Business risk management and insurance subject matter
The concept of business risk management is closely interrelated to the management of an insurance company. In the view of the author, Hubbard, business risk management and insurance related concepts are closely interlinked and therefore demand proper planning and effective allocation of organizational resources. In the view of the author, proper identification and assessment of risks involve identifying and fixing all possible risks especially those that are hidden.
Over the years, many risk management techniques have been misapplied and misused. An example of such risk is the over reliance of financial advisers and consultancy services without identifying the unique needs and demands of an organization. Through the analysis of hidden risks, Hubbard explains that it is possible to detect and address major risk concerns such as the occurrence of natural disasters, uncontrolled outsourcing to the Chinese republic and engineering catastrophes without having to apply many critical flaws.
The need to identify and understand the value and relevance of insignificant aspects of business management remains to be a crucial aspect of risk management. Modeling of uncertain systems is also a vital means of enhancing accountability and reliability in a risk management process. From the analysis undertaken by Hubbard (178-241), the fact that finding the actual value of risks is no longer a crucial aspect of risk management is very clear in the authors’ description of a business risk.
Actual strategies of reducing risks are normally not clear to most people. Understanding the actual risk management strategies is a very complicated process that demands proper planning and assessment of the modern business environment. Most people neither like being realistic when dealing with their business risks nor are they willing to establish possible means of clearly managing such risks. Disaster recovery, enterprise risk planning and management, disaster recovery strategies, governance and compliance strategies, and in-depth crisis management approaches are all crucial risk management mechanisms that could be applied in business and insurance settings.
According to the author, a risk is the probability, level, and magnitude of given disaster or probability of a certain undesirable incident occurring. On the other hand, management is the entire detailed process of planning, evaluating, coordinating, controlling, offering direction, and cost effectively and efficiently using resources to achieve given objectives. Business risk management therefore refers to the actual process of undertaking assessment, critical identification and prioritizing of various concerns that pertain to the minimization of business risks and incidences that could lead to a business enterprise incurring losses or malfunctions.
Rudimentary risk management strategies emerge as unrealistic means of wasting both financial and human resources in an attempt to minimize the operational risks of a business enterprise. The problem of risk management is very wide and could be ignored if no proper planning and allocation of resources are done. As a means of fostering proper planning and cost effective business operations, it could be argued that risk management in the modern business organization does not necessarily entail avoidance of risks but rather enhancement of efficiency in the overall business processes (Hubbard 47-72).
Fixing risks is another crucial aspect of risk management that can never be ignored. The author articulates the need to undertake proper planning and customization of business processes and integrating various cultural concerns in ensuring that risk management is done in an effectual manner. In instances where a single even results in a number of failures in a system, the resulting common mode failure is a sure indicator that poor planning and lack of proper planning is a sure cause of such a failure. Worst still, this type of failure results in constant poor planning and failure to detect potential system failures.
Presentation and critical analysis of the author’s main points
The author focuses on the key aspects of skepticism by business organizations when faced with risks. In his assessment of the failures of risk management, it is evident that various risks associated with outsourcing in business endeavors are a major concern to the author (Hubbard 3-18). Though built on unfortified premises, the author identifies various critical aspects of risk management that need to be understood in order to effectively manage fundamental errors in both qualitative and quantitative business models.
Monte Carlo business concepts have been explained by the author as crucial simulative steps that help to effectively manage risk levels. Sadly, the author fails to explicitly explain the manner in which the Monte Carlo imitation relates to some business applications such as competitive bidding, sales forecasts and information technology systems. Though relevant to the modern business environments, the fact that Monte Carlo has a complicated business hierarchy and operational mechanism makes it an unsuitable model for use in the modern small and medium scale businesses. Standard deviations in risk assessment should never be treated as a proof of existence of risks.
The author is emphatic on the fact that the term “risk management” is rarely used as it should be. Most people only concentrate on specific aspects of risk management. Broadening the scope of risk management to integrate all aspects of business management and operations is a vital aspect of business management. He also manages to explain the issue of uncertain language use in the management of business process with the aim of avoidance and reduction of risk levels. To the insurance business, the author has tactfully explained the extent to which the insurance industry can remain relevant to the business environment. Addressing all misplaced and misused businesses through collaborative strategies and tactful application of various scientifically proven and commonly used risk analysis strategies can be an appropriate solution (Hubbard 21-29).
