How to manage risk
Risk management is concerned with avoiding unacceptable risks
and managing existing risks in order to minimise any harmful
impact they may make. Research carried out by the Economist
Intelligence Unit amongst 3,000 executives showed that only
5 per cent of them were absolutely confident that their risk
control systems were successfully identifying, evaluating, mini-
mizing and managing all the potential significant risks affecting
their business.
Risks may be purely financial – what is the chance of an invest-
ment paying off? But the risks which destroyed Arthur
Anderson, Barings and Enron arose because of faults in manage-
ment control, inadequate systems and staff negligence as well as
unacceptable behaviour. An organization may sustain losses by
failing to hedge its positions in the futures market. This may be
because an inexperienced manager was given responsibility for
the task and the company did not exercise reasonable supervi-
sion of that manager’s activities. Public utilities may face regula-
tory notices and risks arising from political decisions, and these
must be anticipated. Auditors must be aware of the risks they
take when, because of their negligence, their audit report does
not represent ‘a full and fair view’. Overseas sales may be
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