Risk Management 5.0

Thousands of years ago, since the mankind started writing its history there were Risk Management registers. The Greek and Roman civilizations, who are great pillars of modern culture, didn’t have any tools nor dominated Mathematics like we do today. They used what was at hand: Gods. Many Gods. We don’t know if the results were efficient, but it was the best they could do to manage future uncertainties that could affect their goals. This kind of “risk management” lasted until the mid 17Th Century when Blaise Pascal and Pierre de Fermat developed the Probability Theory and changed the way we think and act towards uncertainties. It was the birth of Risk Management and we can tag this period as the Risk Management 1.0

From those ancient days until the 40’s many centuries have passed, and different methods, calculations and concepts were created, allowing “forecasts” and decisions that were never possible before. In this period of time, the first insurances arouse as means of responding risks that leaded to losses. Risks were basically considered as threats to business and private properties. It was the discovery of Risk Management. Let’s tag this period as Risk Management 2.0.

After World War II, we observed what is called the formative era of Risk Management. The first scientific articles and books were published about the theme, theories were formally written, beliefs were reconstructed, concepts were discussed and defined. Different ways to manage risks, apart from insurances, were discovered. With the evolution of Science, Medicine, Mathematics, Engineering as well as the growth of new technologies, the world evolved, and many risks once considered relevant turned into something tolerable or insignificant. Moreover, some others became part of organizations and people’s lives.

Techniques such as the common sense, trial and error and “consultation with the gods” were replaced by quantitative analysis and tools. Laws and more effective protection mechanisms were implemented by institutions, agencies and regulators. Many researchers were laureated with Nobel Prizes by their works related to Risk Management. This period lasted until the 90’s and can be considered as the establishment of Risk Management and we can tag this period as the Risk Management 3.0.

With the end of the Cold War, the beginning of globalization and the technological boom at the millennium turn, everything changed again. Project Risk Management increased, Project Portfolio Risk Management gave its first steps and Enterprise Risk Management emerged as means to help organizations to reach their goals. Financial Institutions were forced to reinvent themselves. New models were created, theories were consolidated or restructured, and more controls were requested by shareholders, clients and other stakeholders throughout the world. By this time, cyber and terrorists’ attacks started, environmental catastrophes happened, global financial crisis scared the world, giant tech companies popped up from nothing and some businesses never thought before became possible. People realized that risks (positive and negative) are everywhere and if you don’t manage them, your plans will not make much sense. This was the time of Risk Management maturity and is lasting until today. We can tag this period as the Risk Management 4.0.

But something is changing again, and a new way to manage risks is arising on the horizon. History will be rewritten. What comes next? People and organizations will realize the real meaning of Risk Management. Projects, initiatives and companies will not just manage their risks to protect their values. They will use Risk Management to guide their processes and create value. Business models will be reinvented, the logic will be changed, and people will not just manage their risks. The management will be made by risks and every managerial decision will aim at minimizing threats and maximizing opportunities. The integration of every other management processes will be made by risks responses. Organizations will be forced to incorporate this logic to become agile, competitive and reach their goals.

New ways to transfer information continuously emerge every day and will become more accessible and universal. Data will be analyzed rapidly, and artificial intelligence tools will be applied to predict uncertain forthcoming events to help decision makers.

Regulation has come, and the trend is to remain and increase. Everybody will become more adherent and supportive to agreements and laws, since people are less tolerant and are not willing to expose themselves to risks that are out of their control.

Sustainability will be more present and mandatory. The weather is changing. We don’t know any other planet where we could live in, and mankind will have to assume the consequences of our current decisions. The Earth can’t wait, and time is running fast. Elon Musk will not take us all to Mars.

Human and social aspects of Risk Management will be more visible and influent. The understanding of the concepts provided by neuroscience will invade the world and will join to the existent theories and a new leap will be made. All these changes will be the revolution of Risk Management. We arrived at the Risk Management 5.0. There is no way to escape from this. It is already happening, and you have two options facing this scenario. Passively wait and become obsolete or make it happen and get there first. Roll your dice.