Risk Management and Arkad

Risk and Management – two words that induce drowsiness in most people. Put them together and you have the antidote to insomnia.

There’s nothing ‘sexy’ or ‘edgy’ about it. But it can help you sleep by ensuring that you don’t sit up all night out of your mind with worry.

Risk Management is associated with ‘Brainstorming’ and ‘Risk = Probability x Severity’ and ‘Risk Matrices’. But not all risks are equal, some risks are so probable and so severe that your company’s not going to make it no matter how hot your product is or how smart you are. We could catagorise these risks as systemic. The system itself is the risk.

You know? I’m so bored by just writing the above that I’ll stop and have a coffee. Because I’m about to write another word that could induce catatonia in a hyper-active teenager.

OK, Back again. Where was I?

The catatonia word? Procedures.

Yes. Risk and Management and Procedures all in the same sentence. Zzzzzzz.

But don’t drop off just yet. Let’s talk about something else. Let’s talk about a man called Arkad. He was (reputedly) the Richest Man in Babylon. He started as a slave and ended up loaning money to the Kings of Mesopotamia. And he wrote the book on Risk.

People who lend money are always good at risk because they manage a simple and tangible asset. There’s nothing complex or intangible about gold.  Any loan of it starts with a Risk Assessment which has two elements a) what is the probability of getting the gold back + interest and b) how do I get the money back if the loan goes bad?

Read the Book !

Arkad had a fantastic is somewhat esoteric way of assessing his risks. He had a chest full of artifacts and before he made a loan he looked through them. Each artifact reminded him of a specific failure. One was a jewel recovered from a man with an avaricious wife – a lesson on how to look at why someone wants a loan. For every type of risk he had an artifact. He learned from his mistakes and reminded himself of them frequently. They were his ‘procedures’.

The money used to finance a project is a loan. The company expects the person entrusted with the project to return the money with interest.

Let’s go ‘off-piste’.

How many company managers and how many project managers understand that simple fact? Neither the company not the project is in business to (say) construct a pipeline. They’re in business to make money from the construction of a pipeline.

Understanding the difference is the Genesis of Risk Management.

Fast forward to Procedures. Just like Arkad and his esoteric box of artifacts a company needs procedures because they are the first line of defence against risk.

There is another expert on risk we should all re-read, his name is Sun Tzu. But that’s for another blog.

And I’ll not delve into Procedures because I need to stay awake for the next eight hours, but think about it. How can simple instructions on how to do something protect a company or a project from Risk?

Answers please on the back of a certified cheque made out to CASH (your first lesson on risk right there).

If you want to understand how to make money in a risky environment – read the book


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