Risk is left to chance

Senior managers of all British businesses need to implement risk- management programmes that have their own personal commitment and involvement, according to a booklet published last week, writes Roger Trapp.

Business Risk Management, issued by the Institute of Chartered Accountants, points out that risk is not just about financial markets but can be a threat to the well-being of any company. Some of the most high-profile cases occur in the City, where the Barings collapse is perhaps the most notorious example of recent times. But many of the problems experienced by British retailers moving into the US market, for instance, are also cases of poor risk management.

Judith Shackleton, technical project manager at the institute's finance and management faculty and author of the booklet, says all businesses take risks in order to make profits, but adds that insurance cover is not on its own enough: "It is necessary today to have a comprehensive risk- management strategy in order to ensure commercial survival."

She stresses that managers must be clear about the business objectives and review them before embarking on significant initiatives. Her guide also reminds readers that, under the Cadbury code on corporate governance, directors should report on the effectiveness of internal controls. They must identify key business risks in good time, considering the likelihood of risks and the significance of the consequent financial impact on the business. Then they have to establish priorities for the allocation of resources, and set and communicate clear objectives.