CONFERENCE ON INTEGRATED RISK MANAGEMENT APPLICATIONS, APPROACHES AND TECHNIQUES

PLAZA INTERNATIONAL HOTEL
WELLINGTON

Mr Chairman, ladies and gentlemen.

I would like to endorse Mr Cormack's remarks in welcoming you to Wellington, especially our overseas visitors.

It is not often that I am asked to open technical conferences of this type.

Perhaps politicians are regarded as too "risky" for such occasions.

But I am particularly pleased to be here at this one, which brings together people from industry, government and the academic world.

The Centre for Advanced Engineering and the others who organised this event, including officials from my own department, are to be commended for their efforts.

Politicians know a lot about risks.

We worry about and deal with risks of one kind or another all the time.

Our ways of assessing risk differ from those used by engineers or financiers. Intuition and experience play a major role. Like people in other sectors we are always on the lookout for better methods of dealing with risk.

Risk concepts can be difficult to grasp.

They deal with chance and uncertainty somewhere in the indeterminate future. What will the markets do? Will Wellington experience a "big one"? What's going to happen in the 21st century?

Further, public scepticism has developed in recent years about "expert" assurances on risks.

It comes through especially on issues over which individuals have no direct control, or about which they hold different opinions such as nuclear safety and mad cow disease.

But risk is not just about hazards and natural disasters.

Despite the best intentions of everyone risk is pervasive. Everything we do as individuals or as a society involves risk judgements.

Every decision involves a balance between opportunity and risk.

The key question is how do we maximise the benefits while minimising the risk.

A question that has taunted societies down the years.

This is where new techniques of risk management hold promise. Better methods for assessing and controlling risks can be expected to bring benefits to all sectors of society.

The diversity of attendance here today is testimony to the fact that you accept that proposition.

Historically, the techniques for managing risks in business and society have tended to address particular aspects of problems in isolation.

They have taken the form of insurance, regulations, hedging and other financial strategies, legislation, emergency services, building codes, policing and related methods of deterrence.

Codes of Practice, for example, have led to many improvements in safety: buildings that survive earthquakes, safer and more affordable cars, and so forth.

But the techniques used have generally been applied as discrete independent measures. There is every reason to believe that integrated approaches will result in smarter management of those risks.

As society becomes more complex, so too does the way we have to approach risk management.

For example, technological change has brought enormous benefits to our lives. But with it has come complicated new hazards.

Computers enhance information processing, but they create new problems for information security and technology transfer.

Bioengineering holds great promise, but introduces difficult ethical questions.

Business risks change as the commercial sector adjusts to a more competitive environment and faces worldwide competition.

Communities face complex new risks as society seeks to utilise resources, land and time more efficiently.

We see this in the effects of natural disasters when marginal land close to rivers, coastlines and volcanoes is inappropriately utilised.

We see it also when major industrial plants are constructed close to populated areas.

Moreover, such risks can have a high degree of interdependence, leading to surprising outcomes.

These new risks are therefore not as easily managed as those of earlier more straightforward situations. Response and recovery costs are increasing.

In our more complex society these new risks raise the potential for widespread community disruption, which makes it a concern for Government.

What is clear is that we must develop new methods of managing risks to anticipate and control them, not simply respond.

We must learn to take a more holistic view of risk processes.

That is why this conference is emphasising Integrated Risk Management.

Those involved need to understand the essential components of risk such as likelihood and severity. But they need also to put the risk in context.

We need to be better able to prioritise different risks so that we can make more informed decisions about the allocation of resources for mitigation.

It will be impossible to eliminate all risks in society. What we should aim for is to find the optimum balance among costs, risks and benefits for each risk situation.

The prospects for doing so are improving. In recent years there have been major advances in the way that risks are perceived, analysed and controlled.

Powerful analytical techniques and computers are now becoming available which can be applied to increasingly complex problems: disasters, health management, societal interactions, crime prevention, international finance, economic development and so forth.

Modern ideas on the management of organisations can contribute to reducing risk, and if the worse happens being prepared to respond effectively.

Major challenges lie ahead. In seeking to minimise risk, let me briefly mention three.

First is the need for unification of risk theory and practice across different sectors.

The piecemeal development of risk techniques and applications has the potential to create confusion in the minds of non-specialists and retard public acceptance.

We need a common language and better co-ordination of ideas.

A good start has been made with the publication in 1995 of the Australian/New Zealand Standard on Risk Management.

The second challenge concerns risk acceptance.

What level of risk will individuals or society tolerate - should they tolerate?

What proportion of taxpayer's funds should be invested in mitigation?

What levels of risk should Government ask society to accept?

For example, on what basis should we set suitable levels of earthquake strengthening for buildings?

These are difficult issues. You, as the specialists, will have to help develop measures of public acceptability of risk.

But there is a further dimension - the third challenge, namely communication.

The problem is not simply about methodology and measures. It involves perceptions and communication.

Your most difficult task as risk managers, I would suggest, will be to communicate your knowledge to the rest of society.

You will have to help shape public perceptions of risk.

My essential message therefore in opening this conference is this:

Risk management techniques have evolved to the point where they are beginning to help solve some difficult problems facing business and society. New Zealand is ready to take advantage of these methods.

There are important issues of personal and societal values that will have to be taken into account in setting standards of acceptable risk.

Good communication will be crucial to gaining public acceptance of risk management ideas.

But it is worth the effort. The potential is considerable.

This conference is a major step in that direction for New Zealand.

I wish you every success in your endeavours.

ENDS