Conceptual obstacles to risk management have been accorded a lot of focus and attention by the author. The author, Hubbard, through the explanation of possible conceptual obstacles to risk management manages to reinforce the fact that in reality, the difference between practice and theory does exist. The nature and likelihood of occurrence of risks pose a number of unwarranted risk levels to an enterprise. The feasibility of risk management practices is dependent on the level of efficiency and effectiveness of a given risk management process. In fact, the author is very emphatic and clear on the fact that qualitative and quantitative modeling of risks and the measurement of consequences of risks should be undertaken from an informed point of view.
Risk assessment is a crucial aspect of business management in the modern business environment. The author successfully articulates critical issues that relate to the management of risks and the need to face business risks in an objective manner. The author also identifies various crucial strategies which if adhered to could result into successful business operations. Sadly, the author fails to clearly and objectively identify the cost implication of most business risks. His analysis is also skewed to limited aspects of risk management in the modern business environment.
Pseudoscience is a major problem faced in the modern business environment. This problem poses a lot of challenges in the explanation of the modern business environment and the numerous risks challenges faced in the conceptualization and management of various risks. The fact that the author effectively and objectively addresses the issue of unchecked spread of “fake” science helps to ensure that proper planning and management of business risks is achieved. The author’s unique ability to address risk assessment concerns with reference to financial and non financial concerns is a major achievement. Risk management should never be treated as a preserve for specific business concerns. Instead, proper planning and allocation of resources should be addressed with attention being paid to the overall business performance and enhancement of efficiency and cost effectiveness. It is evident that although no single risk management approach is described as the ultimate good, critical analysis of risk management and conceptualization of the entire process are vital in enhancing efficiency and cost effectiveness.
Risk management failures have to be addressed in an objective manner. Through the use of various case studies and real life challenges such as the year 2008 credit predicament, natural disasters, enormous outsourcing to the Chinese republic and a number of engineering challenges, the author has been successful in reaching out to many people. The wide audience underlies the degree to which various business processes and risk management strategies could be applied in a cost effective and efficient manner. Through the use of risk associated with outsourcing, the author manages to effectively stipulate the need for business management and the demand for proper planning and in-depth research before any business deal is authenticated. In case any calculations are involved, the weighted scores should be critically assessed and any meaningful conclusions made with the aim of improving the entire risk management process. Failure to have an objective strategy of reducing a given risk is a sure means of ensuring that a given risk management strategy becomes a total failure. Unlike in other academic and business works undertaken by Nassim Taleb and Black Swam, Hubbard points out the grave challenges facing business enterprises with regard to the management of business risks. By focusing on a wider audience, the author has management to outline qualitative analysis as one of the many vital risk management strategies. He offers very practical advice on the relevant strategies which if implemented would boost the efficiency and cost effectiveness of the risk management approaches currently being implemented. The qualitative approach is very crucial as it ensures that any illusions or unfounded believed are addressed. On the assessment of self assessment, the author explains the manner in which people should remain positive when addressing their own concerns. He articulates the fact that being positive does not necessarily imply that one ignores potential dangers that could result in total failure of any business process. On self assessment, the author manages to identify vital aspects of self assessment that can never be ignored when undertaking self assessment (Hubbard 37-49).
Hands-on risk management examples have clearly been provided. Such examples offer real life risk management alternatives which if clearly applied could reduce the risk levels by a very big margin. For instance, the author’s use of the “placebo effect” is a major achievement as it offers the audience an opportunity to conceptualize both subjective and objective improvements. Such improvements are outlined in a way that depicts the extent to which risk management could be done by focusing on the main issue of risk management.
