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The Failure of Risk Management

Why it’s Broken and How to Fix It

By Douglas W. Hubbard
16-minute read
The Failure of Risk Management: Why it’s Broken and How to Fix It by Douglas W. Hubbard

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.

  • Business owners and investors
  • People interested in how risk can be accurately calculated
  • Managers from all fields

Douglas W. Hubbard is the developer of a decision-analysis method known as Applied Information Economics. He is also the founder of Hubbard Decision Research and author of How to Measure Anything: Finding the Value of Intangibles in Business.

 

[Douglas W. Hubbard: The Failure of Risk Management] copyright [2009], John Wiley & Sons [Inc. or Ltd. as applicable] Used by permission of John Wiley & Sons [Inc. or Ltd. as applicable] and shall not be made available to any unauthorized third parties.

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The Failure of Risk Management

Why it’s Broken and How to Fix It

By Douglas W. Hubbard
  • Read in 16 minutes
  • Contains 10 key ideas
The Failure of Risk Management: Why it’s Broken and How to Fix It by Douglas W. Hubbard
Synopsis

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.

Key idea 1 of 10

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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