Production is stalled because permits for air, water, or waste are exceeded
at the same time that inventory is at a record low and demand is high
Only through systematic monitoring of risks can you see two or more events
coming at the same time and recognize that, if they’re not mitigated in some
way, together they form a real threat to the company’s financial and competi-
tive position. If the number of accidents in a factory is rising at the same time
the scheduled maintenance of equipment is being neglected, the ingredients
for a disaster are brewing. By systematically monitoring risks, you can see
the train wreck before it happens and prevent it.
Sorting Through the Approaches to Risk Management ............................
If you really take a firefighting approach to risk, you probably won’t be success-
ful in the long term. But in practice, many companies do take risk seriously
and try to evaluate their risks in one way or another — they just don’t do so
in a systematic way. In this section, we look at some of the possible approaches
to risk management.
The ad hoc approach ...........................................................................
The ad hoc approach means that some of the people are thinking about risk,
some of the time. With this approach to risk management, risk assessment is
mainly intuitive. Much of the company’s knowledge about risk is kept in
someone’s head, and no validation of the assumptions surrounding the risk
can be made. If the expert gets a better job offer somewhere, or even changes
teams, all of the risk information is lost. With this approach, you can’t learn
from the mistakes of others. This type of risk management is better than
nothing, but because there’s no shared information, this approach offers no
common vocabulary, it isn’t formalized, and your mileage — and value — will
definitely vary.
The fragmented approach...................................................................
Another way of thinking about the fragmented approach is that lots of people
are thinking about risk in different ways. In this approach, managers generally
are looking at risk, but they are using their own tools and their own vocabu-
laries or terminology to manage their own organizational or departmental
risks. And in doing so, their management approach is often very informal.
Chapter 2: Risky Business: Turning Risks into Opportunities 43
