Risk Management
Risk Management
Most firms of any size have now developed a risk register and regular reports are being made to the board or a Risk Board Committee. The challenge for most risk professionals is to gain buy in from the people who are really managing the risks, operational and business managers.
In reality an understanding of this fascinating discipline is skin deep and any questioning or discussion about what risks are managed and how quickly discloses this. The FSA quickly discover quite how embedded risk management in the business really is by asking:
- What is the process for risk management? Quickly followed by
- What are the current highest risks you are managing closely?
It is the second question that tests the degree to which the risk register is really used and the awareness of directors and senior managers of their risk “hot spots”.
“We are taking a more intensive supervisory approach in all areas of our work: challenging firms’ judgments more critically; monitoring markets more closely; and intervening earlier when we identify risks.
This a radical shift in approach for the FSA; from focusing on the systems and controls firms have in place to manage risk, to focusing on the risks inherent in a firm’s business model and judging firms on the likely consequences of their decisions and their management of these risks. It is about understanding the risks that are inherent because of the kind of business you do and how external risks, like macroeconomic conditions or changes in regulation, affect, impact and interact with those inherent risk,” FSA May 2010.
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In reality, most directors and senior managers who bring experience to their role are unconsciously competent. They know what the main risks are (but may have lost this information in the mists of time) and they manage them but the information is buried in their subconscious. They may often feel that the whole risk management process is an unnecessary and useless exercise for the benefit of risk professionals.
Language, language. A real barrier to embedding risk management is the language used by risk professionals. Such terms as :
- Volatility
- Correlation
- KRI
- Utility curves
- Risk appetite
- Remedial controls
will cause a director or senior line manager with urgent priorities to glaze over and an opportunity to spread the immense usefulness of risk management techniques to be missed again.
How we can help
To embed a real recognition of the value of risk management we run workshops where directors and senior managers can explore the concepts and relate them to their day-to-day work and priorities. Using the workshop approach we achieve an output that:
- validates and adds to the current content of the risk register
- enables directors and senior managers to identify risks they may not have thought of and recognise their importance
- provides the organisation with a common language of risk that everyone understands
- recognises the value of risk management to them as directors, senior managers and the business as a whole
Contact us now to improve your directors' understanding of risk manangement...
CTP Global - Good Governance: Great Performance
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