What is Risk Management? The evolution of risk management

(i) What is Risk Management

1. The 2004 edition of "Enterprise Risk Management - A General Framework" published by COSO, USA, argues that "Risk management is a process, which is carried out by the board of directors of an entity in the course of making strategic decisions and executing them, management, and others, and is designed to identify potential events that could affect the entity, to manage risk so that it is within the entity's risk capacity, and to provide reasonable assurance that the entity's objectives are being achieved."

The following aspects need to be noted to understand this definition: firstly, risk management is a process, a series of procedures to reduce and control risks, involving a process of determining the risk management objectives of an enterprise, the identification and evaluation of risks, the selection of risk management methodologies, the implementation of risk management programs, as well as the continuous checking and revision of risk management plans. Secondly, the work of risk management requires the participation of all employees. Finally, the definition shows that the purpose of risk management is not to reduce risk at all costs, but to minimize risk to an acceptable capacity. Moreover, business risks cannot be completely eliminated, and only reasonable, not absolute, guarantees can be made for the achievement of business objectives.

2. In April 2006, the expert group of Asian Risk and Crisis Management Association (ARCMA), through five rounds of voting, defined risk management as "Enterprise Risk Management (ERM) is the method and process by which an enterprise tries to control the results of various uncertainties in the process of realizing its future strategic objectives within an acceptable range of expectations, in order to safeguard and promote the realization of the organization's overall interests". ".

3. ISO31000:2009 standard defines "risk management" as "the coordinated activities of an organization to direct and control risks."

Risk management is the use of management tools, the implementation of the command and control of risk coordination activities. Its purpose is to seize opportunities, avoid threats, reduce damage, so as to provide security for the realization of the goal. Along with the creation and development of risk, the awareness and ability of risk management is also constantly developing and changing.

(II) The emergence and development of risk management awareness

Human beings are created and nurtured by nature and grow up by recognizing and transforming nature. As soon as human beings appeared, risk was born with them and went along with them. In the primitive society, in order to survive and develop, human beings open up the land and produce food to cope with the risk of famine in the future; people try to make all kinds of tools to cope with the attack of poisonous snakes and ferocious beasts, which belongs to the preventive measures of risk; and they arrange their dwellings in the caves or other suitable locations so as not to be washed away by the floods or infested by the wild beasts, which belongs to the measures of avoiding the risk.

The formation of early human risk management consciousness is divided into three stages, namely, the stage of man's struggle with beasts, the stage of man's struggle with God, and the stage of mutual *******.

1. The stage of struggle between man and beast, when the society was in the primitive uncivilized period, the productivity was extremely backward, the main risk faced by people was the threat from poisonous snakes and fierce beasts, in order to survive, people had to unite *** together to fight against the attacks of fierce beasts. On the other hand, in order to fight the beasts more effectively, people began to develop some primitive tools, which is the oldest human risk response consciousness germination.

2. The stage of the struggle between man and God, with the improvement of social productivity, the struggle between man and beasts to a secondary position, and natural disasters and diseases have become the main risk threatening the safety of mankind, then entered the stage of the struggle between man and God. At this time when people were unable to explain certain phenomena in nature as well as the diseases that plagued them, they believed that it was the will of God. When disaster strikes, they have no choice but to pray for God's blessing, thus creating one god after another and one mythological story after another. All of these reflect people's strong need for safety and contribute to the gradual increase of people's awareness of risk response.

3. Mutual ****ji stage, in this stage, people produced a primitive insurance consciousness, that is, mutual ****ji thought. In the practice of fighting with all kinds of risks, people understand the "peace of mind", "preventive" reasoning, and gradually formed a sense of risk management.

