Do smaller companies manage risk better than larger ones?

That seems to be the assertion by my good friend, Alexei Sidorenko, in a 2017 blog post I read for the first time this last week.

Why risk management in SME is better than in large corporations makes a number of good points. Here are some, with my comments.

  • SMEs simply can’t afford to waste time or other resources on an activity that does not generate direct value.
    • Comment: neither can larger companies. The reason (IMHO) that many CROs feel starved of top management attention, let alone budget, is that top management just don’t see the value. They see it as a compliance activity that may satisfy the regulators and the board but doesn’t help them manage the company for success. It consumes management time that is needed in problem-solving and decision-making, rather than helping make their informed and intelligent decisions.
  • Do modern day risk managers in non-financial companies in fact make money for their companies? Very few. Most of the modern day approaches used by the risk managers are so academic and superficial, that management has a tough job buying it.

Alex asks some penetrating questions to build on these points, including:

  • do risk assessments really change the way business processes work, change the manufacturing process, change the way products are sold?
  • do risk assessments change the way executives make decisions and is risk analysis available on time to support every significant decision? do they? really?
  • are risk registers looked at by the CEO before making an important decision?
  • do risk appetite statements in non-financial companies change the way company operates and the way decisions are made?

He continues:

  • SMEs don’t do risk management to mitigate risks, they do it to make better decisions
    • Comment: This should be the case for every organization or any size in any sector.
  • we seem to have created a myth that risk management is about managing risks. Not so. Risk management is not an objective in itself. It’s just another management tool to help them make better decisions and hence achieve the objectives.
  • SMEs do risk analysis when a decision needs to be made, using whatever risk analysis methodology is appropriate for that particular type of decision. Large corporations do risk management when it’s time to do risk management, be it annually, quarterly or some other regular internal. Nothing could be further from the truth. Unless your methodologies, approaches and tools allow risks to be analysed at any moment during the day, when an important decision is being made or at every milestone within the core business processes, you are probably doing something wrong.

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