Risk? What risk?
As we define risk, we will see it has two aspects. Both have to be considered for all events to be covered.
What is risk anyway?
Risk, in a usual definition, is a negative notion. The first definition given by the Webster dictionary is: “possibility of loss or injury”.
In Risk Management, risk is actually a neutral notion. It is neither negative nor positive. The risk is the uncertainty of the impact of an event on the objectives. A risk can have a negative, a neutral or a positive outcome. In the latter case, the risk actually turns out to be an opportunity. In the first case, the word threat is often used.
Risk arises from events.
To finish with the definition part of this small article, what is an event? Events are occurrences or a change of a particular set of circumstances.
Let’s illustrate this in a simple way. Say that your objective is to climb to the Alpe D’huez, cycling in less than 2 hours. Pinching a wheel is an event. It will most probably influence negatively your objective. On the other hand, having suddenly the ability to train is another event than will, most probably, positively impact your objective.
What is really important in this vision of risk? The important part is that your company will deal with both the threats and the opportunities if a correct risk management is put in place. The risk culture of the company should reflect this. Risk management is not being risk averse. It simply means you manage potential deviation towards your objectives. Nothing more, nothing less.
In our next article, we will cover a bit more about this notion of risk culture.
Co-Founder & Partner
After 13 years as CFO of The Bank of New York Mellon, I had several positions that allowed me to cover a wide range of topics: general management of entities, Risk and finance management, corporate taxes, supervision of IT and operations, accounting, budgeting, creation and restructuring of legal structures, regulatory reporting, acquisition of companies, operational statistics, and management accounting.
My strengths are in Finance and Risk Management