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What is Risk Appetite?

What is Risk Appetite?

Originally posted on Mark On Solutions by Matt Davis.

The insurance industry uses the term “risk appetite” to describe the level of risk that an organization is willing to accept. An essential first step in managing corporate security, and resiliency, has to do with determining your firm’s risk appetite.

Close up of businessman throwing dice. Gambling concept

Risk appetite is defined as the amount of risk exposure that an organization is willing to accept as a normal course of business. Tolerance for risk exposure can vary greatly from one company to another, and among different industry segments.

As a precursor to establishing an effective risk management program, it’s essential for a firm to determine its risk appetite. This can be done using a baseline analysis that accounts for a combination of threats, vulnerabilities, consequences, and readiness.

It’s interesting to note that often a company’s appetite for risk doesn’t match its actual exposure. In other words, companies are often unaware that their risk exposure is significantly greater that their actual tolerance for that risk.

Assessments, training, and exercises are all excellent ways to expose those gaps and establish focus points for adjusting your firm’s security posture to align with its risk appetite.

Tips on Managing Your Company’s Risk

Tips on Managing Your Company’s Risk

Originally posted on BlueDrop by Colin McCabe.

Whilst risk management played a role in business prior to the financial crisis of 2007-2008, it didn’t have quite so much of a major importance as it does today. These days, if a company doesn’t find a way to prevent or mitigate risk then it can really struggle to get back on track. Unexpected risks can shut down a business for days and sometimes even longer, many never even re-open.

Despite the scary facts, it is thought that 75% of businesses today still don’t have a risk management plan in place. Whilst there are many forms of risk management insurance can be one the most important as it helps to prevent losses, and as we all know fewer losses mean higher profits.

How we can help your Risk Management

At Bluedrop Services risk management is taken seriously and we endeavor to meet our client’s requirements to achieve maximum profitability with minimum risk to them. We have implemented a specialist risk management department which will strive to succeed in aiding clients in the process of risk management and how to reduce risk.

Risk management is the identification, assessment, and prioritization of risk followed by coordinated and economical application of resources to minimize, monitor, and control the probability of any unfortunate events, which can occur at any time. The objective of risk management is to assure a company/task does not deflect from achieving its goals.

Risks can come from various sources depending on your type of business, these can include; road risk, potential failure of projects, legal liabilities, financial risk, accidents, deliberate attack, incorrect or no process and procedures, and poor health & safety policies. All of which could have a serious financial impact on a business or body.

Where should you focus your Risk Management?

Emerging companies should focus in particular on employer’s liability, data privacy and cyber liability, errors and omissions liability, directors’ and officers’ liability (D&O) and, depending on the number of employees, fiduciary liability and employment practices liability policies. By identifying and assessing risk early this will reduce the chance of a potential financial impact on a business.

How to reduce your risk

Strategies to manage risk typically include avoiding the risk, reducing the negative effect or probability of the threat, transferring all or part of the risk to another party, and even retaining some or all of the potential or actual consequences of a particular risk.

Although risk management has no measurable improvement on risk there is an increase in confidence in the decisions made by risk management strategies.

Simple risk assessments can be completed to reduce any type of risk, these should include:

1.    What is the threat/risk
2.    Who is exposed and why
3.    Current process
4.    What can be done to reduce the exposure
5.    Documentation of the above

Sensible risk management is about taking practical steps to protect people from real harm and suffering not bureaucratic back covering. Taking a sensible approach to risk management is about ensuring the safety of employees and public, learning & understanding by all and responsibility of risk by companies.

6 Reasons Data Is Key for Risk Management

6 Reasons Data Is Key for Risk Management

Originally posted on ClearRisk by Rebecca Webb.

An average organization only uses 50% of its available data for decision-making. This is significant when you consider 70% of late adopters base their decisions on gut feeling or experience, while 60% of best-in-class companies use data analytics when making decisions.

Data is powerful when used to its full capability; by using all available data, an organization can establish a clear competitive advantage. Storing and regularly accessing relevant information will allow your organization to save time and money while drastically improving decision quality. Below are some of the key benefits that data utilization can have on your organization.