(3) The evolution of ancient risk management ideas in the East and West

1. Risk management ideas in ancient China

As early as in the late Xia Dynasty, the "Xia Proverbs" said, "There are four calamities in the sky, drought, water and famine, which arrive at an indefinite period of time, and how can they be prepared for if they are not accumulated." This tells people that it is difficult to tell when natural disasters will occur, and it is not easy to tell when they will occur. This tells people that it is difficult to predict when natural disasters will occur, and it is necessary to store up for famine at any time. The Zhou Li - Cang Ren said: "If there is a surplus of grain, we will hide it and wait for the bad year to award it." Mozi advocated that "those who are hungry should be fed, those who are cold should be clothed, and those who are laboring should be rested" and that "those who are powerful should be elderly". Xunzi put forward the idea of "saving the use of the people, and good hiding the rest", "although the year is bad and drought, so that the people do not freeze and discouragement of the trouble". These theses, is to the surplus product (mainly food) accumulation, in times of disaster, so that the people from hunger and cold; in normal times, social widows and widowers, orphans and disabled people can get the state's protection and social support. Under the guidance of this idea, China's successive dynasties have a relief system. Zhou Dynasty, there is a "commission accumulation"; Wei in the Warring States period, there is a "government granary"; Han has a "Ao warehouse"; Han Dynasty, there is a "Changping warehouse"; Sui Dynasty, there is a "social welfare system"; Sui Dynasty, there is a "social welfare system". Sui dynasty, there is "righteous warehouse"; Song dynasty, there is "social warehouse", etc., these relief system is essentially the establishment of a backup, to cope with the famine of a risk response. About 1700 BC began, our country in the Yangtze River to engage in the water transportation of goods merchants in order to avoid the process of trafficking in goods due to the emergence of accidents so that all the goods suffered losses, to take a batch of goods loaded on a few ships in the practice. In this way, if an accident occurs on one ship, the cargo owner only suffers a part of the loss, but not all the goods are damaged, which is essentially a risk prevention, risk diversification, loss sharing of a risk treatment method.

2. Risk Management Ideas in Western Countries

In the West, ancient Babylon, Egypt, Greece and Rome and other ancient civilizations also have a long time ago, mutual aid, loss compensation risk treatment methods, and gradually evolved into modern insurance. About 2800 BC, ancient Egypt prevailed in the mutual fund organization, members of this organization to enter into a contract to comply with each other. In the unfortunate event of the death of one of the members, funeral expenses or relief for the survivors would be paid from the dues paid by the surviving members. Similar organizations prevailed in ancient Rome and Greece.

For property risks, as early as 2000 BC, the ancient Egyptian caravan across the desert began to use mutual **** relief for lost camels to compensate; and in the Euphrates River has long appeared in the adventurous lending and lending, and in the Babylonian "Code of Hammurabi" (1792 ~ 1750 BC years) in the provisions of the "Code of Hammurabi" and the provisions of the fire risk. fire risk. The system of ****same injury and loss established by the "Rhodian Code of Commerce" of 916 BC is a confirmation of this method of dealing with risks at sea, which has been in vogue since 2000 BC. According to this principle, in the event of the goods and the ship *** with the danger, the captain of the ship to make the decision to abandon the goods or appliances, due to the abandonment of the loss caused by the crew, the cargo relations *** together to share.

Ancient Greece, Ancient Rome and Ancient Egypt and other slavery countries on the security of the secret has been a risk awareness, to take risk precautions to prevent leaks. For example, in the 1st century BC, the ancient Romans used plant juice for secret writing ink to prevent others from knowing. In the 5th century AD, the historian Herodotus in his record of the Hippocratic War on the use of cryptography to transmit military secret information, to prevent the risk of secret disclosure of the practice.

(4) The development and application of modern risk management

The formation and enhancement of risk management consciousness is the ideological foundation of risk management, the high degree of material civilization is the material foundation of risk management, the intensification of social contradictions and the turbulent situation is the social foundation of risk management, the theory of probability and mathematical statistics provide the theoretical foundation, and the modern scientific management ideas make the final preparation for the emergence of modern risk management. modern risk management to produce the final preparation.

1. The background of the emergence of modern risk management

With the emergence of the industrial revolution in the 18th century, the social productive forces have been unprecedented development, the common use of new technologies and processes, so that the scale of production continues to expand, social wealth continues to emerge, international trade and international markets are expanding as never before, and new risk hazards also continue to increase. Especially with the increase in the degree of socialized production, making the original relatively loose social ties become very close, which in turn further promotes the improvement of people's safety needs. In modern enterprises, risk management awareness has been generally enhanced for the following reasons.

One is the increased chance of huge losses. With the rapid development of science and technology, the accumulation and production scale of enterprises is expanding, social wealth is increasingly concentrated, any carelessness in production may produce immeasurable huge economic losses. For example, a factory in the United Kingdom, due to welding careless, triggering a fire, directly resulting in more than 30 million pounds of economic losses. Especially for some of the "high", "fine", "sharp" technology sector, a risk of accidents caused by the loss of often reach alarming levels.

