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Diving Deep
Some exposures can be a challenge for risk managers, especially if they're not insurable. They require time and effort to understand and provide scant opportunities for risk managers to apply themselves or their skills so that they are perceived as valuable.
These exposures make it nearly impossible to be expert in them, yet our involvement in their management can significantly enhance the ability to control the exposure and effectively mitigate its potential negative consequences or exploit its potential upside. This latter opportunity is even more challenging territory for risk managers since many of us have not been trained or educated to think beyond the negative. In a recent consulting engagement, I saw firsthand the downside of this situation: a risk manager who was both disconnected from a key and central exposure for her business, as well as distracted from pressing issues related to controlling an increasingly unruly exposure.
On the other hand, this risk manager was acutely aware of and ostensibly interested in the risk, but was woefully understaffed to be able to manage it day-to-day. Thus, she had no choice but to remain disconnected. Can this possibly be optimal for effective risk management? Some would say it would make little difference in the loss profile under the circumstances. I disagree. Risk managers have an integral role to play in helping subject matter experts (SME) apply good risk management principles to their accountabilities for risk. I don't believe that risk managers can be expert or even necessarily highly knowledgeable in the many specific risk areas, even one of modest complexity. But I do believe that a risk manager who understands what it means to manage risk and exposures strategically and holistically is a leader who has much to offer C-suite leaders and boards of directors who require assurances that SMEs are managing risk with excellence and effectiveness. Let's look at a specific example to understand this opportunity better. Food safety is an increasingly visible exposure. There were more than 3,000 food product recalls in 2011 alone, most of which never made the press, but each one that does has the potential to be a reputational nightmare for the affected company. Food safety risk is one where risk stakeholders are many. First and foremost, the operations management over the manufacturing plants are production focused. They can be easily distracted by the pressures of volume production and the vagaries of running a plant. They need experts who can guide their response in ensuring that their manufacturing lines are managed well. Needless to say, there are numerous other SME functionaries -- from purchasing, compliance, legal, finance and quality control -- who have interests in this exposure and often play a direct and critical role in risk control. They also need a competent risk expert to guide them toward a truly collective management of the exposure. Don't be distracted by the routine to the detriment of the significant when it comes to partnering with your firm's SMEs. CHRIS MANDEL is the president of Excellence in Risk Management LLC, and executive vice president of rPM3 Solutions LLC. He is a long-term risk management leader and a former president of the Risk and Insurance Management Society Inc. He can be reached at riskletters@lrp.com. December 18, 2012 Copyright 2012© LRP Publications |
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