Question

Describe the different between a traditional and modern approach to Risk Assessment. Which is the best to use? What are the advantage of using one over the other?

Answer 1

Here are the main difference between the traditional and modern approach to risk assessment:-

Traditional approach uses retrospective analysis based past experiences and events while the modern approach is more strategic in nature to counter risks arising in the future. In the traditional approach, companies use an ad-hoc method where risk analysis is done for a particular purpose, however, modern approach of risk assessment is an on-going process and risk management is performed on a continuous basis. The main objective is traditional risk management is to cover financial risk with internal audits whereas, in the modern approach, the risks are looked at in a broader sense to cover business risks affecting the entire company. Traditional risk assessment is more of reactive measure to certain events taking place while in the modern approach, the risks are anticipated and prevented before the event takes places.

The advantage of modern approach over traditional approach:-

The purpose of modern approach is to anticipate, control and monitor the risks arising in the future to keep the organization prepared in case of uncertain events. It’s a managerial activity which not limited to finance department which happens in the case of the traditional approach. Modern approach is adopted through-out the lifecycle and covers all aspects of the business. The focus of modern approach is on processes and people involved in operations whereas the traditional approach is focused in people alone.

The advantage of traditional approach over modern approach:-

Since the traditional approach is based on retrospective analysis, the mistakes and errors made in the past are completely omitted. It improves the current operations by detecting risks affecting employees performance and lays down a reactive measure to rectify it. The company need to spend more time on assessing over business risks when only a part of the business operation which is affected by risks can be taken care of.

Which is the best to use?

I think the modern approach is the best to use because it is more relevant to present business environment which uncertain in nature and can affect the entire business. It keeps the company prepared and all areas rather than focusing on damage limitation through the reactive measures. The companies are run by its people and processes which can be safeguarded using preventive and controlled tactics.