In 2005, the insurance company Lloyds carried out extensive research into the way that organisations around the world managed their risk. Their findings showed that time spent on discussing risk management in board rooms across the world had risen four fold in the previous three years. This illustrates the importance that managers are attaching to the issue. In their conclusions Lloyds stated that this rise was not sufficient and that managers needed to put risk management in a more prominent position in their companies’ strategies.

At Ashridge, business experts suggest that taking a holistic approach to risk management will have more effective results. If we perceive a business as being like a spider’s web, we see that it has an organising body at the centre and then interlocking strands of resources. Some of these strands, such as income from products or the relationship with suppliers – are relatively easy to observe. Other strands are less tangible and much more complicated to monitor - for example, a company’s reputation, or its relationship with the government of the country where it is based. Risk management should address each of these strands individually and also look at how they interact with each other presenting more possibilities of risk and failure.

Experts suggest that all possible risks can be categorised into three main types:

Catastrophic failure
Examples include the effects of natural disasters, war or terrorism and can ultimately cause a business to collapse.

Strategic failure
This happens when a company has an inappropriate business strategy. One example is a company that misunderstands its position in relation to its competitors.

Operational failure
This happens when a company is unable to deliver the promised returns to its stakeholders. The effect is that the stakeholders will lower their level of involvement with the firm.

When drawing up a risk management strategy managers should:
    1  Think about the resource flows in each of the three categories.
    2  Identify the impact of their disruption.
    3  Measure the risk factors.

While drawing up business management plans, companies should – at the same time – develop risk management systems. It is unwise to rely on one person, a Head Risk Officer, to ensure the company’s well being. Risk is something that all members of the senior management team should be involved with and address together.

Finally, businesses are advised to have a realistic acceptance of risk. This acceptance will be the first step in building a more effective risk strategy. If a business is better prepared to manage risk than its competitors, then it will be open to more opportunities too.