Firm - Risk Article: Difference between revisions

*'''Cross-cutting interpersonal relationships, good and bad, between {{risk|individual}}s at the firm relative to respective positions in the firm’s hierarchy, between individuals at different firms etc.

*'''{{risk|Scale}} opportunities have natural costs''': The larger the firm the greater opportunity to wring economies from its scale, but there are inflection points. The point where the scale opportunities are large enough to require active management: that is, “passive” scale benefits, that flow from the simple fact of size (eg adding another user to a flat fee all-you-can-eat licence automatically reduces the per-user cost of the licence, without anyone having to do anything) run off at the point where one needs to diverting firm’s resources and personnel towards managing these efficiencies or manufacturing scale efficiencies that don’t arise by themselves (eg negotiating law firm panel arrangements, outsourcing, offshoring). As soon as a {{risk|firm}} is justified in deploying resources solely to lever its {{risk|scale}}, greater {{risk|complexity}} is assured. It may engage management consultants, middle managers and eventually a chief operating officer. That unit (call it COO) itself can become  so complex that opportunities arise to lever its scale. So consolidating all the diaspora of COO groups into a single function, distinct from operations and the main COO function, and now big enough to have its own COO function. <br>

*'''Size/complexity trade-off' and the {{risk|scale paradox}}''': There is a geometric relationship between number of components and their possible configuration. The more configurations the more scope for complexity. The more complexity the more confusion. The more confusion the more scope for fear. The larger a firm gets, the more complex it becomes. A sole trader is salesman, receptionist, janitor, legal and operations. At a point it becomes necessary and desirable to hire dedicated personnel to carry out these roles. Some of these roles are risk-taking, revenue-generating roles. The rest are operational in nature (legal, operations, risk) and they are costs. These roles are incentivised by means of cost reduction not revenue generation.