1. Increased efficiency

In a well-established organization, it’s easy to continue doing a task the same way out of habit and convenience. Without referencing data, you may get stuck in a routine and not recognize internal flaws. Streamlining people, processes, and tasks will increase efficiency across the organization.

2. Better decision making

Analyzing your data will provide the information required to run the organization, such as what course of action is necessary and whether your strategies have been successful. To do this, you need to have the right kind of data; ensure that you collect relevant, accurate, and complete information.

The more data you store, the more information you will have to base your next decision on. This can lead to more creative and smart strategies as well as help you choose positive risks and pursue paths that will lead to growth.

3. Financial health

Using data effectively will allow an organization to save money. By consistently tracking and monitoring costs, prices, and other useful information, you can track when spending is higher than it should be. It can also flag problem areas or help you identify costs that you shouldn’t be incurring. Further, making a habit of storing data means you will have a quick and easy process if you are ever audited or when entering tax season.

4. Making a case for any project

No matter the business idea, there needs to be some data and information to support it. By accessing stored information, you will be able to analyze data and use it to support a proposed project. With the collected data, you will be able to present your case to supervisors or employees to prove that the decision would benefit the organization.

5. Increased accountability

Without storing data, it can be difficult to know when something isn’t as it should be. A thorough database can allow management to recognize signs of fraudulent activity. It will show employees that they are being monitored, increasing their accountability and ethical actions. If something does go wrong, your organization will be able to show it had some measures in place to try and prevent the incident, thus protecting brand reputation.

6. Preventative measures

Having data allows you to analyze it. This will let you identify and mitigate against threats, reduce repetitive losses and lawsuits, and even lower insurance premiums. For more detail about the benefits of data analytics, check out our next in-depth blog post!

The Promise and Risks of Receiving Appreciated Assets

The Promise and Risks of Receiving Appreciated Assets

It is not a risk-free proposition for nonprofit boards to make investment decisions that meet philanthropic goals. This is all the more difficult for those trustees without a background in finance. The simple answer is usually to allocate the investments conservatively and rebalance periodically to at least beat inflation and preserve capital. Large charities like university endowments turn to more sophisticated methods of portfolio diversification, expanding beyond stocks and bonds into vehicles like hedge funds, private equity, venture capital, and real estate.

The Conversation’s detailed article cautions that it is not enough to focus only on returns; in fact, it’s more important to consider risk-adjusted returns. In the case of digital currencies, it would have required nerves of steel for trustee investment committees to commit to pre-established decision-making processes to avoid the bitcoin crash in early 2018, after it rose by 1,318 percent against the US dollar in 2017.

These gains gave way to massive losses in the first eight months of 2018, when digital currencies plunged more sharply than the dot-coms crashed in the early 2000s.

Some charities that received massive cryptocurrency donations in 2017 may not have been able to convert them into regular money before they lost much of their value the next year. Silicon Valley Community Foundation, for example, disclosed in its 2017 audit report that for more than 45 percent of its investment assets, restrictions would prevent them from being converted to cash at any point in 2018.

The fact that charities only disclose their financial data once a year means that the scale of their at-risk wealth, as of now, is unknown.

There are more reasons than volatility to be concerned about holding onto investments of cryptocurrencies. Wallets and exchanges used to hold the investments can be hackedCompliance issues abound. Regulators are still catching up to the IRS ruling in 2014 that treated digital currency as a form of investment property. The sweeping new tax billpassed into law last December may bring more change. Inasmuch as digital money ledgers for transactions are owned and maintained by the users of the systems rather than controlled by a government or a central bank, it is difficult to predict how government will eventually choose to manage this revolutionary type of money.

The Conversation article goes on to examine other forms of appreciated assets being given by a shrinking group of ever-wealthier donors and the “charitable middlemen” needed to help facilitate these donations.

Fidelity Charitable got 61 percent of its donations in assets other than cash in 2017. Other prominent donor-advised fund sponsors saw a similar result. Schwab Charitable obtained over 70 percent of its 2017 donations in non-cash assets. In the last month of the year, that figure was 80 percent for Vanguard Charitable.

