Mistakes Executives Make in Risk Management
March 4, 2016
Model 8: Reflection Paper
Analyze 2 or 3 of the mistakes executives make in risk management, and why you think they make them.
Is re-active better than pro-active?
Black Swan events; “Instead of spending our efforts on quantifying and estimating them, maybe we should just let them happen and rather focus on reducing our vulnerability to them” (if they do happen). ©
The first mistake that executives make in risk management is the thought they can predict the extreme events, and then manage the risk. Instead, they should be focusing on how to deal with loss or recovery from said extreme events. Preparation is always key. I feel they have the right idea on focusing on the possibility of extreme events as they are bound to happen at some point, but instead they should also be preparing for that event or something in relation to it. This will almost guarantee minimal loss, and vulnerability, and possibly profit from unprepared competitors. Instead of calculating the odds of whether things will happen, rather think about what you will do if they do happen. That’s actually very basic in crisis management planning. If you have made planned and exercised for one event, you can rest assured that most other events are covered by this plan. People who can handle one type of crisis, always have the potential to handle many types of crises.
“This is unprecedented.” They assume that if they try hard enough, they can find precedents for anything and predict everything. But Black Swan events don’t have precedents. In addition, today’s world doesn’t resemble the past; both interdependencies and nonlinearities have increased. ©
For this reason we cannot look to the past to help the future; the second mistake executives make in risk management. Yes you should learn from the past to prevent repeating the same mistakes, but that