By using firms such as Bear Stearns, Lehman Brothers, AIG and federal agencies, the author takes a very forceful approach in dealing with critical issues of concern. In fact, the issues, though sensitive and debatable, focus on enhancing accountability and transparency in all business processes. The author is also biased on the type of risks he dwells on (Hubbard 37-50). The biasness is evident in the fact that only management risks, and not personal risks, are emphasized. Though objectively done, this has the danger of ensuring that critical risks that pertain to people which are interconnected to people and business organizations are overlooked.
The author is very specific on the risk management methods already developed by different researchers. Though he acknowledges the existence of various management strategies, the author insists that effective risk management strategies should reinforce the need for efficiency and cost effectiveness in the management process. AHP risk management approaches face a lot of controversies. The approaches are not mathematically proven but are popular with many managers. In line with Hubbard’s argument, it is evident that running of axioms has emerged as a major challenge. This predicament is associated with the violation of important business strategies and the existence of many flaws experienced in business management and operations of the insurance industry. The author does not clearly explain the exact manner in which business processes and strategic business operations linked to Savage’s axioms addresses the concept of rank reversal.
Hubbard’s main themes in comparison to other perspectives in academic literature
Understanding of the entire risk management process is a very crucial aspect of the modern business and insurance management engagement. In most instances, this process involves fully understanding the best means of measuring efficiency and cost effectiveness of a given risk management procedure. Regardless of the method used to measure risk levels, Hubbard is of the view that having an objective measure of the effectiveness of a given risk management strategy is a fundamental aspect of risk management. According to Hubbard, best practices in risk management should be customized in order to fully address the specific business processes and should not be too general. Little or no focus should be paid to the false belief that taking insurance policies is the best and only way of dealing with business risks. The author does not accord any value to the role played by insurance companies in the modern business environment. As a form of financial regulation, taking insurance policies does not offer a means of managing risks. However, Koller and Robert (29-43) are of the view that as a form of risk mitigation, insurance policies could be employed in identifying various speculative elements thus enhancing business efficiency and cost effectiveness. Awareness of the different existing or potential risks faced in a business enterprise is another vital aspect of risk management that both Hubbard and Savage put a lot of emphasis on. This is evident in the manner in which Savage and Hubbard emphasize on the fact that risk management should not only be understood based on its impact but rather through effective conceptualization of various issues that relate to it. Failure to adopt various accounting controls and implementing of effective risk controls without keenly understating that such risk management strategies have failed is a sure proof of risk failure in business management especially in the insurance sector (Hubbard, 32-93; Savage, 19-53).
Consideration of various human factors that could affect the success or failure of a given system is very crucial. Organizations that fail to consider human factors face a near obvious challenge of having obsolete products and services and even experiencing redundancy in some of their business processes. An example of such a case could be one whereby “common mode failure” occurs as a result of a minor system failure. Another example of the same is in the manner in which inability to consider all human factors and conduct timely planning resulted in the emergence of the Hurricane Katrina which caused a lot of havoc and disastrous impacts in a number of western countries. The disaster had a lot of negative impact due to poor planning, misguided risk assessment techniques and inexistence of proper risk mitigation strategies.
A weak risk management approach can be disastrous in any given organization (Hubbard 68-73). As Hubbard puts it, this belief is founded on the premise that rather than heavily investing in a given risk management approach, a business enterprise should be focused on ensuring that proper planning of how to manage risks is keenly undertaken. The belief involves implementing various risk management, evaluation and monitoring mechanisms necessary to uphold a high sense of efficiency and cost effectiveness. The belief directly contradicts the arguments of Koller and Robert (37-52).The latter base their argument on the best risk management approaches.Koller and Robert have a strong conviction that realistic risk management mainly depends on people’s mind-sets and not logically proven techniques.
Erroneous judgment gravely contributes to increased risk failure in a business enterprise (Hubbard 167-201). Such risks are hardly improved through the performance of optimal calculations. Use of JDM research is crucial although it should always be integrated with other research strategies which if effectively used could result in proper planning and effectual mitigation of risks in a business setting. Invalid risk assessment scoring models should always be tested alongside the reality of business operations on the ground. Outputs of a given risk assessment model should constantly be tested and compared to the real outcomes that could involve credit defaults, business project failures and security loopholes that may have been identified. This argument is in line with the one made by Savage (52-54). Although Savage concurs with Hubbard on the need to adopt modernized strategies of managing risks, he still believes that errors of biasness should never be a major worry in risk management. Instead, Savage (2012) reinforces the fact that uncertainty in the management of risks should hardly be underestimated.
