Measuring Risk


How many cliche’s are there that talks about identifying something after the event occurs.

  • Hindsight is 20/20
  • We couldn’t see the forest for the trees
  • If you didn’t want to go to Chicago, why did you get on the train?

I believe a lot of the reasons the risks were not identified up front was based on how the issue/event/process (known as a “concept” for the rest of the posting)  was framed at presentation. 

Paul Slovic, a professor of Psychology at the University of Oregon indicates that studies show two ways we perceive risk:

  1. An automatic, intuitive system
  2. A more thoughtful analysis system

According to Slovic “our perception of risk lives largely in our feelings, so most of the time we are operating on system number 1.”

SO, if the ”concept” is offered showing all the positive with either no or a minimal down side, we are more likely to accept all the positives and ignore the negatives of the undertaking.   

Another reason may be that the perception is the person presenting the idea has already identified all the things that could possibly go wrong and has prepared contingencies for them. 

A third reason is that we just don’t want to consider something going wrong , if we don’t acknowledge it, it doesn’t exist.

Unfortunately none of these reasons can actually make any negative impact go away.  

It is important for an organization to consider both the up and down sides and that’s where Risk Management comes in.

Fred O. Pachón of Select Staffing Inc.  was named Business Insurance Risk Manager of the Year during the 2009 Risk and Insurance Management Society conference in Orlando Florida.   Mr. Pachón is the Vice President of Risk Management for the Santa Barbara staffing company.    

 

In addition to naming a Risk Manager of the Year, Business Insurance also honored three other individuals in the 2009 Risk Management Honor Roll:

 

  • Raymond J. Alletto – Vice President – Risk Management, United Rentals Inc
  • Lori Jorgensen – Senior Director , finance-risk management at Microsoft Corp.
  • Gary W. Langdale – Risk Office, Pennsylvania State

 

One common thread found in the great work that all four individuals have done for their companies is the continual reduction of cost to their organization, be it through effectively identifying potential risk costs with potential customers, to reducing risk costs of newly acquired companies, to modeling potential scenarios and the associated costs.

 

The risk management department can be viewed as a profit center within an organization because of the plans and programs put in place to avoid missteps as well as properly account for the costs of risk and reap the rewards of the risk that is taken.

 

Congratulations to the honorees for a job well done.

 

For further information on those honored, follow this link http://www.businessinsurance.com/cgi-bin/article.pl?articleId=27506&a

 

Further information can be found in the April 20th issue of Business Insurance.