The second is the expansion of the scope of damage. Due to the increase in the degree of socialized production, making the links between enterprises become increasingly close; on the other hand, the market continues to expand, the marketing range of some enterprises from the region to the country, from the domestic expansion to foreign countries, which makes the risk of accidents in a local range of risk, but its impact on the scope of both in space, or in time are very large. For example, the destruction of a large copper and iron plant may affect ore suppliers and steel users thousands of miles away, causing thousands of people to lose their jobs. Another example is the worldwide economic crisis that emerged in the 1930s, which devastated the entire world economy. In addition, the use of high technology, while promoting the tremendous development of human society, has also brought unprecedented risks of damage to mankind, such as environmental pollution, the destruction of the ozone layer, the Internet cell phone fraud, the emergence of genetic food, and so on. Not only cause huge losses to the human economy, but also will greatly threaten the survival of human beings.

Third is the profit maximization impulse. Whether an enterprise can achieve the expected profit is the fundamental sign of whether the enterprise can survive. Under the conditions of market economy, the direct impulse of business operation is to maximize profits. However, only high-risk industries can obtain excessive profits, such as the use of new technologies, new processes, new materials, new products, new materials development and trial production may produce huge profits, may also lead to huge losses. This forces people to take all possible measures to avoid harm.

2. The development of modern risk management

The development of risk management is mainly driven by enterprise safety management ideas. Enterprise safety management ideas with the progress of industrialization as early as the 19th century has begun to sprout, it is accompanied by the birth of the industrial revolution. Modern industrial civilization has promoted the unprecedented development of social productivity, and social wealth has thus grown rapidly and become highly concentrated. Accompanying this is the increasing number of accidents, property losses and personal injuries are becoming increasingly serious. This not only affects the production and operation of enterprises, but sometimes even jeopardizes their survival. So safety production and safety management has become a very prominent issue.

In 1906, the U.S. US Steel Chairman B-H Cary, from the company's many accidents in the lessons put forward in the "safety first" idea, the company's original "quality first, production second" business policy to change to "Safety first, quality second, production third". This change ensured the safety of the employees and the quality and output of the products. His ideas and practices were successful and shook the industry in the U.S. In 1912, the National Safety Association was founded in Chicago to study and formulate a draft law on safety management in enterprises, and the British Safety First Association was established in London in 1917. "

Being a member of the National Safety Association, the association was founded in 1917 in London, England.

The French management scientist Henri Fayol, known as the "father of modern business management", proposed in his masterpiece "General and Industrial Management" (General and Industrial Management) that there are six kinds of business operations. The basis and guarantee of the function, he can control the enterprise and its activities encountered by the risk, maintenance of property and personal safety, so as to create the maximum long-term profits. Fayol took the lead in introducing the idea of risk management into business operations, but did not form a complete system.

In the early 1920s, U.S. companies began to make full use of insurance as a risk transfer mechanism to protect capital. Some enterprises changed the risk management of the enterprise is regarded as a side business, there are accounting department on behalf of, or the use of the traditional practice of handing over to insurance brokers and agents. In large and medium-sized enterprises in Western countries, gradually appeared specifically responsible for insurance and security managers, their main responsibility is the existence of the enterprise and face a variety of risks for a comprehensive identification, prediction and assessment, and then all the risk of the possibility of occurring, the severity of the consequences of the treatment of the costs to be paid for a comprehensive analysis, and on the basis of the development and implementation of the optimal risk treatment program. These activities of enterprises undoubtedly contribute directly to the emergence of the discipline of risk management, which is rapidly developing globally. It can be said that risk management is directly from the general business management of safety management and insurance management extended and developed.

After the Second World War, industries in various countries have had greater development, enterprises tend to be more and more large-scale, the production of accidents and their impact is no longer isolated, local events, once the accident will cause a chain of huge disasters. Therefore, the production of safety issues, the growing importance of people, so the specialized safety management departments and research institutions have been established. At first, the content of the safety work is mainly overhaul equipment and publicize the importance of production safety, set up some safety systems and penalties. With the development of modern science and technology, more and more scientific means are used in the field of safety management. For example, the principles of systems engineering applied to risk identification and risk measurement, people have carried out some research and taken some measures, and then after continuous development, until after the Second World War, the transition to comprehensive risk management.

