One of the most frequently misused and misunderstood terms. Life is a risk. Entrepreneurship, business, politics, sustainability, sports – there is no area of our existence that does not involve one risk or another. Value-free.
The definition of risk
If we take a closer look at the definition of risk, we become aware that the term as such already contains some pitfalls that need to be examined more closely.
“Indication of the possibility that with a (possibly low, possibly unknown) probability a (possibly high, possibly unknown in its extent) loss may occur in connection with an (economic) decision, or that an expected advantage may fail to materialize.
Also in connection with the risk and the responsibility of the highest management bodies, the so-called risk tolerance (also called risk appetite) must be taken into account. Back to the world of responsibility of each individual.
From definition to appetite
“Risk tolerance defines how high the appetite is to consciously take a risk.”
This risk tolerance, in turn, points the way forward for the operational implementation of a company’s defined strategy.
In the absence of a clear and measurable definition of risk tolerance, the management of risks becomes a challenge for those responsible for operations. In my day-to-day work with my clients, I see precisely this lack of a definition of risk tolerance as one of the biggest stumbling blocks. It is not intentional that the topic is not given enough prominence on the agenda. The consequences can be devastating.
Changes in conditions – in concrete terms, progressive digitalization – are changing the risks of all market participants. Those who know me and have already experienced me in presentations know which graphics I use for visualization. From Stone Age man to digitally readable code.
A risk assessment is indispensable. Most people agree with me on this. It takes into account the relevant changes, follows the strategy and the business model and appreciates the predefined risk tolerance.
Continuing iterative process
This interaction between the changing starting position, risk map and risk tolerance is an ongoing, iterative process. Periodic risk assessment, which in practice often tends to be carried out at excessively long intervals, will no longer be sufficient in the present and future to enable us to react adequately to the various changes.
Reasons such as: “our risk map” has not changed in the past 12 months may satisfy one or the other questioner. Experience shows, however, that this is no longer the case today. Business models are undergoing constant change in order to remain competitive.
Facts for the human factor
The fact is that the most important factor remains the same in the age of digital information and digitization as a whole. The human being.
Our activities can only be “rationalized away” to an absolute minimum. And in order to be able to use this success factor effectively and strategically, it is necessary to get to know it better and to consider some aspects in particular. For example, personal risk tolerance and that of our colleagues on the various committees.