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One need only recall the controversy over insurance coverage for the World Trade Center catastrophe to realize the magnitude of problems that can result from a failure to communicate accurately and timely.

And so, just as in the insurance world, clearly understood terms of art are critical to achieving an understanding in the broader realm of managing all risks to an enterprise. Most serious players in this space agree that a common risk language is a key starting point for risk decision-making around a risk framework. Such frameworks are central to codifying and getting consensus around the risk strategy and tactics to achieve agreed-upon objectives.

Studies conducted over the last five years have reinforced the importance of creating a common risk language consistent within each entity. Another characteristic sought is semantic simplicity in labeling of what are often technically complex concepts.

You've heard the complaint many times from senior management: "Just keep it simple." It's as if the capability of management for linguistic complexity is limited by their intellect, when in fact, it is limited only by their capacity for volume. In other words, most senior teams these days have so much on their plates, crowding conversations with technical complexity only causes frustration and impatience.

How many times have insurance risk managers been accused of being those "insurance" people, unable to effectively get their message across because they're perceived as too focused on creating perceptions of indispensability, when what they're really doing is executing career limiting move--a strategy to avoid.

A common area where you see the regular evidence of misunderstanding is among the many stakeholders that play in the risk management space. Each of these players and others have asserted a stake in the risk management game, and while they have begun to converge in their view of a more holistic approach, the differences among these specialized practitioners is still significant. Much of it is attributable to the inability to articulate a clear, understandable vision with plain language.

The good news is there are those who are working to drive consistency among key players. They understand the value of the synergies possible through clear, aligned communications.

Because effective communications are dependent on the words used to communicate, it is critical to the success of any risk management effort that the terms of art be clear, unambiguous and well understood. Without such clarity, management will be frustrated and confused and your plans will falter on the hotbed of technical jargon.

So, define the terms of art early in your efforts. Get agreement on what terms make the most sense. Codify your language. Communicate often, simply, clearly and with impact.

CHRIS MANDEL is the enterprise risk manager for a leading financial institution and a former president of the Risk and Insurance Management Society.

April 15, 2009

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