In 1930, the United States, the University of Pennsylvania, Dr. Solomon Hsugana that risk management is in the uncertainty and possibility of risk factors to consider, predict, collect, analyze the basis of the most economically rational method to develop a complete set of scientific and systematic management methods, including the identification of risk, measurement of risk, and active management of losses caused by risk, etc. In 1932, the risk managers *** with the formation of a group of enterprise risk managers. In 1932, by the enterprise risk management personnel *** with the formation of the New York policyholders association (Insurance Buyer of New York), they exchange risk management information, and research management techniques. As a result, the insurance management of enterprises gradually spread, and began to adopt other means of dealing with risk management. before the 1950s, the economic units have been using insurance as the only method of dealing with risk, and only by intuition and experience to judge the risk faced, and the method of dealing with risk is based on the qualitative analysis of risk. The use of probability theory and mathematical statistics has led to a qualitative leap in the analysis of risk, making the final preparations for the establishment of a complete theoretical system of risk management.

By the 1960s, many scholars began to study risk management systematically. 1963, the U.S. publication of the Insurance Handbook published Mayer and Hedges, "Risk Management and Insurance" (Risk Management and Insurance), 1964, Williams and Hans published the book "Risk Management and Insurance" (Risk Management and Insurance). Management and Insurance) in 1964, Williams and Hans published a book, which attracted general attention in Europe and the United States. The use of probability theory and mathematical statistics makes risk management from experience to science. Risk management research gradually tends to systematization, specialization, risk management finally became an independent discipline in management science.

Risk management as an emerging management discipline, in the process of its formation and development, due to the risk management starting point, objectives and scope of application of the emphasis on different points of view, scholars put forward a variety of different views on risk management, and with the development of the times and the expansion of the field of application of the child continues to evolve. However, people's understanding of the basic theory of risk management has gradually converged, such as risk management is a pre-preparation work rather than post-compensation work. Risk management must be centralized in order to play the decision-making benefits, decentralized implementation, division of labor in order to make the risk management work to obtain the best results.

3. Modern Risk Management Theory Formation

On November 15, 2009, the International Organization for Standardization (ISO) formally released three standards for risk management: ISO 31000:2009 Risk Management - Principles and Guidelines, ISO Guide 73:2009 Risk Management - Terminology, ISO Guide 73:2009 Risk Management - Terminology, ISO Guide 73:2009 Risk Management - Terminology, and ISO Guide 73:2009 Risk Management - Terminology. Risk Management - Terminology", and ISO/IEC 31010:2009 "Risk Management - Risk Assessment Techniques" (hereinafter referred to as the standards). China also released the national standard GB/T2453:2009 Risk Management Principles and Implementation Guidelines at the end of 2009.

The standard defines the concept of risk, identifies the risk management process, standardizes the risk assessment procedures, points out the 11 important principles of risk management, and makes it clear that the first principle of risk management is to create and protect value. And clearly pointed out that "risk" is the impact of uncertainty on the goal, which "impact" may be positive, may also be negative; there may be opportunities, there may be threats. Risk management is the process of managing uncertainty, reducing threats, amplifying opportunities, and creating conditions to change the transmission of risk so that it contributes to the realization of objectives.

The release of the three ISO "standards" marks a significant advance in human risk management. It is another milestone achievement in the field of human management, and its release will change the world's understanding of the purely negative aspects of risk; the "standards" will be the world's advanced theories and methods of risk management as a whole, opening up a new era of human risk management, management of the future.

The outbreak of major events at home and abroad in recent years has once again verified the importance and necessity of risk management. In 2008 the outbreak of the financial crisis that swept the world, some financial banks due to the prevention of unfavorable, insufficient measures to prepare for the risk of response, and thus killed by the risk; some of them have benefited a lot, why? It is because these revenue organizations fully use the risk management tools, predicted that the risk may occur, to take advantage of countermeasures, adjust the investment structure, when the crisis broke out after the active response to change the threat into an opportunity to get a better return. In the Wenchuan earthquake, Anxian Sangjao Middle School has been carrying out emergency training on disaster prevention and escape for a long time, and when the earthquake broke out, more than 2,200 teachers and students were safely transferred within 1 minute and 36 seconds, which created the miracle of "zero casualties" in the big earthquake. A large number of facts show that with or without risk awareness and risk prevention measures, the consequences are very different.

In order to meet the needs of domestic and international economic changes, and to improve people's risk awareness and risk management methods and skills, the Ministry of Human Resources and Social Security in September 2010 issued a national "risk assessment career" training certificate. The certificate is designed to enable students to have the skills required for risk assessment positions through systematic professional training, and to assist organizations in carrying out comprehensive risk assessment and response work, so as to seize opportunities, avoid threats, and provide protection for the achievement of goals.