Risk Management

A risk is the possibility that desired results will not be achieved, or that unexpected effects will be experienced instead (Laitko 1999). In the case of business decisions, risk is understood to be events that have a strong effect on the target system of the company (Gerke/Bank 2003). If there are a number of factorssubject to risk, simply adding up all the risks does not reflect the situation. Much more important is their correlation: whether the overall effect is greater than, less than, or the same as the sum of individual risks.

Laws such as the 1998 German law regarding control and transparency in corporations (KonTraG) place special demands on planning and risk management. According to this law, the executive board is required to take suitable measures to set up a monitoring system to ensure that developments that threaten the continued operation of the company are recognized early enough. Information processing is therefore confronted with the task of helping to anticipate possible changes in the environment and their effects on the success of the company. Risks such as market slumps or procurement bottlenecks have to be analyzed with regard to their likelihood and potential harmful effects. To substantiate the relevance of a risk, risk management requires at least a rudimentary hierarchy of goals that can be documented in a Balanced Scorecard. Then the attempt is made to examine how risks affect different key figures. The steps in the risk management process are outlined in table 2.8 (Bitz 2000).