Ac 340 - Auditing

The rise of risk management and the blame game!

The rising trend towards risk management is a growing concern, part of which can be attributed to the functional aspect suggesting that it is a natural response to a more risky world (Power, 2004), where companies are under significant pressure to satisfy the ever increasing demands of shareholders. A more radical view of this rise points that it may merely be a form of administrative fashion, replacing existing models to offer enhanced rationality (Power, 2004). At the same time, it could also be driven by the increasing need of making things audible and hence, publicly visible (Power, 2004).

        However, such trends could be arguably giving rise to strategies such as blame avoidance as managers become more aware of risks to reputation (Hunt,2003). Consequently, professional judgement  is likely to become more defensive and directed towards precautionary principles in order to avoid possible losses to reputation. Moreover, it can also be regarded as legalistically defensive as organisations become rule bound in the context of audibility (Power, 2004). With such stringent rule based requirements, organisations are likely to respond to risks ineffectively causing inefficiencies in the system. Therefore,

The following essay will discuss some of the possible reasons of current trends in risk management with regard to rational and irrational explanations as well as present a critical view of how this may be instigating the blame game (Hood, 2002) and promoting defensive strategies. Finally, it will provide a solution regarding how some risks of risk management may be avoided by adding a balance between calculative models of risk management and other communicative forms (Power, 2004).

        With globalisation taking over and technology becoming dominant, the world is at the verge of becoming even more riskier. For example, the development of ‘apps’ in smart phones has changed business games drastically for companies like Samsung, Blackberry and Apple. According to Hunt (2003), these are business risks that companies take when competing in markets where a new product launch can prove to be a success for some and danger for others. In such instances, risk management in the technical sense can prove to be a very useful tool for hedging against risk and thus makes sense for organisations to employ specialist risk managers in dealing against such risks (Hunt, 2003).

        However, the problem lies in overestimating the idea of risk exposure to a point where it starts to become an unnecessary self regulation (Hunt, 2003). The desire for control has expanded in the society to an extent where individuals are beginning to ensure against risks, the markets for which did not even exist in the past. This can be further inferred from risk transfer deals such as insuring against a newly launched movie which may or may not turn out to be a success at the box office ( Hunt, 2003). Managers are so worried about making mistakes that they have created risk managing techniques for almost every aspect of management. If something wrong happens, managers are worried about appearing to be irresponsible and hence want to be prepared in every situation to present their side of the story. As pointed by Hunt(2003), there is a new obsession with intangible reputation risk where corporations need to accept responsibility or they might suffer a loss to reputation, causing long term damage to businesses. In such cases, managers want to be adequately prepared by engaging in defensive dimension of reputation management.