Ignore risk management at your peril

Patrick Gougeon, The Globe and Mail

April 08, 2011

Catastrophic events such as the Fukushima nuclear power plant accident, triggered by Japan’s recent earthquake and tsunami and the 2010 Deepwater Horizon oil spill in the Gulf of Mexico have led to concern about safety in the energy sector.

Yet, as these and other disasters have shown, a clear lack of preparation and risk management remains an issue for many companies operating in the energy sector. Understanding this fact is crucial, and business schools have an obvious role to play in explaining the facts, reflecting on how best to promote efficient risk management within complex organisations and ultimately adapting their training and development programmes to prepare better for future disasters.

Risk management is a hot topic, particularly within global corporations where the concept of enterprise risk management (ERM) is widely understood and integrated. This is partly due to stricter regulations on risk control, such as those imposed by the Sarbanes-Oxley legislation in the US. So why isn’t adherence to these regulations reflected in performance?

In reality, companies are often more concerned with compliance – that is, protecting the personal liability of managers – than with effective risk management. Risk management starts with paperwork, writing procedures, the building of “risk maps” and design of control systems, but there is far more work to be done. Unfortunately, efforts frequently do not seem to extend much further than the initial groundwork.

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