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And as with most conversations with new acquaintances, one inevitably gets asked the classic question: What do you do?

I naturally tell them that I specialize in Enterprise Risk Management (ERM).What now seems to be common for me in those conversations is the quizzical look that follows. Then I get a very predictable question.

To put this in context, the three questioners were all small independent business owners, relatively successful, entrepreneurial types and all of them were confident in the future of their businesses.

I started by saying that ERM is a discipline that once instituted by an organization, allows decision makers to manage deviations from what the organization was hoping to achieve.Huh? In each case, I continued with some questions:When you set your earnings target at the beginning of your fiscal year at say $5 million, you usually achieve that by year end, right?

They all responded in much the same way. Not always, things happen.

Of course they do, good things and bad things happen.Key elements of ERM involve detecting those events in advance and accounting for them in that $5 million earnings assumption, yes, assumption.

ERM is the combination of conscientiously anticipating and addressing events that can alter organizational results--in other words, account for events that could shift the $5 million earnings goal left or right and make remedial plans to address or manage those events.

Preparation and prediction in the right balance translates to competitive rebound rates. Having the ability to quickly rebound once something hits you and bounce back first before your competition does is one way gaining a competitive advantage.

Having structured and premeditated reactions can brilliantly optimize recovery rates.It's like having regular "earnings results" fire drills.You do them beforehand, several times, in fact, so that you know what to do when an earnings results fire actually happens.

The discussion continued: But we don't need a widespread discipline, they said, we can see these things coming already. These small business owners are somewhat more aware by virtue of their business size.

I did not want to argue. Instead, I explained the plight of a CEO of a larger organization. Imagine a CEO as a spider sitting in the center of its web. The web size is representative of the actual size of the organization. Our CEO spider most often cannot see where their web starts or ends. Flies hit the web (bad events) or butterflies (good events) hit the web, can our spider CEO react to them in time? How fast can the spider run?

ERM offers a dashboard view where our CEO spider can comfortably view its web from all angles. This high level ERM web cam gives our CEO a very sophisticated gift, awareness of its organization, knowledge of what actually may be going on and opportunity to do something about it.

Our CEO spider also knows the painful reality that if he is caught unaware, he may end up as dinner fodder for another spider aspiring to take his place.

JOANNA MAKOMASKI, the former risk manager for a global energy company, writes on risk management.

September 15, 2009

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