Reflection on the Concept of Risk

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According to the internationally accepted definition, risk can be described as “the effect of uncertainty on objectives” (Australian Government 2010, p. 1). It is important to examine the peculiarities of this interpretation and its implications for the work of various practitioners.

Overall, one can argue that this definition can throw light on various factors that can influence the work of organisations. Therefore, this framework can set higher standards for the work of risk managers and business administrators.

Previously, risk could be regarded as the probability of loss; nevertheless, this interpretation does not fully reflect the complexity of this notion. At first, one should mention that the new definition highlights the idea that risks should not be associated only with negative consequences.

According to this approach, one should also explore the opportunities which are available to individuals and organisations. Overall, this change can have significant implications for risk managers who need to know how to derive benefits from uncertainty which does not necessarily lead to financial losses or other adverse effects.

This is one of the details that should be distinguished.

Furthermore, the focus on the objectives is important because in this way, one can better understand the complexity of problems encountered by organisations and separate individuals. It should be noted that companies may pursue a variety of goals that can be related to product development, HR policy, profitability, market positioning, and so forth.

Therefore, business administrators and risk managers should consider a wider range of problems or opportunities to which an organisation can be exposed (Lundqvist 2014, p. 393). This approach is beneficial because it sets higher standards for risk managers.

In particular, they should understand different aspects of organisational performance and the influence of external environment (Goldin 2014, p. 325). In this way, they can get better insight into the uncertainties that can influence enterprises.

This is one of the benefits that should be considered. Additionally, one should remember that objectives can be short-term and long-term. Therefore, one should be able to classify risks in terms of their time horizon. This activity can be important for developing the strategies of a company.

Admittedly, this approach can create several difficulties for risk managers. These problems can manifest themselves at the time when the objectives are not clearly formulated. However, it is vital to identify risks in a specific way (Treasury Board of Canada Secretariat 2012).

Thus, this definition can be criticised due to the lack of precision. Furthermore, in some cases, it may be difficult to measure the impact of risks. This task can be very challenging at the time when the objectives are not quantifiable. These are some of the difficulties that should be identified.

Nevertheless, despite these limitations, this definition should not be dismissed because it is useful for identifying and averting different problems that businesses can face.

On the whole, this discussion shows that the new definition of risk prompts managers to look at this concept from various perspectives. In particular, they should not focus only on the possibility of financial losses. More likely, they need to investigate a variety of uncertainties that influence the objectives of companies or separate individuals.

Certainly, it may be difficult to measure the impact of uncertainty on some objectives. This is one of the limitations that should be taken into account. However, this framework encourages risk managers to get a better idea about internal and external factors influencing the work of companies. This is why this definition should be adopted.

References

Australian Government 2010, Risk Management Principles and Guidelines. Web.

Goldin, I 2014, ‘The Butterfly Defect: Why globalization creates systemic risks and what to do about it’, Journal Of Risk Management In Financial Institutions, vol. 7, no. 4, pp. 325-327.

Lundqvist, S 2014, ‘An Exploratory Study of Enterprise Risk Management: Pillars of ERM’, Journal Of Accounting, Auditing & Finance, vol. 29, no. 3, pp. 393-429.

Treasury Board of Canada Secretariat 2012, Guide to Integrated Risk Management. Web.

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Reflection on the Concept of Risk

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