Companies must manage risks that could 'kill' them

20 January 2009

20 January 2009 | Paul Snell

Organisations need to take a more specific look at risks that could harm their business to mitigate these potential threats.

John Drzik, CEO of risk management consultancy Oliver Wyman, believes that while firms have identified the need for risk management, they need to move past simply identifying potential problems.

"Risk governance is a vital element of any management framework. The question is not what are all the risks we face, it's what risks can kill our organisation and how they might manifest themselves."

He added businesses need to take risks, but how many and which ones was not always clear, often because risk management has a compliance or control role rather than a strategic position.

Applying this to supply chain risk, he said as many threats were unexpected and uncontrollable events, there was a necessity to think strategically and work out what level of risk is acceptable. And according to Daniel Hofmann, group chief economist at Zurich Financial Services, buyers should not expect a government bail-out if they are caught out by a supply chain failure.

"Governments should only step in if the risk is systemic, and I don't see supply chain risk, as devastating as it may be for a particular company, to have a systemic component."

Both men were speaking at the launch of the World Economic Forum's Global Risks 2009 report. The study predicted an increased slowdown of the Chinese economy and the possibility that emerging nations will pull back from globalisation as a result of the financial crisis.

"We are already seeing major natural resources exporters in Latin America suffering from a rapid decline from China," said Hofmann.

SMjan2009

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