices 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 label caught on. It became adopted in a generally random way by legislators, regulators, and advocacy groups to label their own decision-making “wisdom.” It was also seized on by consultants because it provided the illusion of something of substance and authority which could therefore be sold.

In the same way that the “risk management” label became attached to many different ideas, so too 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. 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.” The word means what the advocate chooses it to mean. The organisation follows.