Risk management is a vital tool in all aspects of modern management, including contract management. But it is not standing still! We’ve developed new ways of understanding risk and undertaking its management, and new approaches will surely continue to arise.
But what might the future of risk management look like? This article uses concepts from cosmology to consider the options.
Where is risk? Look behind you!
The earliest records of human history and prehistory include stories of risk and its management. If we take a long view back, we read accounts of mankind’s earliest origins describing the urge to break boundaries, to go beyond current confines, to explore the unknown.
The broader sweep of human development has included risky phases as hunter-gatherers and agrarians, leading to the establishment of great civilizations like Egypt or the Mayans -- to the present day.
In that context, taking risk was perceived to be essential to winning and conquering, but that’s not always true in our volatile world of business today.
Let’s examine the DNA of business risk to give us better clarity on how certain risks can be managed.
Seen from a certain perspective, risk is everywhere. It seems that mankind has an insatiable appetite for confronting risk and attempting to manage it proactively. Our frameworks for confronting uncertainty include politics, religion, philosophy, technology, laws, ethics and morality. Within each of these, we try to limit variation as far as possible, and explain the remaining uncertainty where we can no longer control it.
If risk is everywhere and risk management is so important, why do we too often neglect it in our business? We are constantly confronted with business and project failures, and in the rare cases where post-mortem reviews are conducted after a business collapses, causes of failure often include unforeseen-but-foreseeable risks.
Resulting threats we should have tackled turn into problems that we could have avoided. Opportunities we could have foreseen and captured are missed, reducing the benefits available from our projects and businesses. Surely we can do better than this?
Cosmologists who study the future of the universe have developed three possible alternatives for how things might unfold. As we survey the risk management futurescape, we can use these ideas to consider how risk management might develop:
- Infinite Expansion – possibility 1
- The Big Crunch – possibility 2
- Ongoing Oscillation – possibility 3
Infinite Expansion - expanding risk universe?
Possibility 1 assumes that the scope of risk management will continue to expand and include more and more elements of personal, business and social life, until “Everything is just risk management.”1 Ultimately all decisions will be made by identifying and assessing relevant uncertainty. This expansionist view is illustrated by some risk management practitioners whose slogan is “Manage the risk = manage the business.”2
This implies that you need not pay special attention to normal planned activity, and all you require is to address potential variations from the plan. By looking ahead to see how we might diverge from the plan, either positively or negatively, and focusing management attention on addressing just these aspects to get back on track, proponents of this position claim that success is ensured.
But, although the Infinite Expansion option emphasizes the importance of risk management, it is an extreme position that doesn’t match reality. When we’re managing a business or a project, there are many other important things to consider in addition to risk, and concentrating wholly on managing risk to the exclusion of other aspects would be detrimental and counter-productive.
It is probably true that the scope and influence of risk management will continue to expand, at least in the short term, as more areas of application are found for risk-based approaches. But is such expansion limitless, or will some critical point be reached when further growth is unsustainable -- to be followed by a collapse and eventual Big Crunch possibility?
The Big Crunch - catastrophe ahead?
This second possibility assumes that risk management might just be the latest management fad, although admittedly it is already rather a more long-lasting possibility than most. The recent emphasis on risk management started in the 1970s, and although it shows little sign of reducing, it is conceivable that our future colleagues might place less emphasis on risk than we do today. If risk management goes the way of other fads, it could disappear from the scene very quickly, becoming just a memory or a footnote in the annals of management history.
There is another way in which risk management might disappear, rather than fade away into oblivion. If risk management becomes all-pervasive to the point where it is absorbed into the nature of business at all levels, it could become invisible as a result.
If everyone naturally and habitually “thinks risk” and manages it as a normal part of daily life, then it might no longer be necessary to have a separate discipline called “risk management,” since this would be accepted and practiced by all. Risk management could vanish as a result of its own success, leaving risk specialists and practitioners as outdated purveyors of a universally recognized, self-evident truth.
Ongoing oscillation - constant change?
A third possibility for the future of risk management is combining expansionism and catastrophism into Ongoing Oscillation. Maybe the size of the “risk management universe”3 might vary cyclically, increasing for a time then contracting. A review of the broader story of risk management across the span of human history reveals periods when it was more prominent than others.
Social commentators suggest that advances in technology, law and religion can be seen as human responses to uncertainty, where we seek to make sense of the unknowable and ineffable, and attempt to impose control wherever possible.
If this is true, then the major changes in civilizations might be interpreted as cycles of risk management, though not within the same process-driven framework we see in modern business. And maybe the expansion we are witnessing today is merely part of the latest cycle -- with a period of growth in the scope of risk management being followed by a fallback to lower levels of interest, until risk management undergoes another resurgence..
Only time will tell whether we’ll see Infinite Expansion with the risk management universe expanding indefinitely until it encompasses everything, or whether a turning point might be reached to be followed by collapse to a Big Crunch where risk management disappears, or whether some Ongoing Oscillation cycle of growth and decline might occur.
Risk management is such a fascinating topic precisely because it is constantly changing. New approaches and application areas emerge, new dimensions of risk management are discovered, and new insights into the meaning of risk are revealed. As we continue to explore this intriguing universe, we can be sure of an exciting journey.
The future of risk management will unfold before us in novel and unexpected ways, challenging us “to boldly go where no man has gone before.”4
ABOUT THE AUTHOR
Dr David Hillson is a trusted expert on risk as it relates to contract management and business in general. He has written many articles for Contracting Excellence Journal surrounding this topic. Known globally as The Risk Doctor, David leads The Risk Doctor Partnership (www.risk-doctor.com), a global consultancy offering specialist risk services across the world. David has a reputation as an excellent speaker and presenter on risk. He publishes a regular Risk Doctor Briefing blog in seven languages to 10,000 followers, and has over 8000 subscribers to the RiskDoctorVideo YouTube channel (www.youtube.com/RiskDoctorVideo). David has advised leaders and organizations in over fifty countries around the world on how to create value from risk based on a mature approach to risk management. His wisdom and insights are in high demand. He has also received many awards for his ground-breaking work in risk management over several decades.
- from The Risk Management Handbook, edited by David Hillson, page 300
- Infoworks article, by David Hillson
- explained in book, The Risk Management Universe A guided tour, edited by David Hillson
- quotation from Star Trek (org)