Tuesday, October 13, 2009

Leading effective business risk management

1:25 AM Posted by: Slamun Atlanta 0 comments

Over the last two decades, business risk management has evolved and established itself as a key management discipline. Many organizations use sophisticated systems to help them measure and control the multitude of different risks facing today’s businesses. However, with the increasing understanding of different disciplines of risk, risk management practices have developed in a fragmented way. Specialist teams and departments within the same organization manage different types of risk, such as operational, financial, compliance and project risk, without much coordination between them. The publication of COSO’s Enterprise Risk Management Framework in 2004 challenged the ‘silo’ view of business risk by introducing the concept of integrative organization-wide risk frameworks. These aim to harmonize the risk management approaches across different departments and enhance the organization’s ability to take an overview of its aggregate risks. Risk at operational level is generally well understood, and some type of bottomup risk management system of risk identification and reporting is used by the majority of businesses. However, systematic risk management is not always embraced with the same rigour at higher levels of the organization. Risk is perceived to be mainly the responsibility of executive units – the financial department or the health, safety and security, or risk functions. Most organizations may still be reluctant to recognize risk as an important strategic driver.
Board directors lead the development of corporate strategy, but may not take an equally active role in the identification and management of the risks that may threaten the delivery of the strategy. Risk identification and management are not seen as an inherent part of strategic development and, as a result, risks associated with strategic plans tend to be ignored or underestimated. Consequently, management is unable to allocate appropriate levels of resources to ensure that strategic risks can be effectively mitigated. The role of leadership teams in ensuring that key business risks are understood and successfully managed by the organization is crucial. The discussion that follows sets out the different ways that today’s business leaders can contribute to effective business risk management in order to enhance the organization’s ability to protect itself against strategic threats, while at the same time enhancing its ability to generate value.

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