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Running head: The difference between Macro and Micro risk management.
Macro or Micro risk management
John Alexander
Grantham University
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Abstract
This paper explores the differences between macro risk management and micro risk
management. Risk management is the process of weighing policy alternatives to accept,
minimize or reduce assessed risks and to select and implement appropriate options. It analyses
the risk factors associated with the project and the impacts of the associated decisions involved
with the completion of the projects. Macro risk management is considered to be passive and
basically it finds the most average performance and allows the highs and lows that “balance
each, providing a stable and predictable overall result. While macro risk management is big
picture and passive, micro risk management on the other hand is targeted to each individual
project separately.
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Macro or Micro risk management
The two most important parts of Risk Management include planning your response to the
risk, monitoring, and controlling the situation for further risk. Planning a response to potential
risks gives the business options and actions that will determine how quickly the risk is resolved,
a reduction in threat and enhanced opportunity experience. It is important to analyze the
potential risks qualitatively and quantitatively. Qualitative risk analysis requires prioritization of
the identified risks. This step lays the foundation for qualitative risk analysis. Qualitative risk
analysis measures the probability and impact of potential risks. No matter what choices the
business makes towards aligning these concepts with project management, it will include various
levels of micro and macro-risk management. Micro-risk management deals with case-by-case
scenarios where the odds can be altered to remain within the business' favor. In this method, we
see the relation a risk to small factors of the project. In macro-risk management, the whole
picture is examined. The typical risks are examined rather than specifics (Kendrick, 2003, pg. 4-
6).
According to Tom Kendrick (2003), risk consists of loss multiplied by likelihood. Risk
management allows businesses to understand the consequences for their decisions and the
probability that transverse actions will occur. Since all decisions maintain some essence of risk,
management is simply a balancing act. Companies have two choices for managing risk. The first
choice is to deal with risks as they occur which is called crisis management. The second option
of avoiding risks altogether is a much more tedious project management event that requires the
business to think proactively and anticipate adverse events. By becoming proactive towards
risks, the business will be more prepared to react to these types of situations. Micro management
is appropriate with newer employees during training, and for employees who are on or almost on
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a remediation plan. Otherwise, all employees should be treated as if they know how to do their
jobs. That said, quality testing is not micro management. It just makes sense. This is why we
have quality control processes in manufacturing and internal audits in many administrative areas.
Macro management does not mean that you do not monitor the result or try to make operations
more efficient. It does not mean that you let people do whatever they want to. It means that you
set the ground rules for results and efficiency and then you allow people to do their jobs. One of
my past bosses was a very analytical and talented engineer with enormous difficulties to
integrate and lead effective teamwork, due to his excessive control of anything that other team-
workers and I were doing. He reviewed my work proposals repeatedly, day after day, only to
correct minimum details. At last, his difficulty to delegate effectively, his excessive control to
the details and his exaggerated demands of a perfect-quality work overwhelmed unnecessarily
the work capacity of the teamwork and contributed decisively to undermine employee morale.
Macro-management, an opposite style encourages effective delegation, employee’s
involvement in the process of taking decisions, is the appropriate style in fostering a
collaborative workplace environment and is instrumental in nurturing a corporate culture entirely
based in innovation. An extreme expression of Macro-management is Management by
Exception that is a management style where a manager intervenes only when their employees
have failed to satisfy their goals, employer's expectancies and performance standards. Even as
organizations make sweeping changes in their measurement and management of enterprise risk,
the total risk inherent in the system has not gone away. Instead, the concentration of the financial
system has changed the risk profile of the industry in perhaps unpredictable ways, which has
serious implications for the economy, for market participants and for regulators.
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To begin, the increased size and scope of financial activity makes the possibility of market
failure that much harder to contemplate. "Management of financial risk has become a more
important aspect of economic activity," says Knight. "Problems in the financial system, if and
when they emerge, can have larger consequences for the real economy than they did in the past."
Knight recommends that banks develop methods to stay alert to the "endogenous"
component of financial risk stemming from collective actions that impact the underlying drivers
of risk. Examples would include lending booms that "boost economic activity and asset prices to
unsustainable levels" prone to a sharp correction, or "if a large number of financial market
participants assume that markets will remain liquid even under collective selling pressure and
overextend their position-taking, thus generating the very pressures that would cause markets to
become illiquid," says Knight.
Measuring the risk of the global financial industry is more than a "sum of the parts"
analysis, notes Knight. "This 'macro' orientation requires a shift away from the notion that the
stability of the system is simply a consequence of the soundness of its individual components,"
he says. "It involves the same shift in focus that a stock analyst is required to make in order to
become a portfolio manager." (Knight, 2004)
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References
Kendrick, Tom. (2003) retrieved from Identifying and Managing Project Risk. AMACOM:
Washington, D.C.
http://www.associatedcontent.com/article/802621/risk_management_pg3.html?cat=3
Knight, Malcolm (2004) retrieved from Markets and institutions: Managing the evolving
financial risk http://www.bis.org/speeches/sp041014.htm
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Appendix
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Footnotes
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Table 1
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Figure Captions
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