So far this week we have blogged about exercise-induced crises, IT outages, product recalls and data breaches; but, as BCAW 2016 draws to a close, the more observant amongst you will notice that we haven’t touched on this year’s theme – return on investment. In our concluding blog for the week I therefore offer a few thoughts on the subject.
On a technical level, it is extremely hard to measure the effect of risk management (in any form) on firm performance. There are many academic studies which have attempted this but they have all struggled with the issue of how best to measure risk management and, more fundamentally, the problems of compensating for the fact that the quality of the firm’s management is likely to affect both the likelihood of adopting risk management and the firm’s performance. A further complication arises from the fact that there is presumably a limit to the amount of risk management a firm needs, beyond which the benefits decline.
However, maybe this is not such a problem. In my own experience as a consultant, nobody has ever asked me to quantify the return on their investment in BCM. Indeed even in situations where it is reasonably straightforward to measure outputs, like a BCM training programme, people very rarely do. Maybe managerial decision-making is not quite as quantitative and rational as we sometimes imagine it to be. Cyert and March explored this theme in their seminal work The Behavioural Theory of the Firm, which observed that innovation often comes as a direct response to the failure to achieve targets; that managers search for acceptable (rather than optimal) solutions to their problems; and that they are heavily influenced by industry-wide conventions on what constitutes good practice.
In conclusion, robust measures of the return on investment of BCM programmes are likely to elude us for many years to come; but maybe that doesn’t matter if we can construct convincing arguments rooted in the way that managers really make decisions.