The human mind is not rich enough to drive many horses abreast and wants one general scheme, under which it strives to bring everything.

(George Santayana)

Introduction

A new model of risk may be of academic interest to some people, but what business is really calling for is a workable methodology of enterprise-wide risk management across all classes of risk. The universalistic model of risk would be of more value by serving as the germ for an enterprise-wide risk management process. In one sense, this new model of risk is a means to an end ± a means whereby managers can interpret and respond to any kind of risk without the encumbrances of disparate risk management approaches. An implied process of integrated risk management actually emerges from the universalistic model of risk.

This section provides an example of such a methodology. An overview of the recommended focal points of the enterprise-wide risk management trend is given first, followed by a suggested risk management process designed around the universalistic model of risk.

The challenges to a cohesive risk management methodology include the fundamental differences in frames of reference for risk, different risk measurement parameters, different risk tolerances and the inherent need to balance the focus on value creation versus value protection. How then should winning organisations go about this challenge of enterprise-wide risk management? Firstly, companies need to focus on three essential initiatives.

Focus on value

The enterprise-wide approach begins by clarifying what really matters to the business. What are the drivers of economic value? What are the components and the processes of the business that generate its value? A value profile, complete with its quantification, is a good starting point. This value profile will reveal where the dependencies, vulnerabilities and critical elements are in the business.

These may include anything from a brand name to a hedge fund to an ecommerce application. Invariably, the value profile also reveals those business engines and processes of cash generation that lead to shareholder returns. This focus on value will be a powerful means of breaking down functional risk management barriers.