Why is it important to take a balanced approach to risk management

Money is happiest as a loner. It wants to be left alone, with other money, to do its interest-earning thing. The less we mess with our money, the more of it we have.

Why is it important to take a balanced approach to risk management

Summary of recommendations for Beyond Budgeting implementations Introduction: Investors want to feel that Directors of companies they invest in know what is going on and what will happen. They want to feel that management are in control. Budgetary control and similar systems of target setting and rewards have tried to provide that sense of comfort.

However, if budgetary control really provided control in today's fast moving, complex, and turbulent world then companies whose budgetary control systems have been operated rigorously would not get nasty surprises, but they do. On 3 December the Daily Telegraph reported on an embarrassment for BP, one of the world's most powerful and respected companies.

Earlier that year BP had been forced to cut its growth targets on more than one occasion. The paper reported that Lord Browne had said he personally felt humiliated when the company scaled back its growth targets from 5.

This humiliation was not just because the targets had been dropped. According to a spokesman "He was taken aback that we did not have a clear idea at the beginning of the [downgrading] process. Lord Browne said that middle-ranking executives had been asked to "step aside for a moment" not literally as was later explained while the company tried to assess what was going on at grass-roots level.

The results of this review were expected along with the group's full-year results in February but in fact no explanation was given. Instead, Lord Browne explained that BP would be stating estimated ranges in future and that announcing single-point targets " It operates a conventional budgetary control system rigorously and in theory such surprises should not happen.

Outsiders can only speculate as to what really happened. However, it is likely that they lost sight of their future because of their budgetary control system, rather than despite it. This paper discusses the true contribution of budgetary control and the potential role of a reformed style of risk management within the Beyond Budgeting model.

The Beyond Budgeting model is a complete alternative to budgetary control, and its like, whose superior effectiveness has been demonstrated in practice.

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Definitions But first some definitions to explain terms and introduce the key concepts that distinguish alternative approaches to management control.

Budgetary control In this paper budgetary control refers to any management approach that involves setting some kind of targets, regularly measuring variances between the original targets and actual outcomes, and motivating people to reduce those variances. This kind of control usually uses budgets, but these days the targets could be a mixture of financial and non-financial targets.

Companies are thought of as being controlled by a set of control loops, each one like the thermostat of a central heating system. In control theory these are called negative feedback control loops.

This is not because the feedback has a negative effect on people involved but because the feedback is used to reduce the variance. A positive feedback loop is one where the feedback increases the variance.

Why is it important to take a balanced approach to risk management

Budgetary control attempts to deal with future uncertainties by reacting when the unexpected becomes evident through variances. The system always tries to get back to the original desired outcome.

This style of control has invaded almost every major company in the developed world and over-run many potentially interesting developments in management thinking. For example, the balanced scorecard was initially an interesting expansion of management information, but very soon the thermostat philosophy was added in an attempt to provide a more complete management system.

In many management textbooks, "management" and "management control" are defined in terms of setting targets and monitoring and managing variances. It's almost as if there are no alternatives. In fact there are alternatives.Risk Management December 1, 1 Guidelines For Risk Management in Customs As part of your review of a country’s trade performance, you have come to the.

Some element of risk is unavoidable. After all, if there were no risk in life, there would be no insurance companies. Then where would we all be? 2. The jargon is useful. A hazard is something that has the capacity to cause harm. A risk is the chance of hurt or injury actually occurring.

If you can remove a hazard, do so. Below is an essay on "Explain Why It Is Important to Take a Balanced Approach to Risk Assessment" from Anti Essays, your source for research papers, essays, and term paper examples.

Explain why it is important to take a balanced approach to risk assessment/5(1). Obviously the risks we allow children and young people to take should be appropriate to age, needs and ability, and a balanced approach should apply.

We should not be excessively risk adverse and encourage children to have more independence, therefore creating more confidence.

About the author: Matthew Leitch is a tutor, researcher, author, and independent consultant who helps people to a better understanding and use of integral management of risk within core management activities, such as planning and design.

He is also the author of the new website, caninariojana.com, and has written two breakthrough books. Jeppesen Fatigue Risk Management Portfolio. Boeing and Jeppesen have jointly developed Fatigue Risk Management (FRM) functionality for allowing airlines to control crew fatigue and fatigue risk in crew planning and operation.

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