There is nothing so powerful, so unstoppable, as an idea whose time has come. (Mark Twain)

Evolution of risk management

Every so often, an idea emerges in the business world which seems so logical that it triggers an unstoppable momentum towards its fulfilment. The concept of “enterprise-wide risk management” is one such idea. Building the capability to handle all types of risk within every part of an enterprise seems like such a sensible goal that it is difficult to challenge its logic.

Yet, many companies are struggling to understand the concept of enterprise-wide risk management, let alone implement it. Even risk professionals are engaged in rigorous debate on how to build frames of reference for this concept of “one balance sheet, one risk management strategy”. Some of the causes of these difficulties reveal themselves in different ways. Differing perspectives of risk, the functional barriers that prevail between risk management fields, and cultural differences between different kinds of risk practitioners each reflect a fragmented management discipline. These factors often make the idea of enterprise-wide risk management seem like a noble but elusive ambition.

Despite the difficulties involved, there is undoubtedly considerable momentum within business to develop a common approach to risk management. Business is frustrated with the fragmentation and duplication in risk management programmes, and is looking for a common risk management process that can deal with every kind of risk facing the enterprise, whether it is currency exchange rate volatility or an e-commerce liability or brand name sabotage.

The business world desires a holistic, consistent and integrated model of risk management that will satisfy the modern enterprise's total need to respond to risk. It looks for consistent methodologies and measurement parameters for the identification, assessment and management of risk across the enterprise's complete spectrum of activity.

But why has this concept of enterprise-wide risk management emerged now as an important dimension of modern business?

Increasing sophistication of business

In the first instance, the increasing sophistication of business has changed the risk profile of most corporate enterprises. The patterns of vulnerability, dependency and criticality have changed in business and have become more complex. Twenty years ago, for example, most of a company's computing power sat in a mainframe computer suite in a head office building.