Joanna Makomaski

Joanna Makomaski is a specialist in innovative enterprise risk management methods and implementation techniques. She can be reached at [email protected]

Column: Risk Management

What Comes After Z?

By: | August 3, 2016 • 3 min read
Joanna Makomaski is a specialist in innovative enterprise risk management methods and implementation techniques. She can be reached at [email protected]

I was at a dinner a few months ago with colleagues. At the table was a group of risk professionals ages 40 to 60 years young. We all had worked within organizations  identifying risks that could impact strategy.

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The dinner conversation turned to the future of our transportation systems. We tried to be prophetic about risks that faced the car industry, trains and taxi systems, Uber, and ride shares like Zip car or Auto-share.

One thing I found thought-provoking. We seemed to speak of risks mostly from our generation’s standpoint. We spoke of risks as we could imagine them.

So getting the key to a Gen Z’s psyche is vital. How do they see the world? How do they access the world? What is important to them? How do they perceive risk?

When the car buffs at the table digressed and shared their dreams of owning a new Maserati or a Tesla, certain assumptive statements caught my attention such as: “Every kid would love to own a Maserati? Why wouldn’t they?”

I challenged the group. Maybe the biggest risk is that we are not paying enough attention? Maybe we don’t understand or accept what the next generation of consumers want or need when it comes to transportation? Maybe our risk registers as a result don’t reflect future risks sufficiently?

Let’s think of a 15-year-old and all of their tween and teen friends. Meet Generation Z.

In a few short years, they shall be the retail disruptors of tomorrow.  Reports indicate that by 2020, this generation will translate to $3.2 trillion in purchasing power.

So getting the key to a Gen Z’s psyche is vital. How do they see the world? How do they access the world? What is important to them? How do they perceive risk?

A typical Gen Z was born around 2001. They were born with a smart phone in their hand but also their first memories were of economic doom, recessions, acts of terror and war shaped by events like 9/11 and Columbine.

Born witness to all this, Gen Zs are growing up fast and developing sensitivities beyond their years and with a strong sense of social justice and philanthropy.

Many have drawn parallels between Gen Zs and the “silent generation,” also known as Gen Zs’ grandma and grandpa, who also lived through the aftermath of the Great Depression. These kids are developing life skills, and forming personalities different than their older “millennial-Gen Y” siblings who seem to be struggling to leave home and secure jobs.

Studies show that Gen Zs are more financially conscientious. They are also more risk-averse. They worry about the economy, privacy, cyber crime, job security and terrorism.

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They think about cars differently too. For many, a car is no longer a status symbol but more of a symbol of greedy capitalism. Gen Zs live in a world where things move quickly. They are much less likely to attach themselves to a long-term obligation like a car that will only become obsolete. In fact, they are more likely to pool friends together to share a car or use public transport. For those who do end up buying a car, they would most likely choose a car for its environmental friendliness, modesty, affordability, practicality and safety. Sounds a lot like a car grandparents would buy, doesn’t it?

I guess it makes sense that if we are to talk of future strategic risks we need to hear more from the future. We need to stop guessing.

Invite our Gen Zs to our risk sessions. Invite them to our dinners. Have them teach us “baby boomers” and Gen Xers. &

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Column: Risk Management

The Price of Safety

By: | May 24, 2016 • 2 min read
Joanna Makomaski is a specialist in innovative enterprise risk management methods and implementation techniques. She can be reached at [email protected]

I was rushing to a meeting in downtown Toronto this week. I saw a streetcar coming my way and I jumped on to make better time.

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In truth, I don’t often take public transit and had no idea what the fare was. I asked the driver, paid and then sat right up-front near him. We struck up a conversation — he was a chatty driver, which worked well because I’m a chatty passenger.

I observed his driver’s area. He was surrounded by several communication systems, mirrors and payment systems — a modern contactless smart card fare payment system and an old-fashioned cash box.

I asked him if he felt safe driving around with the cash box on board with him. I struck a nerve. I opened his Pandora’s box. The driver proceeded to tell me that for years he sat on the transit company’s health and safety committee, he felt that management didn’t seem to listen or care, or were apprehensive about spending money on safety issues.

Then he said it, the phrase that inspired this column. The phrase that I so often hear with so many of my clients, the phrase that makes me wince when I hear it:

“There is no price to safety.”

As unpopular as this may sound, I strongly disagree. There most definitely is a price to safety.