These fast-growing charities bring a key skill: harvesting capital gains. That is, they accept tax-advantaged donations, hold onto that wealth, and—in most cases—transfer the money derived from those assets to the donor’s charities of choice when the donor asks.

For nonprofits, it could be said that today’s donor classes are creating as many challenges as solutions. As government funding continues to diminish for many of the issues addressed by the nonprofit sector, private philanthropy becomes all the more important, and along with it, the skills to properly raise, receive, and manage the forms and flavors in which it is given.

Author: Jim Schaffer
Source: Nonprofit Quarterly

Why Assigning A Risk Owner Is Important And How To Do It Right

Why Assigning A Risk Owner Is Important And How To Do It Right

Falling in the middle of the risk management cycle (after developing risk appetite and tolerance and identifying, but before assessing and analyzing risks), the organization then must identify who will “own” or be responsible for a particular risk.

Although the exact definition of what a risk owner is will vary depending on the organization, it can generally be defined as a person or persons responsible for the day-to-day management of a risk. (I will talk later about when to assign a risk owner…)

Assigning an owner for these risks is important for a few reasons…

One, a designated risk owner ensures someone in the organization is accountable for the risk. If there is not one person or a group charged with managing a risk, then by default, the entire organization will own the risk, and therefore it is highly likely the risk will fall through the cracks (a/k/a nothing will be done). Having a risk owner is an important step toward ensuring that a response plan is developed and acted upon in a timely manner.

Two, risk ownership is one way for executives to not only hold individuals accountable for risks, but to show their support for ERM in general.

The third reason for appointing a risk owner is to ensure that the ERM function does not own risks.

It’s important to understand that ERM does not actually manage risks, which is a common misnomer. The role of ERM is to help facilitate a process for identifying, assessing, and analyzing risks, and to ensure that executives and other key players have the information they need to make risk-informed decisions.

The only exception to this rule is if the risk function is responsible for insurance, business continuity, or similar program. This situation applied to me when I was Director of ERM for a large Florida-based property insurance company…in this case, it was only natural for my area to be responsible for these risks. In fact, business continuity can very closely integrate with ERM, so it made perfect sense to have them under a single manager.

In what circumstance will the organization need to assign a risk owner?

Not every identified risk will require an owner. In fact, if your organization has thousands of risks identified through a bottoms-up approach, assigning a risk owner for each one will overwhelm you and your team and nothing will get done.

Instead, start with the most critical risks and then consider adding more once a workable, sustainable process is in place.

Iconic cosmetics brand Estee Lauder for example has 46 critical corporate risks where an owner has been assigned. These particular risks met several guidelines which exceeded their respective risk tolerance or could cross this threshold in the near future.

In short, a risk owner needs be assigned for risks that exceed tolerance levels that were set earlier in the risk management cycle. However, that doesn’t mean risks that are within tolerance levels should be ignored…accepted risks have to be monitored as well.

More specifically, the cumulative result of accepted risks and the inter-dependencies of risks have to be carefully considered as well. If Risk A occurs and could trigger Risk B, a risk owner should be appointed and action taken, especially if Risk B is considered critical and falls outside of tolerance levels should it occur.

You also don’t need me to tell you that things are always changing. Perhaps tolerance levels change down the road or the risk itself changes. Of course, this certainty that things change is why I’m a firm believer in having a maximum time limit for a review of both low and accepted risks to ensure nothing is being overlooked.

Risk OwnershipKey ConsiderationsChallenges, and Options

I could probably write an entire article or even an eBook on how an organization could go about assigning an owner for a particular risk. Before getting into different options though, there are a few key considerations and challenges I should discuss first.

Key Considerations

  1. Ensure there are clear definitions on roles and responsibilities in place before proceeding any further…this is one of the first and most important considerations when it comes to choosing a risk owner. As explained by Chris Corless in this article in Strategic Risk, it’s important for everyone involved to have a clear understanding of expectations when someone accepts the role of risk owner.
  2. Properly train on risk owner responsibilities and how they need to manage and report the risk. Think about it this way – your organization wouldn’t roll out a new time management system and not train employees on how to use it, right? Risk ownership is no different…
  3. Maintain consistent language throughout the firm regarding risks. Frank Fronzo of Estee Lauder explains how the company has a dictionary of terms it uses to ensure everyone is speaking the same language and stays on the same page.

