Risk management is a critical discipline in both organizational and project contexts, aimed at identifying, assessing, and mitigating risks that could hinder the achievement of objectives. Its evolution has been shaped by advances in understanding risk, the development of methodologies, and changing organizational needs. Below is an overview of the history of risk management as a discipline at both organizational and project levels. In these first parts of the risk episode, we will show the risk management history and then show the risk management approach which I liked and hence used and using; in the next parts of the risk management episode, I will summarize the Assumption Based Communication Dynamics (ABCD)
Contents
Pre-20th Century:
- The concept of risk has existed for centuries, with early examples found in maritime trade practices. Merchants would use various strategies to mitigate the risks associated with shipping goods, such as diversifying cargo and purchasing insurance.
- Establishment of formal insurance markets in the 17th century. The Lloyd’s of London insurance market, founded in 1688, is one of the earliest examples of organized risk management.
Early 20th Century:
- The early 1900s saw the emergence of systematic approaches to risk, particularly in engineering and construction. The focus was primarily on safety and risk assessments related to physical hazards.
- The establishment of the field of safety engineering helped formalize risk assessment processes, which began to influence project management practices.
1970s and 1980s:
- The modern discipline of risk management began to take shape during this period. The term “risk management” gained prominence in the 1970s, especially in the financial sector. Companies started recognizing the importance of managing risks to protect their assets and ensure financial stability.
- In 1975, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) was formed to address risk management and internal controls, setting foundational principles for organizational risk management.
- The 1980s marked a significant shift in the project management field, with the development of methodologies that incorporated risk management. The Project Management Institute (PMI) published the “PMBOK® Guide” (Project Management Body of Knowledge), which included risk management as one of the key knowledge areas.
- The development of tools and techniques for project risk management, such as risk matrices and qualitative/quantitative analysis methods, became more widespread.
1990s:
- The establishment of formal risk management frameworks became more prominent. The ISO 31000 standard for risk management was developed in the late 1990s, providing guidelines for organizations to implement effective risk management practices.
- The 1996 publication of the “Standards for Risk Management” by the Project Management Institute further solidified risk management as an essential component of project management.
2000s:
- The early 2000s saw an increased focus on enterprise risk management (ERM), which takes a holistic approach to risk across the organization. Organizations began to integrate risk management into their strategic planning processes, recognizing the interconnectedness of various risks.
- The Sarbanes-Oxley Act of 2002 mandated greater accountability and transparency in financial reporting, prompting organizations to strengthen their internal controls and risk management practices.
Global Financial Crisis (2007-2008):
- The financial crisis highlighted the inadequacies of risk management practices across industries, particularly in financial services. As a response, organizations reevaluated their risk management frameworks and practices, leading to more robust systems and regulatory changes.
- The Basel III framework for banking introduced stricter capital requirements and risk management standards, emphasizing the importance of effective risk management in maintaining financial stability.
2010s and Beyond:
- • The discipline of risk management continued to evolve with advancements in technology, data analytics, and artificial intelligence. Organizations began using sophisticated modelling techniques and data-driven approaches to enhance their risk assessment and mitigation strategies.
- • Emerging risks related to cybersecurity, climate change, and geopolitical tensions prompted organizations to adapt their risk management practices to address new challenges.
- • The COVID-19 pandemic in 2020 underscored the importance of resilience and agile risk management practices, prompting organizations to incorporate scenario planning and business continuity strategies into their risk management frameworks.
- • During my professional journey I came across many methods for risk management but there is one approach which I liked and hence used and using; in the next scene of the risk management episode, I will summarize the Assumption Based Communication Dynamics (ABCD)