I felt badly that I agitated the driver and that he genuinely felt betrayed by management. I felt obliged to shed light on another perspective to hopefully alleviate some of his frustration and anxiety.

“If we truly want to show deep concern for employee well-being, let’s understand our most dangerous risks, mitigate them wisely, and then communicate the residual risk properly to our employees.”

I reaffirmed to him that life safety is indeed very precious. I stressed that it is impossible to make safety absolute and that it is bad business to do so. He didn’t like that.

I asked him: “What is the safest vehicle that exists on the planet? The presidential limousine, the Beast? Tank? Hummer? Volvo? Acura?”  He nodded in agreement. “What car do you drive at home, sir?” He answered: “A Chevy. I can’t afford those.”

“So clearly there is a price tag on safety. It is no different with businesses. They cannot spend unlimited funds to achieve the highest degrees of safety. They too can’t afford it.”

He turned in his chair. “Wow. You got me. Never thought of it that way.”

Employees do listen. But are they challenged by what they feel may be an apathetic or hypocritical management team? Is management possibly confusing their safety message? Negatively impacting their safety culture by not being straightforward?

A safety culture is driven by values, behaviors, health and safety investments, and goals. But all too often I see publicized safety mantras, key risk indicators, or performance measures that are linked to zero failures, injuries and risk. As catchy as a zero tolerance statement might sound, beyond the basic statement lies a plethora of legal issues and cultural misperceptions.

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To achieve zero risk there has to be a plan for infinite investment in managing that risk. We all know that is impossible. So please let’s not tout it anymore, especially when it comes to life safety.

If we truly want to show deep concern for employee well-being, let’s understand our most dangerous risks, mitigate them wisely, and then communicate the residual risk properly to our employees.

The evidence is clear that safety is good business as long as we spend sensibly on safety management and we are straight up with our employees. They will understand. &

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Column: Risk Management

Hunger for Risk

By: | April 28, 2016 • 2 min read
Joanna Makomaski is a specialist in innovative enterprise risk management methods and implementation techniques. She can be reached at [email protected]

We see them everywhere in our risk management world — the terms of art — “risk appetite and tolerance.” We are also seeing heightening obligations set by regulators and rating agencies guiding organizations to articulate their appetite for risk and tolerance of risk.

Research commissioned by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) urges an organization to “consider its risk appetite at the same time it decides which goals or operational tactics to pursue. To determine risk appetite, management, with board review and concurrence, should take three steps:

  • Develop risk appetite.
  • Communicate risk appetite.
  • Monitor and update risk appetite.

Three easy steps — but are they really? Things would be a lot easier if we could agree on what exactly “risk appetite and tolerance” means.

To express risk appetite, one has to truly understand strategic risks and create rules around which risks should be taken in order to achieve objectives.

Sometimes we can get overzealous with our risk taking, so it is prudent to give yourself a realistic cushion and set triggers to alert you when you are nearing unwanted risk thresholds.

To express risk appetite, one has to truly understand strategic risks and create rules around which risks should be taken in order to achieve objectives.

I call this zone “risk tolerance” — the level of excess risk you can take for a while before getting back to your normal risk-taking habits.

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The subprime mortgage debacle that led to the latest financial crisis is a case in point.

In a market of ever-increasing house prices, it was tempting to grow mortgage revenue by relaxing underwriting criteria. If borrowers defaulted, the logic was, lenders could seize and resell the house. The problem was no one was accounting for total risk on the table and early warning signals went unheeded.

Relating your risk appetite and tolerance is akin to describing your consumption habits for risk. Risk appetite is about taking in healthy risk, not avoiding it. Not taking in risk when you need to could leave your organization unsatiated and unhealthy.

Consider Research in Motion (RIM), makers of the BlackBerry. According to the “Wall Street Journal,” RIM’s chiefs dismissed the iPhone after it was unveiled in 2007.

“It wasn’t a threat to RIM’s core business,” said the company founder’s top lieutenant, Larry Conlee.

“It wasn’t secure. It had rapid battery drain and a lousy [digital] keyboard.”

Clearly, the company was overlooking an important strategic risk.

COSO offered three easy steps for defining risk appetite and tolerance. Allow me to now offer mine.

Decide which risks you will eat and make sure they are good for you and not junk. Eat just enough to satisfy hunger for strategy achievement.

And make sure you continually measure your strategic objectives to ensure you are staying within bounds of your corporate stomach.

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