By B.G. YOVOVICH, who has written for national trade publications for more than 20 years
Don't blame enterprise risk management for the cascade of 2008 disasters that started with the banking sector and then swept across the entire economy.
In fact, today's business turmoil represents a huge opportunity for the risk management profession.
That's the unequivocal message in a new report issued by the Risk and Insurance Management Society Inc. at the end of January: "The 2008 Financial Crisis: A Wake-up Call for Enterprise Risk Management."
"While it is certainly easy--and perhaps even gratifying to some--simply to lay the blame for these failures on risk management, a closer look reveals that these issues did not arise from a failure of risk management as a business discipline," argued the report, which was produced by the RIMS ERM Development Committee.
"Rather, RIMS contends that the financial crisis resulted from a systemwide failure to embrace appropriate enterprise risk management behaviors--or attributes--within these distressed organizations," which the authors then go on to detail in the report.
And those business failures to embrace ERM point to a huge opportunity.
"Risk practitioners and the RIMS organization can really take a leadership role in moving their organizations beyond a traditional risk management approach," said Carol Fox, senior director of risk management at Convergys Corp. and past chairwoman of RIMS ERM Development Committee.
"It is an opportunity for all of us to have a conversation with our boards" about their disappointment, she said, because they feel that they were not adequately warned about risks that were painfully realized in 2008.
PREPARING FOR THE ERM CONVERSATION
As a first step for preparing for those conversations and for beginning to plan those risk management improvements, Fox urged risk professionals to make use of the free online Risk Maturity Assessment to measure their company's risk management practices and to get guidance on the development of an action plan
"It is important to understand where you are along the risk maturity roadmap, and what the best practices are," said Fox.
Practicing what she preaches, Fox followed her own advice by conducting an assessment of the risk management practices at Convergys, a global HR services firm headquartered in Cincinnati.
"When I first took the risk assessment for Convergys, we identified two areas for improvement, and it clarified for us where we wanted to go with our ERM program," said Fox. "The goals that came out of it became my personal performance objectives for the year, so there was a very clear metric in terms of what we were going to accomplish."
Even more recently, at the beginning of 2009, Fox said, "I used the benchmark report to launch a discussion with my internal champion about what the program should deliver for the organization in 2009."
OTHER LEADERS TAP RIMS TOOL
A variation of Fox's approach also has paid dividends for Jeffrey Vernor, the global risk manager for Russell Investment Group, based in Tacoma, Wash., and previously executive director of the ERM department at USAA, a San Antonio, Texas-based diversified financial services firm
Rather than simply fill out the RIMS assessment based solely on his views of the company, Vernor invited the head of the firm's key control functions to assist in the assessment process itself.
"I had the chief auditor, head of compliance and our legal head in the room with me when we answered the questions," said Vernor, who also is a member of RIMS' ERM Development Committee.
"That allowed us to use the results to not only influence some of the activities that I might take on in my role in risk management but also some of the activities that very critical control and risk management functions could do within their own organizations," he said.
"It allowed us to get a broader view, and it worked well," he added.
More generally, Vernor said, "Boards are taking this opportunity to capture the learnings and to understand what did go wrong and what needs to be changed.
"More and more of what I am hearing," said Vernor, is that "this is an opportunity to practice the art of ERM."
March 3, 2009
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