The world of risk observed by Professor Jean-Paul Louisot, Université Paris 1 Panthéon Sorbonne, Dean of curriculum CARM_Institute

Any organisation can be defined as a dynamic combination of resources pulled together to reach the goals and objectives of the organisation.

Therefore, developing and communicating these objectives are at the heart of any risk management, indeed any management exercise. This is the reason why, for risk management purposes, we have defined an organisation as a portfolio of exposures, both threats and opportunities, to be managed in the most efficient manner to reach these goals and objectives under any circumstances. Within the context of a competitive economy, efficiency means either to reach the most ambitious objectives with the available resources or to reach the assigned goals with as few resources as possible.

While many would agree on this simple approach, there remains to decide how many classes of resources should be considered. The model we propose here is limited to a small number of classes, five, that will allow to take into account practically all the resources involved in the management of an organisation while being easily listed in a specific organisation. Each of these classes calls for specific forms of loss control measures (we will address this question in a future letter from Paris). Thus, the five classes of resources are as follows:

Human: all personnel linked to the organisation through a labour or an executive contract. Their specific experiences and competencies are an asset for the organisation although they are not always assessed and valued in the accounts. For this resource, elements like age, gender and marital status that may have an impact on the actual capacity should be carefully monitored. In other words, the exposure associated with human resources should be investigated both as key person and labour costs or social liability (pensions and employee benefits).

Technical: buildings, equipment and tools – all physical assets under the direct control of the organisation. The legal status of those assets is of secondary importance. What is essential is that the organisation has complete control over them, and can manage directly the risks they are exposed to.

Information: all the information that flows throughout the organisation, in whatever form (computer, paper, and human brains). This may cover information concerning the organisation itself, information regarding others (for example, medical files for patients in an hospital) but also what others may want to try to know and the organisation wants to know about other (for example, open source intelligence or industrial spying). Furthermore, the ability to do business depends on the trust established with others; so the perception that all the stakeholders have of the organisation is an essential ‘asset.’

Partners: Specifically, upstream partners (suppliers, service providers and sub-contractors) and downstream (customers and distribution channels). Of these, some are key, without which the organisation could not continue to operate, or operate efficiently, and they must be identified clearly if the dependencies on the supply chain are to be treated. It is an essential source of exposure in an economy where outsourcing has taken on huge proportions.

Financial: all the financial streams that flow in and out of the organisation: short term (cash, liquid assets, short term liabilities) and medium or long term (capital and reserve, long term debt, project financing, etc.) In other terms, all the risks linked with the financial strategy of the organisation and the balance between return and solvency.

However, the analysis would fall short if the organisation did not take into account its non-contractual exchanges with the environment, i.e. those resources that the organisation does not pay directly for and yet that could prevent it from operating smoothly. These ‘free resources’ that do not appear in the organisation’s accounts yet are essential: air quality, access to sites, social licence to operate. Further investigation of these is warranted.