Risk Management Blog - ClearRisk

An Ounce of Prevention: Does Risk Management Really Work?

Posted by Craig Rowe on Thu, Jul 16, 2009 @ 13:07 PM

An ounce of prevention is worth a pound of cure! I wonder what risk analytics software they ran to come up with that ratio? For thousands of years human experience has evolved to the point where we have become genetically programmed to know this. Yet we consistently ignore it! Dan Gardner‘s book “Risk: The Science and Politics of Fear” addresses this paradox extensively. Why, if we know what the money spent preventing risk will produce exponential returns, do we so often choose to ignore risk management and take our chances?

I think that the biggest reason is that we may intuitively know the ounce of prevention adage, but we need to be able to quantify the cost versus the savings. Of course, it is good business practice to have a sound business case before committing resources, but the problem with risk is it is very hard to quantify. It is perhaps even harder to quantify the savings realized from risk management. How many motor vehicle claims did your company prevent last year as a result of your fleet risk management program? If your claims were below average, was it due to your RM efforts or was it a good year? Were there fewer extreme weather incidents, or did the driver training program improve driver skills? Only review of trends over several years based on comprehensive records will narrow in on the answer.

We have done a lot of research to find studies quantifying the cost/benefits of risk management. There are many out there that we have found ranging from $1 spent managing risk can save up to $13 in loss related expenses. Intuitively and maybe even intellectually we know that risk management works.

The challenge is that organizations with limited resources have trouble investing in something that can’t be easily measured. It is difficult to justify an investment with little quantifiable evidence that it will pay off. Sometimes your gut needs to win out over your head when making the decision of whether or not to implement risk management.

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Topics: risk management, Risk Management in action, Risk Management working