Challenges

One of the most common challenges organizations face when assigning a risk owner is the tendency to give it to the highest accountable person in the organization. While this is okay for risks linked to the strategic plan, the fact is that executives and other leaders simply do not have the time to take many of these risks on. In situations like this, the individual may delegate the responsibilities of owning a particular risk to someone else with time to perform them.

In cases like this, the senior-level person becomes a risk “custodian,” meaning they still have an interest in the risk but do not fulfill the day-to-day responsibilities of an owner.

And as I mentioned earlier, risk ownership should extend down the organization chain for a couple of reasons. One reason is limited time on the part of executives and other leadership. Second to that, appointing a mid-level manager as a risk owner can play a huge part in cultivating a positive risk culturethroughout the entire organization.

Another challenge many organizations face when assigning and managing risk owners is the tendency for risk management activities to fall back within organizational silos. If this type situation occurs, the case can be made that you’re not really practicing ENTERPRISE risk management.

(Click here to learn more about risk management that occurs within a singular business unit vs. a top-level, enterprise-wide process.)

To address this challenge or avoid it altogether, a risk information system should be used that contains details about all risks the organization is managing, who the owner(s) of a particular risk is, recent activities and more. This system should be accessible by all risk custodians and owners…

During a recent conversation, a fellow risk professional mentioned that his organization uses Archer, but other commonly known software tools organizations commonly use include Logic ManagerMetricStreamCURA, and Sword Active Risk. But there are plenty of other options out there, like Aviron Financial SolutionsAudit Comply, and Vose Software, to name a few…

Options

When developing the process and choosing risk owners, company culture and the accountability structure of the organization will play a huge role…

Broadly speaking, risk ownership can be assigned to an individual or a designated risk committee.

Individual risk owner

If your organization has diverse functions and a weak collaborative culture, you will most certainly want to go with an individual risk owner. This individual (…and the risk custodian if applicable) will be the oneperson held accountable for the management of the risk they are charged with handling. I mentioned this in a way in the beginning of this article…having an individual risk owner is not only a way to hold someone accountable for a risk, it is also a way for executives to demonstrate how important they view ERM.

When assigning an individual to be the owner of a particular risk, it’s vitally important they have decision-making authority and the ability to allocate financial and human resources for the risks they are charged with managing.

Another point to consider when determining an individual risk owner is assigning accountability by position rather by name.  (I personally really like this concept!) This is one key point of how Estee Lauder determines the proper owner. Assigning accountability this way ensures risks are continuously managed, even if the individual person moves on from their position.

One situation where an additional person may be involved with managing a risk but not be considered group or committee ownership is when a department is impacted by a risk but another department is better suited to manage the risk. In cases like this, co-ownership and coordination between the departments will be needed, but in the end, one person will still be responsible for monitoring and managing the risk.

Group ownership

For organizations with a strong group or collaborative culture, group ownership of risk(s) may be the way to go. This group can consist of individuals from across the enterprise, which of course can be a positive in that it brings together different perspectives. Specific action-items can be assigned based on responsibilities of individuals within the group.

However, one big drawback of group or committee ownership is that it is hard to hold the entire group accountable. Absent any strong oversight from a management-level risk committee, the group can easily end up pointing fingers when things go awry or otherwise sit around and talk about a risk without ever taking any action.

These management-level risk committees can benefit the organization in many ways, including building a positive risk culture. Click here to learn more about oversight…

As you can see, your organization’s culture is a key part of determining the best model for assigning risk owner(s).

A Word of Caution

Developing your organization’s risk ownership process will take time and require a bit of trial and error, and above all, patience. Long before any risk owners begin their work and report their activities into a software system and to executives, definitions on roles and responsibilities and a consistent language must be developed, plus training for everyone involved.

This, of course, is all in addition to other phases of the risk management process like identification, risk assessment, setting risk appetite and tolerance, and more. But risk ownership should be embedded throughout the process of managing risks; after all, the risk owner will be your main contact for a risk. And by all means, don’t overlook the relationship factor and how it can support ERM success.

