Job 1: Managing Risk

What are managers hired for? What is the primary mission/role/goal/objective of a manager?

I have always believed that the one and only objective of a manager is to mitigate risk. Their mission? Risk Management.

Let me explain.

At the very basic level, organizations exist to create value that is not possible through individual effort. Private sector thinks of value creation in terms of money – dollars and cents. Public sector thinks of value in different terms such as service level and quality. But the central theme is consistent – both exist to create value.

It would seem logical then that organization should do two things:

1)      Find or create ”things” of value to someone

2)      Exchange these “things” for money from that “someone”

The first objective is your typical – make a product that sells. The second is to sell it and get money from the customers. If you can find a way to get this into a repeatable cycle aka process then voila, you have a business. Everybody lives happily ever after!

I have just diluted the entire concept of capitalism and relegated an entire system based on decades of management thinking, management schools and volumes of books into a couple of simple sentences. But I hope the transgression is worthy of the cause of explaining the critical role of risk management!

Well, back to the topic!

Organizations accomplish their objective of creating value by deploying people – each with a required and different but complementary skill to do the work required. These individuals get together in “teams” – or their dysfunctional manifestations called departments – and get the job done. So who needs managers? (Some of you are saying: exactly! But there is a reason why god asked George Bush to make managers)

The conventional thinking is that managers make these individuals get the work done “efficiently.” In other words, if we do not have a cat then the mice will play. Then people said that managers were needed to inspire these people i.e. they were leaders who led ordinary people to do extraordinary things. There is truth to both these lines of thinking but they get parts of the picture. Unfortunately, they miss the elephant in the room.

Any human endeavor does not have a 100% probability of success. Indeed, the probability of failure in a typical business adventure is close to 80% – within the first 12 months! New products fail at that rate and so do new companies. Roughly 5% survive after three year in business i.e. 95% fold within the first three years of opening their doors.

Therein lies the rub! That is where “risk” comes in. That is where the critical role “risk management” plays in shaping an organization’s future indeed its very survival.

If “individuals” on our “team” are doing their respective work then who is managing the risk of failure in their work? Who is making sure they are doing the right things? Who is making sure they are doing them right?

The traditional thinking on management or governance has focused on the need to “allow” or “stop.” It is fine and dandy to have these “permission” granting processes but what are these permissions based on? Isn’t the underlying motivation always risk management?

So a manager provides governance but their decisions are all and always must be based on the need to manage risk. Theory X Managers are managing the risk of team failure because of employees slacking off by wielding the “stick”. Theory Y Managers are managing the same risk through different means.

The sooner we grasp this simple concept the better off we and the teams we manage will be. More importantly, the governance processes we deploy will become more results oriented rather than the show and tell gimmicks they currently are.