The Role of Management

After spending a good portion of my professional life in management structures, I arrived to the conclusion that the fundamental role of management is to anticipate, assess and mitigate risk.


In absence of risk there is no need for management. I know, some will argue that any activity needs coordination and administration and therefore, it requires management. But isn’t that just another manifestation of risk?

Let’s assume an ideal operating environment that is self running. It has only a leader (owner) and an army of executants (employees).
• One day an employee does not show up for work and the owner realizes that there is a risk of that happening from time to time, among the employee population. Consequently he nominates an HR Manager to deal with the absenteeism.
• Another time the material needed for processing does not arrive, because of some supply problem; so he designates a Purchasing Manager to ensure that the material is ordered and received on time, and procured at the right prices.
• The products are ready for delivery now, but the truck hasn’t been called to pick it up; woops, there is a need for a Logistics Manager
• Opportunities for business present themselves in an irregular sequence, and the assignment of work among co-workers needs to be changed daily  a Production Manager is put in charge to coordinate the allocation of resources
• Customers are interested in the product but they want to talk to somebody where they could place their orders or learn about the product. Technically the orders could be recorded by phone or e-mail, and the reading of the brochure should provide enough information, but faced with the risk of loosing customers or orders because of lack of response the owner nominates a Sales Manager
• The PO suggests when the customer wants the product, but for some reason, the project activities are not happening according to plan  the risk of not finishing the project on time – unless properly coordinated - gives enough reason for the existence of a Project Manager
• Finally, the product is shipped and invoiced, but the payments are delayed, and the bank is raising questions about the overdraft level in the company’s account. That is when the Controller justifies its position.

The image is pretty clear: In the minute an enterprise is born, there are inherent risks that are threatening the ability of the firm to perform well and make profits. The capacity of the company to generate results is guarded against risks by this institution of Management, whose primary role is to anticipate probable scenarios, evaluate risk exposure, analyze possible consequences, develop solutions and implement plans, structures and processes, measure results and devise reward systems to ensure continuous success. In spite of these efforts, risk does not totally evaporate, but – when things are done well - is minimized.

Once accepted as an objective need, the management expands, gaining legitimacy and consolidating its new platform called “Overhead”. In time, the merits of its contribution are gradually diminished to a point where is perceived as non-value-added, or burden. And from there, in the name of “lean transformation” a process of constructive demolition begins, until the necessary managerial safeguards are no longer in place. Then something happens and the negative impact of such occurrence exceeds by far the cost of its prevention. Instantly we realize the value of risk management and are willing, again, to dedicate resources to it.

However, by now we went full circle, and the history repeats itself.

Does it sound familiar? It should, because is happening everywhere. And emerging from it, an entire army of management consultants make a living.