Going head first into a business is not the wisest thing to do
. The risks that large companies are facing into today's globalized world are huge as the recent financial crisis has made clear. "Risk management" was probably the most uttered phrase since the collapse of the sub-prime market and the debacle that followed.
How is it possible for a multinational to consider the myriad of risks it encounters every day? And do so in a correct, unbiased manner that will inspire confidence in both shareholders and investors? Big business are without a doubt about big money and this can sometimes shadow some people's clear thinking. And when these people are also in charge with risk assessment the consequences can be dire. Striking the right balance between risks and making more money has always been a tricky business.
But this cuts both ways. Because companies are used to think risks as routine and local they more often than not ignore the bigger picture. The disaster that ensued the ash cloud showed that companies had not built in the capacity to deal with less likely but disastrous events. Because the probability of certain events is very low, the cost attached to it tends to be considered as insignificant, giving the firm a sense of security.
But probably the highest risk of all is acquiring debt. How much debt a company takes on rests entirely on the clear judgment of its executives. Normally they should make informed decisions based on risk analysis. At least in theory, because in practice we have seen too often managers taking on incredible levels of leverage just to artificially boost the earnings per share. It is no longer a secret that executives are paid based on the performance of the company's stock on the market.
This is where external risk management consultants come into play. They are professional, well-trained experts who have the know-how of identifying, assessing, and formulating strategies that help the company deal with the negative impact of an event when it occurs. They come from outside the company itself without being outsider to the business proper. This guarantees their integrity and protects them to some extent from executive pressure.