Analytic Hierarchy Process, popularly referred to as AHP, is a technique that has been explained and accorded in-depth analysis by Hubbard (7-89). Making of rational decisions remains to be very a fundamental aspect of the overall success of all business processes. AHP approach is very crucial and relevant as it helps organizational managers to make rational decisions and tradeoffs between different options in business management based on the various preference standards. Use of ineffective risk management strategies is a major characteristic of risk management in the contemporary society. While Hubbard uses many influential risk mitigation approaches to prove that a lot of qualitative and qualitative risk management methods are a disgrace to most organizations that apply them (Hubbard 258-259), Koller and Robert (18-21) use the Monte Carlo analysis to outline the manner in which corporate organizations could employ the study of uncertainty to enhance efficiency and cost effectiveness. Fallacies that discourage people to apply diversity in risk assessment and the use of empirical science to manage risks are evidently an important aspect of managing risks. This aspect emerges through the critical analysis of the diverse approaches used to assess and mitigate various risks in the insurance and business environment.
Key points to note and examination of the main points
By comparing many renowned yet flawed risk management methods used to frequently manage risks, Hubbard (4-253) succeeds to formulate new strategies and reinforce the need to implement objective risk management methodologies. Instead of blindly adopting risk management strategies that may have been successful in other organizations, it is evident that Hubbard has a lot of interest in the need to customise risk management methods to the needs and expectations of every organization. It is also meaningful to note that although crucial, insurance has very little impact on the success or failure of an organisation’s risk management methods.
Though flawed, the need to adhere to combined scientifically proven and commonly used techniques is crucial. The need for modernised collaborative risk management strategies has been accorded due attention by the author, Hubbard. Methods that are commonly used in addressing risky concerns such as exploratory oil, nuclear power and other sensitive political decisions so far made in the world should be popularised. The methods also demand that all industries and governance centres constantly collaborate in ensuring that risk management is effective undertaken. The author emphasises on the fact that poor risk management strategies are more popular. This view is similar to what Savage uses in addressing critical areas. Savage believes risk management failures should be addressed in accordance with the various flaws that could hinder such a process (Hubbard 89-124).
Addition of empirical scientific techniques is a crucial aspect of risk management. Proper planning of the same should also be undertaken. Arguments made by Hubbard (215-223) point to the fact that risk management is an endeavour that could be considered to be a failure if redundant business models are strictly adhered to. Its failure can mainly be due to the fact that most risk management approaches have either been misused or misapplied. All risk management flaws can be fixed. Hubbard attempts to achieve this by trying to restore people’s confidence in the use of modernised and collaborative risk management strategies. Indeed, risk management is an ongoing process.
Failure to effectively evaluate risks is actually the worst undoing in any risk management process. Though Hubbard’s business practices are widely claimed to be the best, Hubbard manages to explain the reasons why he is of the opinion that most risk management methods are applied without due consideration to the possible outcomes. Through the use of real world illustrations, Hubbard proposes the need for the use of calibrated risk analysis approaches. Rather than blindly applying risk management strategies that are believed to work yet have never been tested, Hubbard suggests that application of various risk management approaches is vital to the overall success of risk management mechanisms applied in most global business settings.
Hubbard, Douglas. The Failure of Risk Management: Why It’s Broken and How to Fix It, New Jersey, USA: John Wiley & Sons, Inc., 2009.Print.
Koller, Glenn and Robert, Glenn. Modern Corporate Risk Management: A blue print of positive change and effectiveness, New York, USA: Cengage Learning, 2007.Print.
Savage, Sam. The Flaw of Averages: Why We Underestimate Risk in the Face of Uncertainty, With Illustrations, New Jersey, USA: John Wiley & Sons, Inc., 2012.Print.