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The end of a year inadvertently marks the start of a new one, and with that comes the task of setting new performance objectives and goals for the upcoming year. This is a time where risk managers feel great excitement, renewal and jubilation. Risk managers have the express opportunity to refresh their performance metrics to once again show their invaluable presence within their organizations and gain that esteemed recognition and be seen as a celebrated and vital contributor.

Ok. Who after reading this last paragraph thinks I have completely lost my mind and have lost touch with reality? When it comes to setting compelling and relevant metrics to measure the worth of risk management, we seem to have a long way to go. Too often do I see a risk management performance goal that sadly reads, in essence: "Thou shalt lower insurance costs by "x" percent by "y" date, or else." The risk management group: the evil and weighty cost center. I scream silently just thinking at this uninspired directive.

We operate with an uber-efficient just-in-time supply chain mentality. Organizations view insurance as that instant access point to enormous reserves of cash ear-marked for use in dire events - a source of just-in-time capital. We pay a price to have that capital at our fingertips and gain that all important sense of security.Yet somehow, somewhere, we tend to forget that along the way. We arbitrarily feel the price for that service seems high and risk managers are asked to scrutinize the number; hence the infamous performance objective is formed.

It may be at this point that risk managers need to re-tell the story in words that all company colleagues can relate to. Let's use metrics that compare insurance costs to the cost of warehousing scarce company capital for rainy days or the cost of sourcing emergency capital after disaster strikes. We all know that capital is most expensive and illusive when we need it most. I guarantee we would find a very compelling value proposition year after year for insurance in this competition.

And let us not forget the risk manager's championing role in mitigating problems and preparing for the eventualities of problematic events. A dollar not lost is a dollar earned. In economic terms, they are equal, hence a profit generating activity. Why do we seem to always forget that?

When an organization is successful in preventing losses and/or rebounding gracefully from them at a faster rate than their competitors, the organization is in a position to gain market share. That's significant. Now that is something to measure, value and strive for.

One chess-playing lesson I learned from my father, who taught me the game, was: "Chess rookies focus on winning, while grand masters focus tirelessly on avoiding errors."

JOANNA MAKOMASKI, the former risk manager for an energy delivery company, is a specialist in innovative enterprise risk management methods and implementation techniques with V3 Advisory Group.

December 1, 2009

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