Article Review
An article by Kaplan and Mikes (2012) entitled “Managing Risks: A New Framework” discusses the concept of risks and risk management. The article questions the effectiveness of rule-based risk management by citing historical events that could not be prevented by rule based risk management approach. The events include the Deep-water Horizon oil rig explosion in the Gulf of Mexico and the financial crisis of 2008. According to the author, there is a need for a risk manager to understand the various types of risks and the best approach to managing the risks. The article places risks into three main categories; preventable risks, strategy risks, and external risks. Preventable risks are risks originate from within an organization and can be prevented by various mechanisms such as allowing for a margin of error. Strategic risks are risks that an organization deliberately takes in a bid to achieve a certain objective. Lastly, external risks are risks that originate from outside an organization. The events that cause external risks are beyond the influence of an organization and hence require a unique approach. The article proposes a number of strategies and approaches to managing risks. Lastly, the article emphasizes on the need for a unique leadership style in the risk management department.