If done properly though, having individuals throughout the organization “own” and therefore be responsible for certain risks will go a long way to building a long-term, value-driven ERM program.

Source: ERM Insights

Awareness of workplace safety risks faced by women must rise: Experts

Awareness of workplace safety risks faced by women must rise: Experts

Women in the workplace encounter particular safety risks that need to be addressed, including workplace violence and ill-fitting personal protective equipment, according to safety experts.

For example, women in industries such as health care and retail are significantly impacted by workplace violence, according to safety experts participating at the American Society of Safety Professionals’ Women’s Workplace Safety Summit in Rosemont, Illinois, on Monday.

According to the U.S. Bureau of Labor Statistics, 16,890 workers in private industry experienced trauma from nonfatal workplace violence in 2016; 70% of those employees were female, and 70% worked in the health care and social assistance industry.

Diana Stegall, ASSP president-elect and senior loss control consultant for workers compensation insurer United Heartland, otherwise known as United Wisconsin Insurance Co., a member of AF Group, said she sees claims data about the workplace violence injuries that happen in the health care and social services sector.

“Many times when we think about workplace violence, we think about it in terms of active shooter,” she said. “But when you look at the injuries that actually happen, many times it’s those people who were providing care. They get injured in providing care. It’s a huge issue.”

Meanwhile, 500 U.S. workers were workplace homicide victims in 2016, and 31% of them were working in a retail establishment, according to BLS data.

“We know about health care, but we sometimes forget about the retail portion where workplace violence takes place and the late-night gas and go’s,” said Sally Smart, technical safety specialist at W.W. Grainger Inc. based in Janesville, Wisconsin. The health care and social services and retail industries “are the ones who have unfortunately the most experience with workplace violence.”

One solution that emanated from a discussion group at the summit focusing on the workplace violence issue was to share the stories of the women impacted by workplace violence to raise awareness of the issue, Ms. Stegall said.

“Sometimes we become numb when we see one headline after another after another,” she said. “How does this really impact us as an organization? How does this impact us personally? What are those stories that show this can happen to you? It can and in many cases already is happening, and you may just not be aware of it.”

ASSP will also gather data on the workplace violence issue, including underreported verbal altercations, to create guidance documents or toolkits for employers to help them improve or develop their workplace violence prevention programs, Ms. Stegall said. The documents would address key issues such as safety culture, accountability and how to engage workers in the process, she said.

A separate group of experts participated in a discussion about another safety exposure for women in the workplace: ill-fitting personal protective equipment, or PPE.

“Ill-fitting PPE leads to increased hazards, increased injuries, and also affects productivity because of those two things, as well as (having) a psychological impact,” Ms. Smart said. “If you put a women in PPE and it doesn’t fit her … do they feel unprotected because it doesn’t fit right? Or more importantly, do they not wear it because it doesn’t fit? There are manufacturers who do make specific personal protective equipment for women, but not many. Sometimes employers don’t understand that. They sometimes go with one size fits all and it doesn’t.”

“With any of these issues, awareness is a big piece,” Ms. Stegall said. “A lot of the PPE that’s out there is developed for males based on data gathered from the military from the ’50s. Men in the military look a lot different than those outside of that demographic. Quite frankly, if we get (PPE) that’s more gender-diverse, it’s going to help men as well who don’t fit the standard ‘body type,’ because we’re not all the same size. How do we get the word out? Also, how do we let manufacturers know that just because we’re women doesn’t mean we want pink safety shoes and pink personal protective equipment?”

The summit also focused on the leadership of women in the occupational health and safety industry, with a discussion group highlighting the need for additional data on the issue and identifying potential sources of data as well as developing a problem statement, said Deborah Roy, corporate director of health, safety and wellness at L.L. Bean Inc. in Portland, Maine, and senior vice president on the ASSP board of directors.

“We feel there needs to be more of a baseline to begin work,” she said. “We need to identify between men and women what their leadership opportunities are, and we don’t have that data right now.”

“One of the gaps we identified was education, so we talked about what kind of training in leadership could be offered for women in OSH,” Ms. Roy added. “Quite honestly, we all acknowledged some of those things could be done for men as well.”