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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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