Risk appetite in practice

I keep saying, most of the things created by modern day risk managers are artificial. There is a better way to integrate risk thinking into decision making.

Norman Marks on Governance, Risk Management, and Audit

From time to time, I am asked about the best risk management activity I have seen. Perhaps the best overall ERM was at SAP. I wouldn’t say it was perfect but it did include not only periodic reviews but the careful consideration of risk in every revenue transaction (including contracting) and development activity.

The best risk management activity was when I was with Maxtor, a $4b hard drive manufacturing company. It was based in the US but had major operations in Singapore, which is where I saw this.

The head of procurement for the region, a vice president, and his director were evaluating bids to supply the two Singapore plants with critical materials.

Margins in that business were not high, so the effective management of cost was very important indeed.

But, there were additional issues or ‘risks’ to consider:

  • The choice of a single vendor would increase the likelihood and…

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