ROI CLAIMS SET RISK MANAGEMENT UP FOR FAILURE

Recent revelations of abuse by supposedly world-class practitioners on Wall Street and at companies like Enron underscore the importance of a realistic approach to risk management.

Whenever practitioners misuse and abuse the risk management discipline, they contribute to what risk management expert and Cutter Consortium Fellow Robert N. Charette calls the "risk management misery scenario" -- a future in which managing risk is perpetually under fire and discounted as an effective management tool.

Even with this apparent erosion of the credibility of risk management, the future may be bright. According to Charette, "Societal pulls on risk management seem to be ever increasing in their strength, and the trend in risk management practice and theory is pushing toward a more holistic approach to managing risk that cuts across all organizational departments."

With this opportunity comes opportunists. "Unfortunately, 'hot' management fields also draw their share of 'consultants' and other cheerleaders who oversell it, in effect promising marriage, but thinking only of one-night stands," warns Charette.

States Charette, "Risk management is not merely a simple five- or six-step process that can be performed effortlessly. Some make claims that for very large projects, you can do a thorough risk assessment and come up with detailed risk aversion strategies in a matter of days, even though the project may have taken years to plan. Others make claims of huge returns on investment for risk management, even before the project is complete. These claims do nothing but set risk management up for failure."

So what is the best way to proceed toward the risk management majesty scenario? Says Charette, "The best way to create a bright future for risk management is to follow its basic precepts, never to push it beyond its limits, and to communicate those limits over and over again to those who use risk management's outputs to make decisions. 'Is it fit for the purpose at hand?' is the constant question you must ask yourself. It is up to each individual risk practitioner to make these maxims his or her guiding principles. In the end, it is up to each of us to take responsibility for not letting risk management go the way of TQM or so many of the previous management tools, techniques, and processes that were overhyped, overpromised, and couldn't deliver."

--Cutter Consortium