Risk management has become an integral part of every business management structure. However, with more organisations adopting risk management strategies, companies now need to look at different ways in which they can also maximise the business benefits of risk management in order to differentiate themselves from their competitors.
The term 'risk management' tends to imply threat, loss or hazard, when in fact the process equally applies to identify benefit or opportunity.
In order to maximise the impact of a risk management strategy, it is important for businesses to recognise the upside potential and apply the process holistically.
Risk management is an enterprise-wide process, and no single consultancy firm offers businesses a total solution. The current trend to see partner programmes, teaming arrangements and integrated offerings (often involving individual consultants), is due to the fact that the detailed knowledge to deliver the clients' requirements cannot be maintained by a single organisation.
Problems faced by CEOs
A company needs to address the expectations of many individuals in order to be successful. Shareholders demand a good return on their investment; customers expect excellent products, and employees expect excellent conditions.
The challenges facing businesses, such as health and safety and staff retention are common to all. Therefore, it is often the detailed elements of a risk management programme that differentiate a winning solution from other competent offerings.
Risk management is the process that is promoted as a solution with which to support the complex and often intangible issues that the board of directors is ultimately responsible for. How does each director know about the major risks in their domain? What enables the CEO to maintain a grip on the reality of the multitude of risks facing its company? How do CEOs assess the impact of the risks over which they have no direct control?
Those individuals holding senior positions can be reassured that, because there is so much change being experienced in every business, such uncertainty goes with the territory. However, very few directors ask the question: "Why does it have to be this way?"
Why with all the IT technology, communications, corporate databases and knowledge networks, can we not identify, consolidate and communicate the major risks that affect profitability, market position, corporate reputation and our own job security? Why are organisations so obsessed with the risks involved that they do not realise the business opportunities that exist by implementing effective risk management processes?
Ernst & Young report that there are many change management programmes being undertaken. However, it is a sobering thought that between 70% and 80% of them actually fail to meet their objectives. The impact that this has on share values is considerable, so there is a pressing need for a way to make better more informed decisions. Change is necessary and a part of doing business. However, reckless or ill-informed risk taking has nothing to do with good management or risk management.
The business benefits
The single biggest problem with failed risk management programmes is that an organisation is simply not sharing its risk knowledge between departments. If an individual knows something about a particular risk, then this information needs to be communicated throughout the business.
So it is critically important that there is a means by which the risks involved in a specific activity or process that impact another area of the business are communicated to those individuals who need to know.
The ability to examine each risk that a business is exposed to is fundamental in measuring its likelihood and severity. This probability and impact approach is not new, but the ability to capture, manipulate and communicate the distilled value judgements to those who need to know is an exciting development that is creating business advantage.
Benefits can include establishing significant competitive advantage, supporting growth, and improving financial status. In addition, improvements to areas such as business continuity, corporate governance and health and safety will enhance employee productivity and aid satisfaction in the workplace. Minimising risks to the supply chain will provide improved continuity, benefiting both customers and suppliers.
Other advantages include factors such as learning from mistakes and improving proficiency by maintaining an audit trail of actions and decisions within a risk management programme. By getting a bigger picture on past experiences, an organisation can make informed decisions in order to minimise future risks.
Stand out from the crowd
The goal of all organisations is excellence. This leads businesses to review processes to enable them to offer better customer service, better quality products and improved employee satisfaction. Competition sets the pace, so individuals are constantly looking at ways to differentiate products, services and employers.
By implementing an effective risk management programme across the whole business, organisations are not only ensuring that they have minimised their exposure to risk, but perhaps more importantly putting the facilities in place to create business advantage, enabling themselves to distinguish themselves from the competition both now and in future.
Chris Williams is marketing director, Line International, Tel: 0117 986 2194, E-mail: cwilliams@lineint.com
