At first blush, this may seem appropriate and even worthwhile, since it would naturally drive behaviors towards a more risk aware environment.
However, when circumstances are viewed this way, management can quickly become overwhelmed with the burden of responding effectively.
The competing priorities of day to day business tend to distract risk owners from their needed attention to managing their risk and control environments. Yet, if the connection between risk and results is understood, the allocation of time to this fundamental management responsibility is more likely to occur.
So is everything a risk or risk related issue? It really depends on how you define risk and embed the processes of managing risk into your culture.
First, risk has both upsides and downsides, though many view risk strictly as a source of loss. A more holistic approach treats risk as capable of being leveraged for gain and therefore its sources and impacts naturally expand dramatically. This is one reason this issue has emerged and presents such a challenge in our increasingly resource-constrained world.
A clearer view of risk is gained by thinking of it in relation to objectives and controls or mitigations. I like to say a risk is not a risk unless it threatens an objective. Controls of course mitigate risk, typically the focus of auditors. In this context, risk can be narrowed to only those things that threaten or enable meeting your results.
Another element of risk allows us to narrow our view by focusing on significance. But significance can only be understood when appetite and tolerances are validated and articulated to risk owners by senior management and/or the board.
Clearly the most important issues/risks are those things that have either the greatest chance of impacting results in a material way and/or those events that while unlikely to occur, will nevertheless have material impact on desired results.
Following this logic leads me to believe that there are more things that are considered risk or risk related than most risk managers imagine and certainly more than most practice, let alone prefer.
Frankly, this dynamic shouldn't be a stumbling block except to those that live in comfort zones. But if meeting goals and objectives and delivering results are the beginning and the end of why we have businesses and other institutions, then it may be more than appropriate to think and act this way. That is, having risk so much a part of one's consciousness that it truly becomes an embedded part of the culture; part of management 101.
It has been my experience that without such an all encompassing orientation towards managing risk, management's response to it may never be more than transitory, another box to check or project to finish. Yet, the few companies where effectively managing risk has become an integrated way of life are the best proof that fundamental success in business is heavily dependent upon this paradigm.
So yes, I think just about everything is risk related, like it or not. But history shows, notwithstanding the financial crisis of today, that when viewed as a continuous priority and considered throughout all aspects of decision-making, risk management gets you much closer to your desired results.
CHRIS MANDEL is the enterprise risk manager for a leading financial institution and a former president of the Risk and Insurance Management Society.
January 1, 2009
Copyright 2009© LRP Publications