ERM: Solve Business Problems
Enterprise risk management — correctly implemented — has an immediate practical benefit: to solve chronic and intractable business problems.
That might sound surprising, as many conceive of ERM as a compliance exercise, with purported eventual benefits, such as reduced volatility, managing strategic risk and lowering the cost of capital. But the value should be evident right away. How does ERM solve chronic and intractable business problems? Only if there is a very sharp, comprehensive and rigorous risk identification and assessment process. The trouble is that most embarking on risk ID use either a conventional approach (limited to, say, hazard risk, or “exposure to assets”) or use an ad hoc, informal approach, with no guidelines.
The challenge of developing high quality risk information (see my intro video) is the first concern when desigining an ERM program. If one pays attention to that, then magically the body of risk information is transformed from a lifeless, inert heap of re-hashed management complaints into an incisive and insightful analysis of the most critical business problems.
I have experienced this time and again with clients. Once the rigour and structure is properly introduced into the exercise, the chronic difficulties which had always escaped definition and proper analysis suddenly come to light. The result is people have much more confidence. They now see and understand previously undetected and unsuspected underlying risk, and are prepared to fix these conditions and move the organization forward.
In my last post on Lean Manufacturing, I said that there was a broader agenda at stake — namely, the survival of firms in the era of the decline of western manufacturing. Consultant Bill Chambless expresses a similar thought in his book Quantum Profits. He posits that the mastering of short-run customized production is the key to economic recovery.
Should risk managers delve into Lean Manufacturing, or similar methods, at all? One of the key themes in this blog is the necessity for risk managers to expand their view and gain a seat at the planning table. It is only natural, after implementing risk assessment methods, to feel that one might add value by seeking better productivity.
