Risk Management Effectiveness: What Matters Most
People are always trying to glean the keys to success in risk management. Well, here’s what I know: No two successful practitioners are doing exactly the same thing. Nor are they following a template based strategy. What you can take away from that is that a) there’s no one right way to practice risk management, and b) the best risk strategies are those that are aligned with, if not custom designed to fit, the needs and priorities of the organizations for which they are intended.
What matters most in achieving risk management success? For starters, a thoughtfully cultivated risk culture is prerequisite to long term success. Keep in mind that your employees’ risk taking and risk-managing behaviors — without a specific design and strategy for your intended risk culture — will not likely be the behaviors or culture you most need and ideally desire. Therefore, communicating your expected culture is a pursuit of great value to your long term risk management effectiveness.
Here are 10 other items that, in my opinion, matter most in effectively managing risk. If you operate with these elements in place, you will be more likely to have an effective strategy that other leaders will both contribute to and enable through resources.
Downside Protection Job 1: The first priority is to make sure reasonably preventable loss is addressed through both mitigation and financing tactics. Management and governance rightly assume this is under foot.
Influence and Gumption: Every senior risk leader must have the respect to be heard and the gumption to push back on risk owners and stakeholders with whom they may disagree.
Consistency: With risk process and sub-processes being the way in which the work gets executed, it is essential that their use be consistently applied by all users.
Process Rigor: Processes that produce results and have impact require a rigorous approach to how they are designed, measured for effectiveness and continuously improved.
Data Interpretability: Reporting actionable information is a must for showing results and impact.
Communication Clarity: Beginning with a clear definition of risk itself, an entire sub-strategy for communicating your messaging will ensure you reach the right recipients at the right time with the right message.
Reliable Measurability: Not every risk can or should be quantitatively measured but when you do, make sure it is as believable as possible.
Value Creation: Recognizing and leveraging risk for gain is the necessary evolution of the discipline’s practitioners if they ever hope to move beyond the tactical.
Managing to Appetite and Capacity: Risk cannot be effectively managed without a clear view into how much risk you are taking, want to take and have the capacity to take or assume.
Aligning Risk and Performance: The penultimate outcome for risk professionals is they manage risk relative to performance. Alignment, if not integration, between these disciplines is essential to achieving short and long term goals.
Sure, there are other tactical elements of a good risk strategy and framework, but I believe they will naturally flow out of these elements when put into practice with the proper senior level mandate and regular reinforcement of strategy.
Read all of Chris Mandel’s Risk Insider contributions.