Risk Management Myopia

In many different experiments,
research has found that people exhibit loss aversion by
avoiding short-term expenditures, even though they
could actually result in significant long-term gains. More
specifically, people often miss an opportunity to mitigate
risks by not acting with a long-term perspective and by

not taking interdependencies into accoun

 

In this year’s Global Risks report, the World Economic Forum provided many interesting insights about emerging risks across the globe.  In addition, the report provided research into how risks are managed in various organizations.  One particular study examined the common myopic view of risks and the resulting behavior.  Here is what the report concluded.

In many different experiments, research has found that people exhibit loss aversion by avoiding short-term expenditures, even though they could actually result in significant long-term gains. More specifically, people often miss an opportunity to mitigate risks by not acting with a long-term perspective and by not taking interdependencies into account.

Individuals and corporations have short time horizons when planning for the future so they may not fully weigh the long-term benefits of investing today in loss reduction measures that could benefit them in the future. The upfront costs of mitigation loom disproportionately large relative to the delayed expected benefits over time. Applied to businesses, short-term horizons can translate into a NIMTOF perspective (Not in My Term of Office).

Current performance metrics and compensation systems are driving this myopic approach to the detriment of companies’ long term viability and the economy at large.  Looks like it is time for some vision correction in risk management.

myopia

Advertisements

About Wheelhouse Advisors
Wheelhouse Advisors LLC is the publisher of The ERM Current™, an online publication and blog dedicated to providing the latest updates on current trends in Enterprise Risk Management & Control. Wheelhouse Advisors provides cost-effective Enterprise Risk Management & Control solutions to both large and mid-size corporations. To learn more about Wheelhouse Advisors, please visit our web site at www.WheelhouseAdvisors.com.

One Response to Risk Management Myopia

  1. PSI says:

    In this website they have given the information about the risk management and said the myopia about the risk management. All should know clearly and exactly what is risk management. Risk management is a very important thing to all organization or firm to avoid the risk in their business.

    http://www.ermsummit.com

    http://www.gsmiweb.com

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: