Enterprise Risk Management
Change in perspective is required
Web-based World Risk Day forum discusses "taking smarter risks"
By Michael J. Moody, MBA, ARM
Those of us who have been involved with risk management for a while have been part of a revolution of sorts. Not the kind that has taken place in Egypt or other Middle Eastern countries, but a much less violent one that will ultimately change Corporate America. We have seen the transition from Corporate Insurance Buyer to Corporate Risk Managers. But it is not done yet. Further changes are coming in the form of enterprise risk management (ERM). As many of us are finding out, the transition has not been easy.
One of the most critical issues required to deal with in this transition is a change in perspective. Traditionally, for corporate insurance buyers, the primary focus was on reducing and/or eliminating losses. Plain and simple, it was their charge to do the best they could to limit the adverse consequences of loss that involved their corporations. Obviously, as the name implies, insurance was front and center in the process.
Slowly they began to learn there were other techniques designed to treat the adverse effects of loss-causing events. They learned this thanks in large part to the leadership of people like RIMS Executive Director Ron Judd, and Dr. George Head, director emeritus of the American Institute for Chartered Property Casualty Underwriters. As Dr. Head would frequently say, "Remember that risk—the probability of an outcome significantly different from the expected—can produce both surprisingly good as well as surprisingly bad results. Be as ready to seize the wondrously good as you are to shield yourself and others from the horrendously bad." Dr. Head was so far ahead of the curve that we are still trying to catch up with his thinking. He was a true visionary in every sense of the word.
Recently, the movement towards a more holistic approach to risk management via enterprise risk management (ERM) has begun to gain traction. However, there are still many impediments to implementing the strategic aspects of ERM. One group is trying to rectify that situation.
Risk is not a dirty word
For the most part, both corporate insurance buyers and corporate risk managers have focused primarily on the negative side of risk—the losses. But there is also a positive side to risk—the reward side. However, many risk managers are continuing to struggle with changing the perception of risk within their own organizations. For many, despite gaining significantly higher visibility at the board level, many mid-level management personnel still see risk management as an exercise in reducing the risk.
In an attempt to bring a more accurate depiction of risk to the forefront, a number of leading risk management organizations have come together to promote the totality of risk. Under the banner of "World Risk Day," these organizations, along with several forward-looking corporations have concluded the "first-ever awareness day focused on how taking smarter risks drives corporate strategy, improves business confidence, and grows profits." The event, which featured a program of Webcasts, interviews and live Q & A sessions on June 26 of this year, has been called a "virtual summit." World Risk Day organizers point out that the event provided a "unique, global forum for business leaders to share best practices on how taking smarter risks can drive opportunities and innovation."
The first World Risk Day was sponsored by a number of international risk management organizations which included the Institute of Risk Management, the Risk and Insurance Management Society, Inc., the Association for Federal Enterprise Risk Management, Institute of Risk Management South Africa, the Major Project Association and RiskNET. In addition, there was one corporate sponsor, ERM software leader, Active Risk.
The virtual summit was a groundbreaking event that gave participants the opportunity to listen to 20 risk management experts, in 12 live presentations, discuss and share best practices on how to take smarter risks. In addition to the live presentations there were also a wide variety of on-demand, prerecorded presentations. The summit also allowed participants to complete a benchmarking survey that will be used to provide additional insight into how these top risk professionals handle various aspects of their ERM programs. A number of resources, including white papers and reports, were also available on the World Risk Day Web site. The program was open to all, and was free to participate and according to event officials, attracted over 1,150 people from around the world to the World Risk Day site.
Clearly, risk managers need to continue to spread the word about the totality of risk. They are no longer confining their contributions to just the negative side of risk. Today's hyper-competitive, worldwide business climate will no longer allow risk to be viewed in separate silos. In order to gain the maximum benefit from moving to ERM, organizations need to take a much more holistic approach to their risk management programs.
The World Risk Day event was based on the premise that "smarter management of risk can create big benefits for an organization." The organizers go on to point out that many organizations today are "trying hard to increase their corporate risk maturity to gain visibility of risks and opportunities across all lines of business." As a result, risk directly impacts profitability and drives competitive advantage. However, they say that too many of the conventional approaches to ERM "focus solely on compliance, leaving these benefits on the table."
Compliance and regulation have taken too much attention away from the true benefits of ERM. One of the speakers provided some insight into this important issue when he commented on how Richard Branson would look at risk. He said that if you were to talk to Sir Richard Branson (founder and owner of the Virgin empire), "I don't think I've ever heard him quoted as saying Virgin grew because of compliance to Sarbanes-Oxley." Obviously, "Virgin grew because they took smart risks." Getting bogged down in compliance-related issues frequently takes attention away from the more over-riding issues involved with ERM.
Organizers of the World Risk Day event note that it is "all about elevation of the conversation around enterprise risk management and discussing how risk management is a strategic imperative that can create opportunity for any organization." As noted earlier, the organizers have chosen to keep many of the presentations on the Web site. Additionally, they also are already making plans for a bigger and better World Risk Day in 2013.
Michael J. Moody, MBA, ARM, retired as the managing director of Strategic Risk Financing, Inc. (SuRF), a firm that had been established to advance the practice of enterprise risk management. As a regular columnist, he continues to actively promote the concept of enterprise risk management by providing current, objective information about the concept, the structures being used, and the players involved.