Issue 1, 2016

Embracing complexity with value-based risk management

Kurt Baes, John Barker, David Boulton, Rick Eagar, Willem Romanus, François-Joseph Van Audenhove

The principles of risk management are well-established across large businesses, which clearly recognize that they need to manage uncertainty in order to meet their strategic objectives. This has never been more so than at present. Increasing industry convergence,accelerating technological disruption, and ever-higher ethica land social standards add further degrees of complexity to the mix.

Enterprise risk management (ERM) is a widely-adopted framework used to manage the full range of corporate risks. In a recent survey focusing on the energy and resources industry 1, 82% of respondents indicated that they had some form of ERM system in place.However, despite the prevalence and maturity of ERM systems,companies are still regularly caught out by significant unwanted events, sometimes catastrophic in nature, leading to loss of life or destruction of the business. Indeed, so-called "black-swan" events are less rare than is sometimes perceived, as we showed in a previous Prism article that predated the Deep water Horizon drilling rig explosion2. More recent examples include the highly publicized use of engine management software by Volkswagen to pass emissions tests. Strategies that expose an organization to risk in order to achieve an objective are common - but in this case it appears that the significance and/or likelihood of the unwanted event were underestimated.

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About Prism

Twice a year, Arthur D. Little covers the latest cutting-edge thinking on strategy, technology and innovation in its corporate magazine Prism. For over 20 years Prism has continually set the standards in innovative thinking and groundbreaking concepts in the world of business and management.

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