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Blink 3 of 8 - The 5 AM Club
by Robin Sharma
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The Failure of Risk Management summary
Douglas W. Hubbard
Why it’s Broken and How to Fix It
23 mins
Topics
Table of Contents
The Failure of Risk Management
Summary of 9 key ideas
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Key idea 1 of 9
Risk management means being smart about taking chances.
You’ve probably heard the term risk management; it’s part of the jargon used by organizations and governments, but it’s also entered the public vocabulary. While there are many definitions of the terms risk and management, it’s helpful to keep things simple:
Start with risk. You could say that risk is the likelihood and magnitude of an undesirable event. For instance, in a scientific or mathematical context, risk always describes the probability and magnitude of an undesired effect.
But what do probability and magnitude measure?
While probability always estimates the odds that something will happen (that your home being struck by lightning, for example), magnitude can be measured in a variety of dimensions, most commonly the loss of money or of lives. But keep in mind that an undesirable event could be anything – from a natural disaster to a major product recall to political instability.
Now that you know the definition of risk, what does it mean to manage it?
Managing risk means effectively using resources to decrease danger. For instance, one of the most common definitions of the word management is “the planning, organization, coordination and direction of resources toward defined objectives.” In other words, using what you have to get what you need.
In order to achieve this goal, a risk manager always tries to reduce the risk of pursuing an objective. Just like any other management task, managing risk is an effort to effectively use limited resources, like money and time, to complete a task.
Now that you know what risk management is, it’s time to learn how it developed and how it applies today.
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What is The Failure of Risk Management about?
The Failure of Risk Management (2009) is a comprehensive guide to the history, methods and myths of risk management. These blinks explain why common methods for managing risk are flawed and how to fix them; they also offer tried and true alternatives for measuring and mitigating risk.
Best quote from The Failure of Risk Management
Garbage times garbage is garbage squared.
—Douglas W. Hubbard
Who should read The Failure of Risk Management?
- Business owners and investors
- People interested in how risk can be accurately calculated
- Managers from all fields
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