Reflection on “The Recipe for Risk by Beller, April 2013”

The article “The Recipe for Risk” discussed the risk appetite which can be defined as the willingness of accepting risks for a particular firm. For sure, there are different levels of the risk appetite, and those levels are strongly connected to the industry that a particular firm works at. Some people would think of the risk as a bad thing, but most of the time, risk is associated with opportunities, so the bigger the risk is, most of the time, the bigger the opportunity would be.

It is normal for a company to have that desire to know what can happen during a project, the probability of these events, the consequences, and what types of risks can be take on each project in a particular portfolio. Answering all these questions can help an organization to identify its risk appetite; however, no organization can accurately identify its risk appetite if it doesn’t know the maturity of its risk management.

Risk appetite are becoming a well-known term, and it is penetrating firms across the globe especially that many companies now work overseas. In the global market, you have more opportunities, but you will run more risk. Many of the global projects have a longer timeline which means more uncertainty, which makes a firm increase the likelihood of a risk event, and of course, there is an additional cost associated with that, and it becomes even more risky if the firm is trying to invent a revolutionizing product; that can carry a great risk.

Some of the lessons learned from this article are what makes big companies enter new and uncertain markets that might have a long payback period is their strong balance sheets. Another thing that I found interesting is that risk management is like the brakes in a racing car, the better the brakes are, the more confidant you become, and the higher the appetite will be.

Personally, I found the risk very interesting topic, but it is unfortunately underestimated by many companies. I have heard it many times at my work place “we can’t afford to think like that, we have to stay optimistic”, if you consider risk, that does not make you pessimistic, it makes you in touch with reality, and by assuming that the best scenario will happen all the time, that does not make you optimistic, it makes you dreamy. The complexity of the global firms that work overseas makes the risk management even harder. One of the threats that my construction company never considered is the drop of the oil prices, which made the Saudi government stop all of the public projects, and that is the main market that my company is targeting, that alone, made the company downsize, and close a whole branch with its factory in the United Kingdom to reduce costs. And that is happening all the time, crisis and economic downturns, such as the Asian crisis in late eighties, which forced many companies in the US to be taken over by other companies.