Making Risk Management an effective part of Business Strategy

 Most businesses  spend significant time on business strategy, some do an effective job, others let the strategy sit on a shelf for  most of the year, blow off the dust, and review/update the strategy for the next year.  Needless to say, this approach is not necessarily an effective business strategy, but it happens more often than it should.

There are numerous reasons why business plans sit and gather dust.  We have found one of the main reasons has to do with senior management getting caught up in the day to day operations of the business.  This can be fatal to a company.

There are two (sometimes not so) simple techniques which companies employ to make business plans effective:  Measuring progress and Holding people accountable.

Because of regulatory and other concerns, more businesses are spending or need to be spending more time managing risks as part of their business strategy. Implementing an Enterprise Risk Management (ERM) system can be a daunting task and may be considered over the top for most businesses.

Besides, every effective business strategy contains a SWOT (Strengths/Weakness/Opportunities/Threats) analysis, isn’t this enough? Depending on the size of your organization, the regulatory requirements or product offering, a simple SWOT analysis may be causing more harm than help.

Even companies that employ measures and accountabilities usually only do so for the operational aspects of their business. When it comes to the SWOT analysis, it is usually more of an exercise of recognizing the risk and not necessarily doing something about it. To effectively manage risk, you must employ the same two techniques of measuring and accountability. It is one thing to measure obtaining operational goals, it is another thing to measure something that hopefully never happens. Unfortunately, sometimes it does happen and when it does, although its easier to measure, its much, much too late. Effective businesses need to have a well thought out plan in place to respond to certain risks, just ask BP.

Why is it important?

Not managing risks effectively can be even more fatal to a company.

For those organizations that are public or plan to go public, the SEC is now requiring increased disclosures in proxy statements to shareholders concerning risk management procedures. Some believe that this ruling will be the big push most businesses needed to implement a better risk management practice.  As part of entry, some exchanges are now requiring to review a company’s implementation of ERM.  Moodys and other credit ratings are also reviewing ERM implementations as part of an overall credit score.

Although ERM has come a long way in only a few years, it is far from being mature and most organizations do not have the knowledge or ability to focus on building a sound culture of risk management.  It will also be a few years before ERM is truly adopted in corporate America. There is only one certainty; businesses need to do a better job at managing risk. The SEC, Credit Agencies, the financial community and most regulatory agencies are pushing towards ERM.

Whether your organization is ready to adopt ERM or not, most, if not all organizations need to do a better job at managing risk. Although some organizations may not be ready to implement ERM, they should use as many aspects of ERM as they can when they access and manage their risks.

About Visage Solutions – www.VisageSolutions.com

Visage Solutions is a consulting company operating in the areas of regulatory compliance, risk assessment, information security, risk management and compliance processes. Utilizing our proprietary SingleVue™ and OpsAudit™ methodologies, the company focuses on assisting business entities in mitigating operational risk. Visage has provided solutions to a client base ranging from private, entrepreneurial companies to large multinationals. Our team is comprised of experienced executives, managers and consultants who can assist clients with the development, implementation and execution of their risk management and compliance strategy.