Should Your Risk Attitude Change as Business Conditions Change?

Dave Ingram is a highly respected, award-winning, thought leader in the risk management community. He recently shared with a number of us an article he wrote for The Actuary – and which I find to be excellent.

Dave discusses four different 'risk‘personality types’ (my expression). People and organizations tend to fall, he says, into one of these four types, each of which has a different attitude towards taking risks. The article is worth reading just for that.

However, Dave goes on to suggest that different business conditions (such as boom vs. bust) call for different risk attitudes. For example, we should probably take more risks when the economy is doing well than when we are in recession.

At this point, I will let you read the article and, I hope, come back here and share your opinions.

Posted on Aug 25, 2010 by Norman Marks

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  Comments (4) un-categorized
  1. Comment by: Sonia Jaspal   (8/27/10 06:34 AM)   http://http://soniajaspal.wordpress.com/

    Norman,

    Excellent article posted by Dave and thank you for sharing.

    As he said there are different risk personality types and we can assess that from our personal and social environment also. For example, people who are in adventure sports are normally high risk takers and their behavior will be visible in other aspects of their life too.

    Although, I would agree with you that risk appetite should be dependent on the health of the organization and economy, the management fails to adapt. Example, in banking sector even after the crash, there were bonuses being distributed. I would say it is failure to acknowledge the market and public sentiment. So change is actually not possible unless and until it is built in the organization culture.

  1. Comment by: Jeff DeRose   (8/27/10 11:41 AM)    The topic is excellent and one worth really looking into- thanks for sharing. However,I was hoping for some real insight (based on your excellent rating of the article Norma), but really the conclusion was obvious and mundane. What might have been more interesting would be to explore how this actually happens in an organization(s). Corporate tendencies are there for all the reasons that David and Alice highlight (formative experience, cult of leadership personality, history of what works, etc...), and they tend to change as a result of some event or combination of events (eg., leadership changes, smell of success or teetering on the brink of ruin). A great topic for a more in-depth analysis of a handful of companies that have been able to successfully inculcate a culture of dynamic Rational Adaptability. Covey are you listening?
  1. Comment by: Jeff DeRose   (8/27/10 11:42 AM)    The topic is excellent and one worth really looking into- thanks for sharing. However, I was hoping for some real insight (based on your excellent rating of the article Norman), but really the conclusion was obvious and mundane. What might have been more interesting would be to explore how this actually happens in an organization(s). Corporate tendencies are there for all the reasons that David and Alice highlight (formative experience, cult of leadership personality, history of what works, etc...), and they tend to change as a result of some event or combination of events (eg., leadership changes, smell of success or teetering on the brink of ruin). A great topic for a more in-depth analysis of a handful of companies that have been able to successfully inculcate a culture of dynamic Rational Adaptability. Covey are you listening?
  1. Comment by: Larisa   (9/4/10 01:34 PM)   

     

    I fully agree with Dave Ingram’s conclusion that nowadays the companies should use a harmonious approach (combing the use of four types of ERM depending on the change of business conditions) to enterprise risk management in order to succeed in the business world. The company should not stick only to one risk attitude because the business environment is not standing on the same place; it’s expanding, changing and bringing new conditions. The company’s ERM should be flexible in spite of the fact that its board of directors has for instance, conservative approach to the ERM… because sometimes the company can lose great opportunities by not following a maximizing principal of risk management. Therefore, the company should be always ready to adapt to changes, and accordingly change its risk attitude for new business conditions. And I think for this purpose an IA is very necessary since he/she can provide her/his management staff with very important information (like assessment and advises on potential risks and opportunities).

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