Macro Risk Management vs. Micro Risk Management

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ABSTRACT
This paper explores the differences between macro risk management and micro risk management. This paper explains the definitions provided by Kendrick and then compares and contrasts them. It also gives an example of a project and assigns classification of either macro or micro risk management. It analyses the risk factors associated with the project and the impacts of the associated decisions involved with the completion of the projects. Furthermore, it discusses the factors that determine a particular classification and whether the project example meets a specific classification criterion. Keywords: Macro risk management, micro risk management

Macro risk management is considered the big picture risk management that deals with trends and averages over many projects and long periods of time with the end goal of determining the mean. The mean “represents the typical loss- the total of all losses divided by the number of data points.” (Kendrick, 2009, p. 4) It also is representative of the population for most decisions and serves as the predictor of performance. Once the mean can be forecasted then interest rates, insurance policies, and expectations for stock portfolios can be set. Provided the fore cast is correct then mean can be preserved and the performance is predictable. 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.” (Kendrick, 2009, p. 5) Essentially, the object is target policies toward maintaining the mean thereby keeping a steady and predictable outcome. While macro risk management is big picture and passive, micro risk management on the other hand is targeted to each individual project separately. Each risk and exposure the current project faces is scrutinized and is compared to “standards and criteria that are used to minimize the possibility of large individual variances...
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