Challenges in Applying Risk Management Concepts in Practice
Risk Management and Insurance Review, 2018, 21(2): 309-333
36 Pages Posted: 11 Dec 2017 Last revised: 23 Jan 2019
Date Written: December 17, 2017
The existing concepts of risk management face challenges when applied in practice. The perception of risk depends on the observer’s cognitive biases and world view which nuance risk related decisions. How an observer decides also depends on the metric used to quantify risk. While there is extensive literature on how people perceive risk, and on how to price risk in relation to the market, there is little on how to price risk according to how risks interact within the firm. The essay concludes with a suggestion (and includes relevant citations) for a way forward.
Keywords: risk, management, enterprise, strategy, biases
JEL Classification: G2, G20, L20
Suggested Citation: Suggested Citation