Category Risk Management

In business, change favours only the prepared

14 March 2006 Lynette Lambert

In the game of business, it could be argued that an organisations greatest asset is the variety of moves it has over its competitors or its agility.

The purpose of agility is to maintain both reactive and proactive response options in the face of uncertainty.

Jim DeLoach, a well known risk management practitioner, who is credited with providing the definition of Enterprise-wide Risk Management (EWRM) and various other risk management practitioners have offered (EWRM) as the panacea to enterprise uncertainty, through the adoption of a structured and consistent approach that aligns strategy, processes, people, technology and knowledge, with the purpose of evaluating and managing the uncertainties the enterprise faces to create shareholder value.

Dr Vally believes that this is best achieved by instilling a risk management culture in the organisation where each individual thinks in terms of risks and rewards.

Culture change must be organised around a few core processes that provide revenue, growth and increased capability to its clients. Enterprises which have successfully embedded EWRM in their organisational culture, to the extent that risk management is simply part of the way they do things, can not only deal with the negative aspects of risk, but can also be flexible in taking advantage of the opportunities that arise when uncertainty is present.  Changing an organisational culture is not a quick fix nor should it be an elastoplast solution. A clear timetable with key milestones needs to be set, says Valley.

Furthermore, Vally says a number of factors need to coalesce to create the right framework for instilling a risk management culture in an organisation.

Firstly board-level management must make risk management a strategic priority. It begins with the recognition that Risk is Strategic and therefore should be explicitly incorporated to achieve best fit for the business model, with regard to market opportunity, competitive threats and weaknesses, as well as the organisations financial plans.

Secondly, management processes need to be established to ensure an awareness of risk pervades decision-making, corporate governance procedures and external reporting. An embedded risk management culture enables better business decisions to be made. There is little value in risk analysis by itself; the value is derived from decisive execution of logical action plans based in part on that analysis.

Lastly, the appropriate enablers people and systems that facilitate risk management decisions - must be put in place to deliver the information upon which managers are able to base their decisions. A concomitant and pressing need is to find a technology solution which can efficiently and effectively maintain compliance with the various often evolving statutory requirements associated with operating in a global economy; provide real time visibility into the effectiveness of risk identification, characterisation, monitoring, reporting, and mitigation activities within an enterprise organisation its programs and projects. A technology solution provides geographically dispersed project teams global access to vital risk data while encouraging proactive risk communication among senior managers, program and project managers and their teams.

Executives should however be aware of the misconception that EWRMs aim is to completely eliminate the risk horizon, cautions Vally.  After all it is the game plan of business to exploit risk for reward. Often during risk management workshops, after asking the audience to think about all the potential sources of uncertainty that could impede achievement of corporate objectives, the response given is: how are we to know the unknowable? By attempting to predict all sources of uncertainties or risk exposures we do not mean that you could or should know the unknowable. The number of unknowable events that could alter the projects expected outcomes, or the organisation meeting its stated objectives is large. But, says Vally, knowing the unknowable is very different from drawing out the implications of what is already known. If you see a flash of lightning in the distance, you can forecast with a high degree of confidence that thunder is to follow. Often the catalysts for change usually appear well before their consequences manifest themselves.

Business agility, which is deeply rooted in EWRM, provides the organisation the ability to act to head off or mitigate the potential negative impacts. The larger the variety of actions available to a control system, the larger the variety of perturbations it is able to compensate for. Having EWRM integrated in to the organisational culture provides just that, says Vally.                                

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