The Need for Effective Risk Management

This chapter makes the case for risk management in general, and risk management in the government in particular. It begins by defining risk, while recognizing that the term is frequently applied to threats, but increasingly to uncertainty (thereby including both threats and opportunities). The role of change in creating uncertainty, and the resulting risk to agencies and programs is explored, as well as a description of the standard risk management process. The primary theme of this chapter is that effective risk management is not in itself an objective, but rather a means to a broader, more important objective: maximizing stakeholder value of the organization. Successful organizations are those that set a direction to maximizing value to stakeholders (citizens, taxpayers, Congress, other agencies, etc.), and then balance considerations of performance, cost, and risk in achieving objectives that deliver such value.