The Business Book

40

P U T A L L Y O U R E G G S

I N O N E B A S K E T ,

A N D T H E N W A T C H

T H A T B A S K E T

MANAGING RISK

E

ntrepreneurs are defined

by their willingness to bear

risk—particularly the risk of

business failure. This is especially

true for those starting new

companies, because more than half

of start-ups fail within the first five

years. Lesser risks in established

businesses include the possible

failure of new products, or damage

to the brand or a manager’s

reputation. Whatever the level or

type, however, risk is something

that all businesses need to be

aware of and manage carefully.

US businessman Andrew Carnegie

was pondering these issues when

he suggested that in terms of

IN CONTEXT

FOCUS

Risk management

KEY DATES

1932 The American Risk

and Insurance Association

is established.

1963 Robert Mehr and Bob

Hedges publish Risk

Management in the Business

Enterprise, claiming that the

objective of risk management

is to maximize a company’s

productive efficiency.

1970s Inflation and changes

to the international monetary

system (the ending of the

Bretton Woods agreement)

increase commercial risks.

1987 Merrill Lynch becomes

the first bank to open a

risk-management department.

2011 The US Financial Crisis

Inquiry Commission says that

the 2008 financial crisis was

caused partly by financial

companies “taking on too

much risk.”

Risk is an inevitable part

of business.

But it can be quantified

and action taken...

...through oversight and

good management.

...and where to place the

risk—on all the “eggs in the

basket,” or just one?

Part of this process involves

deciding what level of risk

is “acceptable”...

Managing risk is a

strategic process, balancing

cost against reward.