Dilemma of Risk Management

Little attention has been paid to dilemma that present itself in risk management yet this is dilemma is does exist and need our full attention. This dilemma in risk management is presented when circumstances which are challenging undermine a number of the justifications for a choice that is self –interested and decentralized and thus when people depart from this norm both efficiency and legitimacy are undermined. In most of the cases the market processes that play a constructive and central role in the process of allocating risks is faced with impediments which include inaccurately perceived externalities and risks. These two impediments in themselves point to the dilemma that comes in risk management by corporations and individual persons and also necessitates the government intervention.

Thus the concerns of risk equity have proved to be very problematic. There may be direct excessive attention that is given to unimportant risks. This hinders the efforts to deploy resources to produce greatest gains in the economic and health status of the society. When the government intervenes it may have excessive expenditures on the reduction of risk which not only squanders resources but also creates or increases the risk to the general citizen. This is because by so doing the government is diverting the expenditures that that could be used in enhancing the living standards of its people and their health directly or indirectly. Thus expenditure on risk management can be perceived as risk taking in itself. This problem becomes worse on the perception that every citizen wants lower taxes but they don’t want to sacrifice the government programs that the taxes pay. Everyone wants less risks and demands giant improvement of all risks measures abut doesn’t want the money to achieve these goals.

Risk management becomes even a worse dilemma when people trade risk for resources. These risks are contracted voluntarily with some economic agent. For example people buy potentially risk product at cheaper prices. In another example people work in hazardous jobs out of their own free will so that in return they can get higher wages. Such trade off and the role they play in promoting efficiency are part of economic thought by Adam smith. However the government has called into question the rationality of trading risks for the resources.

An individual’s perception of risks will depend on the specific source and the tendency of the society is to take some more risks far much more serious than the other. Individuals tend to over asses the small risk and at the same time under assess a range of seriously consequential risks as those are posed by poor diet. Sometimes the society responds less rationally to some important risks. In risk management the decision on which risk to give more attention is difficult. The dilemma of risk management becomes even worse as increases in risk become more salient than the decreases. Ambiguous risks meaning those risks that whose probabilities are hard to estimate are most of the time the cause for alarm. But the problem is such that it is apparently very hard to estimate the probabilities of such ambiguous risk and most of the times they are disregarded during risk management.

Rational decision framework is still the most appropriate normative point of reference. The policies should thus not institutionalize the errors that people make but should promote the outcomes they would choose when the risk comes and can make sound decisions that reflect their values. Thus risk management institutions should stop focusing so much on what risk are more likely because individuals who are well equipped to make a choice between mangoes and bananas may have a difficult time when bananas are received only on probability and there is a minor probability that one of the mangoes is poisoned.

In conclusion actions taken may generate risks, but inaction leads to greater risk. One should as far as risk management is concern weigh the risk posed by the action in the process of risk also with the same skilled risk management tactics. If the action proves to be more risky then inaction is not the appropriate thing but the appropriate direction is to take an option of another less risk action.

References

Haimes, Y.(2009) Risk modeling, assessment, and management. United States. John Wiley and Sons.