The failure of risk management: a book review with 7 comments
Introduction
Any future-directed activity has a degree of uncertainty, and uncertainty implies risk. Bad stuff happens – anticipated events don’t unfold as planned and unanticipated events occur. The main function of risk management is to deal with this negative aspect of uncertainty. The events of the last few years suggest that risk management as practiced in many organisations isn’t working. A book by Douglas Hubbard entitled, The Failure of Risk Management – Why it’s Broken and How to Fix It, discusses why many commonly used risk management practices are flawed and what needs to be done to fix them. This post is a summary and review of the book.
Interestingly, Hubbard began writing the book well before the financial crisis of 2008 began to unfold. So although he discusses matters pertaining to risk management in finance, the book has a much broader scope. For instance, it will be of interest to project and program/portfolio management professionals because many of the flawed risk management practices that Hubbard mentions are often used in project risk management.
The book is divided into three parts: the first part introduces the crisis in risk management; the second deals with why some popular risk management practices are flawed; the third discusses what needs to be done to fix these. My review covers the main points of each section in roughly the same order as they appear in the book.
The crisis in risk management
There are several risk management methodologies and techniques in use ; a quick search will reveal some of them. Hubbard begins his book by asking the following simple questions about these: 1. Do these risk management methods work? 2. Would any organisation that uses these techniques know if they didn’t work? 3. What would be the consequences if they didn’t work
His contention