Risky business
Article Date: Sep 16 2005
Managing risk is not just about handling everyday hazards and potential physical perils. Advances in technology and the changing face of business and work practices mean CEOs need to update their risk strategy if they really want to reap the rewards of forward thinking.
'Every business should have a strategy for managing risk,’ says David Bishop, head of risk assurance services at PricewaterhouseCoopers. ‘But many companies too often consider risk management as just compliance with regulation or prevention of hazards.’
Traditionally, businesses have tended to view dealing with risk along the lines of ‘we’ve installed a fire alarm, nominated a Health & Safety officer, implemented an IT security system and are always on the look out for fraud. Job done.’ But this established view of risk management is now being called into question by experts who believe it’s too narrow, particularly in light of recent terrorist events and advancing technology. As a result, risk management has been pushed to the forefront of political and economical debate, and press coverage about the need for all manner of security against risk in business has gone through the roof.
Protecting value is core
‘Businesses have to operate in an entirely different environment compared with that of ten or 20 years ago,’ says Bishop. ‘Staff are more mobile, customers are more demanding, prices are less static and the idea of a global market is far more real.’
Many business advisers now believe risk management should include creating and protecting the value in a business, and even using that to seize opportunities, not just securing a company against acts of god, vandalism or terrorism.
eMbed Risk in your business’ DNA
This point about embracing risk was made recently by Sir Digby Jones, director general of the Confederation of British Industry in a speech to the National Association of Headteachers, when he said that, ‘unless you educate children about risk – get them to understand it, embrace it, exploit it – we will fail as a nation.’
The same can be said in business. Being risk aware must involve weighing up trading volatility and probability and turning it to your advantage. Decisions you make or actions you take as a result should also be included in your overall strategy.
Management consultant Dr David Hilson, of Risk Doctor & Partners, says, ‘Some of the uncertainties in business that expose you to risks can also provide unexpected opportunities.’
Succeeding often requires you to do something radical or different from your competitors, and that can be daunting. However, the lifeblood of an organisation is often its ability to innovate or take gambles with new markets or products. Therefore, an overly cautious approach can result in companies shying away from the very thing that could give them a competitive edge.
Get a risk Champion
Of course, it’s all about taking the right risks, yet the line between good risks and bad risks is a hard one to draw. Experts say if you are managing risk well, then you should be aware of all areas where dangers might arise and plan accordingly. But, in reality, risk in various forms is spread across all areas of a company and some risks will be viewed differently by different departments. Mike Power, professor of accounting at the London School of Economics says, ‘Because it’s a function of so many processes, it’s hard to get a handle on either qualitatively or quantitatively.’
AXA Insurance’s Mark Cliff suggests companies should appoint a ‘risk champion’: a member of internal staff who is responsible for overseeing the analysis and implementation of risk strategy. ‘It’s better for ‘non-specialist’ risk assessment to be handled in-house,’ he argues, ‘and one person is more likely to ensure a consistent approach than several people with fractured responsibilities.’
