Not an insignificant percentage of the business – investment communities and professional service firms (PSF’s), have been piously complacent regarding their presumptions that the terms (a.) risk management, and (b.) risk mitigation, are interchangeable. Through my lens, there are important distinctions with differences!
The terms risk management and/or managing risk suggest…these are actions taken to manage adverse events – circumstances, ala risks, which likely have already materialized., i.e., managing risk ex post facto.
Whereas, risk mitigation, assumes…effective action can-will be taken to abate and minimize the probability that some-all adverse effects of particular materialized risks that frequently coincide with – emerge from specific business activities, transactions, or initiative in which intangible assets will inevitably be in play.
I am suggesting there is a ‘bright line’ that distinguishes…managing adverse events, actions, and behaviors which have already materialized vs. having specific policies, processes, and practices in place to mitigate risk events, actions, and/or behaviors prior to and/or at the earliest stage of their materialization. More specifically, in advance of adversities manifesting to the level of business destabilization or lethality.
Of course, the strategic premise to this argument lies with… recognizing the…
- globally universal economic fact that 80+% of most company’s value, sources of revenue, and ‘building blocks’ for future wealth creation and sustainability today lie in intangible (non-physical), not tangible (physical) assets.
This translates to rapid and irreversible growth in the…number of companies in every sector now operating with high levels of intangible asset intensity and dependency.
Accordingly, business leadership, management teams, investors, and stakeholders are obliged to…commit more risk mitigation – risk management services to focus on intangible – non-physical assets than tangible-physical assets.
As most risk mitigation – management professionals recognize all too well…a helpful prelude to execute the above, is for a relevant – comparable risk to materialize and adversely impact a competitor, a risk that produces…
- sudden and immediate hemorrhaging of asset value, sources of revenue, brand, reputation, and competitive advantages, etc.
- adverse public, political, and/or regulatory spillovers which lead to
long term hemorrhaging of market share, and erosion of customer-
client base, company value, and revenue generation capability.
It’s certainly not uncommon, when a significant business risk does materialize…
- that it will adversely affect a company’s intangible assets.
- which previous leadership were unresponsive to and/or expressed indifference,
- which frequently give way to receptivity for substantive commitments to mitigate-manage business risk, preferably before they materialize.
My experiences in matters of ‘risk to intangibles’ suggest…management team interest in risk, following a risk materialization event, will likely change to include means to…
- sustain control, use, ownership, and value of their company’s intangible assets which have been targeted, and/or are in the probable path of future risk, should it materialize.
Experience in intangible asset risk matters has also led me to…conclude there are (generally speaking) two key factors-variables that influence how business risks will be received (interpreted, assessed) by business leadership and management teams and ultimately influence their propensity for action, e.g., if the risk…
- adverse outcomes are presented in objective – quantitative contexts vs. subjective-qualitative contexts?
- is presented-characterized as being responsive to prevention, mitigation, or management practices-techniques?
- potential for materialization are characterized as single occurring, perhaps, one-off events, absent conveying vulnerability-probability for multiple risks materializing simultaneously?
- characterization includes potential for producing enterprise-wide cascading affects that significantly elevate both the cost and challenge to adversely affect business value and sources of revenue, and stop competitive advantage hemorrhaging?
- advocate is inclined to over-dramatize vulnerability and probability that certain (future) risk will materialize, to the exclusion or
minimalization of criticality, i.e., near-long term adverse impacts.
As an intangible asset strategist and risk specialist, I seek consensus… on matters of risk and help-guide clients to avoid circumstances in which there are competing interpretations and assessments of particular- risks in terms of the company’s…
- vulnerability to,
- probability of, and
- criticality to a company, should it materialize.
An essential requisite to making a business risk presentation is… recognizing that while management teams, boards, investors, and other stakeholders may not be familiar with the intricacies of current business risks…
- they typically grasp the ‘big picture’ and may have already framed certain perspectives about how best to address a risk, albeit from a managerial – financial position or an assumption regarding a company’s risk tolerance and/or risk threshold.
Michael D. Moberly June 30, 2017 St. Louis [email protected], the ‘Business Intangible Asset Blog’ since May 2006, 650+ blog posts published, where one’s attention span, intangible assets, and solutions converge!
Readers are invited to explore other published blog posts, video, and position papers at https://kpstrat.com/blog