Top 10 tips for building risk culture

Yes, building risk culture is that easy! Before I explain, let me first clear a few misconceptions about risk culture that have been floating around in non-financial companies:

Making decisions under uncertainty is not natural for humans. In 1970s, scientists discovered a breakthrough in understanding how human brains work, what influences our decisions, how cognitive biases impact on our perception of the world.

Daniel Kahneman and Vernon Smith received a Noble prize in economic sciences in 2002, for “having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty”.

I am amazed at how many risk managers and consultants continue to ignore this research. Identifying, analysing and dealing with risks is against human nature. Stop kidding yourself. The sooner we, as a professional community, accept this, the easier it will be to integrate risk management into decision making.

Managers do not take risks into account by default. One of the biggest deceptions is that most business processes already take into account risks and decisions are made by management after careful consideration of risks. Not so.

Naturally, managers do consider some of the more obvious risks and there are exceptional cases where risk analysis is already integrated into the decision making.

For the other 95% of the companies, existing processes and management tools barely account for the inflation and ignore or purposefully hide significant risks. I bet, if risk managers, stopped running risk workshops and take a hard look, they would soon discover that budgets are overly optimistic, project plans are unrealistic and some corporate objectives are borderline naïve. But then again, they may not. Because the rest of the company is fine with how things are and will do everything to stop risk managers from getting involved.

Making risk management everyone’s responsibility is just wishful thinking. There seems to be an idea that strong, robust, risk-aware culture is the ultimate objective. It’s the end result. I mean it sounds great, but it is physically impossible.

And therefore I think so many risk managers have failed and so many more are struggling to make an impact. They are trying to move the rock that is not meant to be moved. This is probably the most important point of this article: The only person in the company who thinks strong risk culture is a positive thing is the risk manager.

The rest of the organisation sees risk management as a direct threat to their personal interests, their income and their position in the corporate world.

Let me repeat that – Most managers ignore risks and take uncalculated risks for a reason.

Risk management culture is not about hearts and minds.

Management do not care about risk culture. Managers will say the right words when risk managers are present, but deep down, nobody will care.

Risk culture will only stick if it makes business sense for the individuals. And I don’t mean soft things like transparency, corporate governance. What I mean is direct impact on the bottom line or the personal security of an individual.

The best examples that I can recall of when managers have become risk aware were when I was able to show them that by better managing risks, individuals could protect their role, avoid prosecution, have better business case for investors, save on insurance, save on financing costs or to get higher bonuses.

Despite everything that I mention above, building risk culture is a piece of cake. Risk managers just have to realize that they won’t be able to convert everyone.

There is also no single solution that will do the job. It’s all about finding what makes each individual tick. It’s time consuming but not difficult.

Hence it can be equally applied by large corporations and small and medium sized businesses.

Here are 10 practical ideas (make sure you click on the links in the article, each one leads to a short video explanation) to get you started:

1. Develop high-level risk management policy – it is generally considered a good idea to document organisation’s attitude and commitment to risk management in a high-level document, such as for example a risk management policy. The policy should describe the general attitude of the company towards risks, risk management principles, roles and responsibilities, risk management infrastructure as well as resources and processes dedicated to risk management. Section 4.3.2 of the ISO31000:2009 also provides guidance on risk management policy.
2. Integrate risk appetites for different risk types into existing board level documents. Don’t create separate risk appetite statements.
3. Regularly include risk items on Board’s agenda
4. Consider establishing a separate Risk Management Committee at the executive level or extend the mandate of existing management committee – this worked a miracle for me personally.
5. Reinforce the “no blame” culture by finding a number of arguments for different situations and different people on why it makes more business risks to disclose and account for risks
6. Include risk management roles and responsibilities into existing job descriptions, policies and procedures, committee charters, not into risk management framework document
7. Update existing policies and procedures to include aspects of risk management Review and update remuneration policies
8. Provide risk awareness training regularly
9. Use risk management games
10. And most importantly, get personally involved into business activities. You can find more ideas about integrating risk management into day to day operations and building risk culture in the book that is available to download for free at https://www.researchgate.net/publication/323254437_GUIDE_TO_EFFECTIVE_RISK_MANAGEMENT_30.