Getting to grips with a new type of risk

Perhaps his insight could be more widely applied to business, which likes nothing more than a management fashion - something companies adopt, consultants sell and business schools teach, and which then ceases to have any practical value. The past few years have seen, for example, the elevation of risk management to a quasi-religious status without any serious thought as to what it is likely to achieve.

Huge sums are spent by companies on developing systems which they hope will prevent them sailing into some future disaster. But most have been produced as ends in themselves so the board and auditors can tick the box marked "risk management".

They have not been produced with a real understanding of where the business is going and whether it is appropriately resourced for what it is trying to achieve because such judgments, if found wanting, could put the chief executive in the dock. No underling will take that risk.

The one certainty is that most of the money spent on risk management will be wasted as long as it is obsessed with process. Its weakness is that it is numbers-driven and treats a business as if it were a predictable machine. But, as former Asda chief Allan Leighton used to observe, the one certainty in business is that something will go wrong. This is because companies are not machines. They are collections of people and they behave biologically not mechanically. They may or may not go off in odd directions and screw things up. They are certainly unpredictable.

The art of effective risk management is not to ignore the numbers but to understand the context in which they are set, and that means understanding the soft issues such as political, environmental, behavioural, economic and - a new one on me - cultural risk. This last is the forte of a new research house called Counterpoint.

The potential saving for companies is huge. How many billions have been lost by British companies in America because they think the US is like Britain, when in fact it is far more foreign than any of our western European neighbours?

Similarly, how many attempts at penetrating new markets have been launched without a proper appreciation of cultural differences, which will mean the basic proposition of the product does not have any resonance with the locals? At present, companies plunge into a market and then come to Counterpoint to find out why a tried-and-tested formula which worked in one place does not seem to work any more. Proper risk management suggests they should ask before they jump in. Perhaps one day they will.